As businesses and startups, we would definitely want to hire international contractors. But once you’re done hiring them, one area you have to deal with is payments.
And there are lots of things to handle, from exchange rate issues to payment delays. While some of these are expected, most of your international payment issues could be as a result of a mistake from your side, most of which we have seen happening at Arbonum.
Not Understanding Tax Regulations
“In this world nothing can be said to be certain, except death and taxes.”
This famous quote, which is attributed to Benjamin Franklin perfectly summarizes the role of taxation in our society. And as someone who is hiring international contractors, taxes are a crucial element you cannot sidestep.
One of the most common mistakes businesses make when paying international contractors is not fully understanding the tax liabilities involved. This can vary significantly from country to country.
For example, in some locations, you might be required to withhold taxes from payments to contractors and remote employees and remit them directly to the local tax authority. In other countries, you send the contractor everything, and they do their own taxes.
Moreover, the tax implications for your business in your home country can also be complex. Depending on the jurisdiction, payments to foreign contractors might be subject to different reporting requirements or eligible for tax deductions. It's always good to understand the full scope of these obligations to manage your finances effectively and uphold legal compliance.
Ignoring Exchange Rate Fluctuations
Exchange rate fluctuations can significantly impact the amount you ultimately pay your contractors and their satisfaction with your payment arrangements. Ignoring these changes can lead to underpayments or overpayments, depending on the direction of the fluctuation.
When this happens, it might not only negatively impact your relationship with your contractors but can also affect your budgeting and financial forecasting.
Being proactive about monitoring currency values and understanding the market will help you better manage and predict these costs. One thing we’ve seen implemented by startups who use Arbonum to make international transfers is locking in an exchange rate through a financial agreement or choosing a stable billing currency. This usually reduces the risk of unpredictable expenses for these startups.
Using Inefficient Payment Methods
You may see this one to be so simple, but it actually is not easy. Choosing the right payment method is crucial when dealing with international contractors. Relying on traditional banks often means higher fees and slower transaction times, which can frustrate contractors who expect timely and full payments. In contrast, international wire transfers might also involve additional charges or require more complicated procedure steps, both on your and the contractor's end.
Exploring various payment options that cater specifically to cross-border payments, especially for your international contractors can offer more efficient solutions. These might include digital payment platforms or specialized services that provide lower fees, better exchange rates, and quicker processing times – a better example of such a platform being Arbonum, which is used by lots of startups to pay international contractors.
Lack of Proper Documentation
Sometimes you may send payment to an international contractor and it would fail. How do you trace this payment? How do you reach out to the receiving or sending bank to trace the transaction? The answer is proper documentation.
Failure to maintain comprehensive documentation can be a significant mistake. Proper documentation, including contracts, payment receipts, work delivery proofs, and tax forms, is crucial for auditing and legal purposes. Without these, resolving disputes, proving compliance, or even conducting routine financial assessments can become challenging and time-consuming.
Also, having clear documentation ensures that you’re all on the same page about the type of work and the payment terms. This reduces misunderstandings and may prevent both parties from future legal issues.
Delayed Payments
Delayed payments can severely damage business relationships and your reputation as a reliable client. Contractors despise irregular or delayed payments. Aside from the contractor, sometimes, some jurisdiction may require statutory interest for late payment, which will go against you as a client.
As a result, delayed payments should be something that you the client and that of the contractor should be concerned with. To be on a safer side, it’s always advisable to use a payment platform that’s reliable, like Arbonum, to help streamline the entire payment process.
Strategies to Avoid Payment Mistakes
Using a payment platform with low fees
To mitigate high transaction expenses commonly associated with cross-border payments, it is beneficial to utilize payment platforms that specialize in international transfers and offer competitive rates and lower fees. These platforms are designed to facilitate smoother transactions with features that cater to global businesses, such as multi-currency accounts, real-time exchange rate locks, and straightforward user interfaces.
This is where Arbonum comes in. Arbonum goes beyond simple international payments, acting as your single platform for managing your entire global workforce. Imagine a solution that allows you to:
- Pay and manage your international contractors from a single platform.
- Benefit from fast-track onboarding, instant payments, and live support for your global talent.
- Ensure compliance with local regulations through features like contractor KYC checks.
- Simplify administration with automated tasks and clear reporting.
Here’s How To Get Started On Arbonum
Setting Up Clear Payment Terms
You should set up a formal agreement that outlines not only the rate and scope of work but also detailed payment terms including currency, invoicing procedures, and timelines.
Such agreements ensure that both parties have aligned expectations and reduce the risk of conflicts. It also protects your business during any disputes, as the terms have been agreed upon by both parties beforehand.
Regularly Reviewing Payment Processes
Regular reviews and updates of your payment processes can help reduce the risk of errors that you make when paying international contractors.
This should include evaluating the effectiveness of your current methods of payment, staying current with the best industry practices, and soliciting feedback from your contractors on their payment experience.
Conclusion
Once you start hiring international contractors, payment is one of the most important elements you should always get right. And to achieve this, you need to understand these common mistakes and how to avoid them. Not only are you saving lots of money by avoiding these mistakes, you are also building a great reputation as an employer.
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