Best Ways to Pay Foreign Contractors

Do you need to make a payment to a foreign contractor? Whether it's your first time paying for overseas work, or if you're looking to optimise how you currently make your payments, we've got you covered. 

In this article, we'll be looking at all you need to know about paying foreign contractors, including the different methods available, their pros and cons, and much more. Let's get started.

Here’s a guide showing 4 of the best ways to make payments to foreign contractors

1. Your bank account

2. International money transfer specialists

3. PayPal

4. Checks and money orders

Key points

  • Manage payments in various currencies: A multi-currency account may be a good option if you have a global business or pay contractors in various currencies.

  • Well-known method for paying international contractors: International wire transfers might be the most accessible option for making international payments, but they can be complex and sometimes costly. More on that later.

  • Popular online payment solution: PayPal is popular among international contractors, but it can be costly and many of the costs involved aren’t so clear upfront.

  • A flexible payment option for money collection: Checks and money orders are a bit outdated, but some contractors still prefer them due to the flexibility of where the money can be collected from.

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1. Foreign payments through bank account

Even though it’s been used for more than 100 years to make international payments, wire transfers are still a popular method to make foreign transfers. International wire transfers work in a similar way to regular bank transfers in that money flows out of your bank account into the bank account of another. Despite the similarities, several key differences set regular and international wire transfers apart.

Banks use the SWIFT (identifies banks) and/or IBAN(identifies individual accounts) international networks to transfer money overseas. While normal wire transfers are usually very fast, SWIFT and IBAN transfers can be slow, since it may involve intermediaries to convert currencies, and often take a couple of days. There are also extra fees involved, like currency conversion fees. 

The slow speed and potentially higher cost of international wire transfers may not make them the ideal payment option. 

Advantages of using a bank transfer for international payments

  • Easy access: International wire transfers is a service offered by most traditional banks and if you already have an account, you don’t need to set up a new one.

  • Large transfer amounts: Most banks allow large amounts via international wire transfers which are often only limited by the financial regulations of the country where they operate.

  • Send almost anywhere: The SWIFT system connects more than 11,000 banks and financial institutions around the globe. This means you can transfer money to almost any country.

Disadvantages of using a bank transfer for international payments

  • Can be slow: It can take up to 7 work to transfer funds via the SWIFT system and it can take up to a week for money to show in a recipient’s account. 

  • Expensive: Notoriously poor exchange and high conversion rates, and relatively high transaction fees can make international wire transfers fairly costly.

  • Contractor might be charged: Some banks also charge a fee for receiving international money via a wire transfer. This can make the transaction costly for both you and the contractor.

2. International money transfer specialist

International money transfer specialists like Wise have become popular due to their ease of use, speedy transfers and transparent fee structure. These specialists are often faster and cheaper than traditional banks. Transfers are done online or via the provider's mobile app. Most services let you send money directly to a recipient's bank account, debit or credit card. 

Wise, formerly Transferwise, is a popular money transfer specialist in India. They provide fast transfers from Indian rupees to a wide variety of currencies and have a transparent fee structure so you know exactly what you are going to pay. 

Read our complete Wise review to learn more.

At Exiap we compare different money transfer providers in real-time so that you can see which is cheapest in India. 

Advantages of using international money transfer specialists 

  • Accounts are usually free, and easy to set up and maintain

  • Transparent fees, so you know exactly what you will pay before you complete the transaction.

  • Exchange rates are often based on low mid-market rates

  • Advanced security keeps money and personal details safe

Disadvantages  of using international money transfer specialists 

  • Not all transfer providers let you send money from India and those that do may not offer all services in India

  • Transfer providers are not banks and don't have physical branches or ATMs

  • Accounts are usually not interest-bearing, so you won't earn interest on a positive balance

Learn more about Wise

3. PayPal to pay foreign contractors

PayPal is one of the oldest and most popular of the newer generation of international payment services. To send money to a contractor overseas, you simply transfer funds from your PayPal account or linked card into the contractor’s PayPal account. The contractor can then withdraw the money from their local PayPal service provider, such as a bank.

Advantages of using PayPal for international payments

  • PayPal has remained popular because the service is very easy to use. Accounts are easy to set up and the transfer process is quick and easy. 

  • PayPal has been operating for more than 20 years and is one of the most well-known international payment providers. Over the years they have built up a high level of trust among users.

  • Transfers between PayPal accounts are often instant.

  • PayPal is available in almost every country in the world. This means that you can send money to contractors almost anywhere. 

Disadvantages of using PayPal for international payments

  • PayPal is known for charging fairly high fees and often also charges the receiver for receiving funds.

  • When a contractor wants to withdraw money from their PayPal account, they often have to go through traditional banks. Many banks charge additional fees for this service, like transaction fees and currency conversion fees if the funds are in a foreign currency.

  • Requires PayPal accounts: Both you and the contractor need a PayPal account to send and receive money.

4. Checks and money orders

Checks and money orders are older ways of sending money overseas. However, despite the method still being valid, it is not used often anymore. To send money you have to write out a check or get a pre-printed money order from the bank. This check or money order then has to be sent to the contractor by post. 

Advantages of using checks and money orders

  • Checks and money orders are very familiar payment methods, and many people have used checks before. 

  • Sending money overseas is a simple process. Simply write the check and mail it out. To get their money, the receiver then just has to take it to a bank. 

  • The majority of checks are deposited into a bank account, but they can often be exchanged for cash. 

Disadvantages of using checks and money orders

  • Checks are rarely used these days and many merchants don’t accept them as a payment method anymore. Some banks also don’t cash checks and may require them to be deposited into an account.

  • The reliability of postal services varies from country to country. The result is that checks may get lost in the mail. 

  • While mail services have improved over the years, it can still take a long time for a contractor to receive the check. On top of that, banks often take up to 7 business days to clear foreign checks.

  • It can be risky to send a check via the mail and many banks advise against sending large amounts via check or money order.

What to consider before paying independent contractors

Before you pay a foreign contractor, there are several things that you should consider:

Reporting Payments & Filing tax forms: Proper classification of contractors is required by the labor laws in most countries. This is because some contractor roles may be considered as that of a permanent employee. Payments must be reported according to these classifications and the appropriate tax documentation completed. Check the local labor laws to ensure you classify independent contractors and report payments correctly.  

Payment Terms & Conditions: Before hiring an international contractor, it is important to set up and agree to payment terms and conditions. The agreement should include the scope of the work, the agreed fee, as well as how the contractor will be paid, among others. Consult local labor laws to see if you should include anything specific in the terms and conditions.

Deadlines: It is important to agree on when the independent contractor will be paid before they are hired. In some cases, the contractor may ask to be paid on a certain day. You may need to adjust your payment date to meet this request, since it may take a couple of days to reflect in their account. Conditions for missed payment deadlines should also be agreed upon. This may include factors like incomplete work or lower-than-expected work quality.

Benefits of hiring international contractors

Flexibility: Hiring international contractors can give you great flexibility in terms of assigning resources to certain projects. Timelines differ between projects and some projects require more people than others. You can hire as many contractors as you need, for as long as you need them. In addition, contracts can be set up the way you want to. This includes things like setting deliverables, specific timelines, fees, and more.

Wider pool of resources: By being able to hire contractors from anywhere in the world, you open up a selection of talent wider than you can ever imagine. Now you can find the exact person with the exact skills and experience that you need for the job. Job sites like Upwork, Freelancer, and Fiver make it easy to find foreign contractors.

Expand business globally: Foreign contractors often bring local expertise. Having local experts already on the ground makes it easier to expand your business overseas.

Cost-efficient: Foreign contractors often charge lower fees than local contractors. What’s more, with foreign contractors you also don’t have to worry about things like employee benefits, and other auxiliary employment costs. Many international contractors also charge lower rates, especially on sites like Freelancer, Upwork, and Fiver. However, be mindful when hiring low-fee contractors on these sites, as the fee is often linked to the quality of work.

Conclusion: What is the best way to pay foreign contractors?

It can be great for your business to use foreign contractors, from flexibility to cost savings, to global expansion. However, while it may be easy to hire a foreign contractor, paying them may not be so simple. 

In this article, we explored the best way to make payments to foreign contractors. We looked at the various payment methods, their advantages, and disadvantages, as well as what to consider when selecting the best way to pay your foreign contractors.

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FAQs on Paying Foreign Contractors

How do I pay someone from another country?

There are various methods to send money abroad, including wire transfers, checks, money orders, or using international payment providers like PayPal and Wise.

Can an Indian company pay a foreign contractor?

Yes. Indian companies can pay foreign contractors via a variety of methods, including traditional banks, international money transfer providers like Wise, PayPal, and checks and money orders.

Are overseas contractors tax-exempt?

Maybe. It depends on tax laws in their country. It is usually the contractor’s responsibility to comply with local tax laws. Consider getting professional or legal advice to make sure you comply with the relevant laws and regulations.

Can you hire someone from another country to work remotely?

Yes. Hiring contractors to work remotely is very popular. There are many advantages of hiring foreign contractors, like flexibility, cost and more. Keep in mind that if the contractor is located in India they need to have resident status or an employment visa.

Seyma Mektepli
By Seyma Mektepli
Updated 29 December 2022