How to pay international contractors is a challenge that many business owners face. Unfortunately, if you registered an offshore entity and your company banks overseas, the available options are often expensive and very limited.
So we decided to break down a few alternatives and help you understand the offshore business banking options that are available.
Feel free to use the table of contents below to jump ahead to the sections that are most relevant to your banking requirements.
Table of Contents
- How to Pay International Contractors 101
- Challenges With International Payments
- Best Way to Pay International Contractors
- Open Accounts to Support Your Payments
How to Pay International Contractors 101
Paying international contractors can raise multiple questions for business owners. Questions can range from fees, available currencies, FX rates, reporting requirements, tax requirements, and more.
But, the biggest concern for most entrepreneurs and business owners (which we’ll discuss in detail below) is related to fees. This can be especially burdensome if you register your company in a “tax-efficient” jurisdiction with the hope of fast corporate registration and easy banking, which is usually far from the truth.
For example, if you set up a company in a small offshore hub and engage international contractors in multiple jurisdictions, you will likely have very few banking options and could end up paying several different types of fees monthly. These can eat into profits. So finding ways to reduce (or eliminate) them is critical.
Here are the four most common fees that we see business owners complain about:
- Account opening fees
- Monthly maintenance fees
- International transaction fees
- Currency conversion fees
- Transaction due diligence fees
- Swift transaction search fees
If you are banking locally and sending payments abroad (and unwilling to change your bank or use a money transfer service), there isn’t much that you can do to decrease these fees.
This is especially true if your current bank is not focused on supporting international business transactions. In fact, banks that focus on domestic transactions typically charge higher fees for sending and receiving international transfers. It’s also not uncommon for them to have horrific currency conversion rates.
Additionally, if a bank is not accustomed to supporting international businesses (and rarely deals with international transactions), it may have a higher frequency of lost transactions. On top of that, they might also charge extra due diligence fees for they have to investigate certain transactions or transaction participants. For example, a compliance department might flag a certain transaction and require the bank to perform additional due diligence on a particular transaction participant. When this happens, the account holder (you), may be charged additional fees.
That said, the fees involved are not the only issues to consider. Let’s take a closer look at some other challenges
Challenges With International Payments
Currency Considerations When You Pay Contractors
When paying international contractors, you should be mindful of the currencies being used. For example, if you’re paying a contractor and they receive payment in a foreign currency, was the exchange rate used by the bank accurate and in line with reality? Also, how much money did your contractor actually receive? If your contractor isn’t getting their full payment and is losing money due to fees, that’s a problem for the business.
Here’s why this is a problem for business owners: If the contractors you’re sending money to are not receiving their full payment because your bank’s currency conversion rates and fees are predatory, then your contractor isn’t happy. The business owner either has to pay more (to make up for the bank’s predatory conversion rate) or the contractor quits. In both cases, the business owner loses money.
Country Considerations When You Pay Contractors
When your business is banking in a mainstream banking hub like the United States or Europe where one (USD) to three (EUR, GBP, USD) currencies are commonly offered, this can have challenges for the foreign contractors you are paying abroad. For instance, sending USD transfers to a contractor’s local currency account in Southeast Asia may dramatically reduce the total payment they receive.
Costs When Sending Contractor Payments
Not surprisingly, the fees mentioned above can be problematic when sending payments to international contractors. And, while it’s important to confirm the charges on your end of the transaction before sending, it’s best practice to also confirm with your contractor how their bank will handle the payment.
Best Way to Pay International Contractors
In most cases, we suggest that business owners consider opening an international bank account to support their payments to international contractors and (as discussed below) a cross-border money transfer service This ensures that the company is dealing with a bank that understands international transfers, deals with them daily, has competitive fees and FX rates, and can support the various currencies that the business requires.
International Contractor Payment Options
Of course, international banks are not the only option that business owners can explore. In fact, we almost always suggest that businesses open several different international accounts, including an international bank account, fintech accounts, and money transfer services (e.g. Wise).
Unfortunately, not all businesses can easily open accounts with transfer services and fintech due to various restrictions and eligibility requirements. These restrictions are most common with companies registered in free zones, offshore entities like the Nevis LLC, and other offshore structures.
International Money Order Options
Another option that business owners can consider is using international money orders. However, this option is only suitable when dealing with a limited number of transactions on an infrequent basis. That said, international money orders tend to be an expensive option. So, you may find that traditional banks or transfer services are a better option, depending on your company’s size and budget.
Can a US Company Pay a Foreign Independent Contractor?
US companies can pay foreign independent contractors through bank transfers, transfer services, money orders, and other forms of payment. Just make sure that the payment method you choose to use does not disadvantage your business or the contractor you plan to pay.
Should You Hire International Contractors?
International contractors can add a lot of value to any organization. Not to mention the financial gains that can often come from hiring talented individuals abroad. So, you shouldn’t let payments be a reason to slow you down from hiring international contractors.
Opening Accounts to Pay International Contractors
If you would like assistance opening accounts for your business, you can access GlobalBanks Insider and start the process of applying for accounts in a few clicks.
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