While hiring independent contractors that live in other countries can serve many advantages for your company, paying them can be a headache. One of the hurdles is figuring out how to pay your contractors in the right currency. Crossing this hurdle starts by discussing the different currency options out there, currency exchange rates and the costs associated with international payments. Here’s a look at the variables involved, and how to navigate them.
Understand the currencies involved
The first step in paying your contractors in the right currency is understanding the currencies involved. When paying international contractors, there are usually multiple.
The first currency to consider is the currency that you do business in, or the starting currency. Second, you need to consider the currency that you’re aiming to pay your contractor in, the target currency. If you’re a United States business, the starting currency is U.S. dollars (USD). To pay contractors in other countries, you need to convert USD to the target currency to issue payment. Different target currencies affect how you exchange money (more on exchange rate below).
Does your contractor have a currency preference?
It’s important to know if your contractors have a currency preference (they likely do). Paying them in their preferred currency is a great way to retain their services.
A contractor might prefer payment in their national currency—the Indian rupee (INR) if they live in India or the Vietnamese dong (VND) if they’re based in Vietnam, for example. Contractors who live in countries that are part of currency unions like the European Union will likely prefer payment in euros (EUR).
If the USD is stronger than their native currency, some contractors may forgo exchange. Or, they may prefer some other strong currency if their national currency is weak—such as the EUR vs. the GBP in a post-Brexit economy.
What’s the current exchange rate?
The exchange rate is something vital to consider when paying your contractors in a different currency other than USD. The exchange rate is the difference in value between the currency you’re starting with and the currency you’re trying to exchange it for.
For example, let’s say you hire a developer in Poland for a project that pays 10,000 USD, but you need to pay them in Polish zloty (PLN). If the exchange rate is 3.9 PLN per USD, 10,000 USD will be exchanged for 39,000 PLN. This exchange rate could change the next day, however, because Poland has a floating exchange rate. A floating exchange rate means that the value of the currency, in relation to other currencies, changes as it’s bought and sold in the global currency market.
Some currencies have fixed exchange rates, usually fixed to the US dollar. Pay attention to floating vs. fixed exchange rates as you consider the currencies involved in paying contractors.
Beware the cost of traditional payments
When you hire international contractors, there are two costs in addition to the price of their services: transaction fees and currency conversion fees.
Traditional international bank transfers that use the Society for Worldwide Interbank Financial Telecommunications (SWIFT)—an international network of banking institutions—typically charge very high transaction fees and exchange fees for wiring money. Money orders sent internationally also come with hefty fees and are painfully slow ways of sending money.
The costs associated with paying someone overseas through traditional transfer methods can overcome the benefits of hiring an international contractor. Fortunately, there are new digital payment platforms challenging the old way of doing things, including Veem.
Digital payments simplify currency considerations
Digital payment platforms provide a cheaper, easier and more secure way to pay foreign independent contractors. Through digital payment platforms, you can send money to someone in another country instantaneously online, at a fraction of the cost of international bank transfers.
By using a digital wallet such as Veem, not only do you save money on fees associated with currency conversions, it makes the payment process a breeze. You can send money securely, without providing your banking information to associates, and track the progress of your payments every step of the way.
Veem can streamline your payment process by helping you create invoices and send out payments en-masse. Paying contractors in other countries doesn’t need to be the headache it used to be. Don’t let high transaction and exchange fees prevent you from hiring the best talent possible for your business. Instead, Veem it and it’s paid!