If you’re one of the many businesses familiar with the benefits of working with remote contractors abroad, you are also most likely familiar with the challenges of paying them.
Without the right information, it’s easy to get stung by poor exchange rates and hefty transaction fees. At WorldRemit, we help UK businesses to make overseas business payments to employees and contractors in 140 countries worldwide.
We’ve put together this guide to help UK businesses to pay their independent international contractors securely, quickly and at a low cost.
Important factors for paying overseas contractors
Before employing the services of a person contracting abroad, you must know how you are going to pay them.
There are many different international money transfer services to choose from. Fees and speed of transfer can vary, so it’s important to do your research.
Here are a few factors for you to consider before choosing a money transfer service.
1. Exchange rates
When you transfer money from the UK to an overseas employee, British Pounds are converted into the currency of the country where the employee is based.
The exchange rate is the value of one currency compared to another currency. Generally, the higher the exchange rate, the better.
The rate that you receive will depend on the money transfer service that you choose.
2. Variety of services
There are plenty of businesses out there offering international money transfer services. So, while you won’t struggle to find a service, working out which one is the most cost-effective option can be challenging.
The two common types are:
- Money transfer service
- Bank or building society transfer
Each service provider will also offer a variety of pay-out options, such as bank-to-bank transfer or cash pick up.
3. Reliability and quality of the service
For regular payments to overseas contractors, you need a reliable money transfer service.
Your safest bet is to pick a well-established and reputable company. If you’re sending money from the UK, for example, make sure the company is authorised and regulated by the Financial Conduct Authority. It is also worth checking out their reviews on websites such as Trustpilot to read other users’ experiences of their service.
Always ensure that the service you use is secure and that they provide online or telephone customer support in case of any issues.
Your office-based employees expect a swift payment, and so do contractors or employees overseas.
The speed of transfer can vary significantly from one service to the next, so make sure you know how long it will take. There’s nothing more annoying for a contractor than payment not arriving when expected.
Generally, online transfers will be paid much quicker than traditional offline transfers.
Banks are notorious for overcharging businesses sending money abroad.
Working out exactly what the cost of a money transfer is can be difficult, as services are not always transparent with their fees.
Take the time to ensure that you understand exactly what your international money transfer will cost to avoid being overcharged.
The three main fees that you will come across are:
- Service fee - the service fee covers the price of converting the money, plus the company or bank’s margin.
- Foreign exchange rate - get the best deal possible by checking the exchange rate before you make a transfer (you can try websites such as xe.com)
- Collection fee - beware of services that charge a collection fee, so your employee doesn't need to pay when it lands in their bank account
Mistakes to avoid
Before you begin working with an overseas contractor, you should agree with the process for invoicing.
Clear and effective communication can help to avoid costly mistakes.
Here are a few common problems that UK businesses face when sending money to contractors overseas and tips for avoiding them.
If your contractor makes a mistake on their invoice, it can delay payment and cause problems when you come to make the transfer.
Once you’ve received the invoice, ask the contractor about anything on it that you’re not sure about to avoid problems later down the line.
International invoices may look a little different to what you’re used to, but they should all include the following information:
- Sum to pay
- Description of service or products provided
- Name and address of the contractor
- Your business’ name and address
- An invoice reference number
- Bank details
- Terms of payment
The main differences that you may notice on an international invoice are:
It is best to agree on what currency will be used on the invoice before you begin so that you know what to expect. Generally, the currency on an invoice is the currency in which the contractor would like to be paid.
Your overseas employee’s bank details will probably look unfamiliar. The format of the bank details will differ depending on what country they’re based in.
Some of the most common formats are:
- ABA routing number for US recipients
- Transit number recipients in Canada
- IBAN and BIC/ Swift for most European recipients
- Branch state and code for recipients in India
If the bank details on the invoice aren’t what you’re expecting, check them with the employee before sending the payment. Sending an international payment using the wrong bank details can result in additional fees or delays.
Vat numbers and details
Whether or not VAT is due will depend on what country the freelancer is in and whether they are VAT-registered. If VAT is due, the contractor should quote their VAT number on the invoice. If you’re not a VAT-registered company, the contractor will also need to provide you with the right VAT charge.
Failing to make a clear agreement with contractors
Agree on the terms before your contractor starts working for you.
This agreement should include:
- The amount they will be paid
- How and when they should invoice you
- The currency they would like to be paid in
- The method of payment
- When they will be paid
Most contractors will expect to be paid in local currency. Otherwise, they will have to foot the bill for converting the money. But it’s still best to play it safe by having the conversation to avoid any surprises on payday.
Incorrect recipient details
International bank details look unfamiliar, making it easy to get things wrong if you’re in a rush.
Make sure you’re aware of what details you require to make a successful transfer as requirements can vary from one country to another.
WorldRemit for international payments to contractors
At WorldRemit, we help UK businesses like yours to pay their overseas employees quickly, securely, and without overcharging. Both you and your international contractors will feel the benefit when you start making your international business payments with us.
We aim to make sending and receiving money overseas simple, secure, convenient, and low-cost. Our low fees and exchange rates are shown upfront, and we offer both senders and recipients notifications when a transfer has been sent and received.
Ready to get started?