Hiring a marketing and communications contractor or agency is an exciting time for an organization, as it often signals you are taking advantage of growth opportunities, or are executing on ambitious plans. In a highly connected global market, businesses have access to talent from around the world, allowing them to find the best person or group that meets their needs.
Once you’ve found the perfect fit, navigating the logistics of payment can become tedious, especially for small enterprises with limited resources working with skilled international workers.
While each contractor is responsible for tracking their tax obligations in both the country where they work and where their clients operate, groups receiving freelancer services are tasked with using traditional payment methods that can be clunky for international payments, and each comes with its set of tradeoffs.
Traditional International Contractor Payment Options
There are many different payment options available for U.S.-based businesses employing international freelancers from traditional banking partners. Two of the most popular ways are checks and international wire transfers via the SWIFT network.
Mailing a Check
Mailing checks is a fairly straightforward way to pay for contracted services that many businesses still use regularly today. Checks are easy to track in a checkbook and balance sheet, making them good from a compliance perspective.
The process, at its surface, seems simple:
1. Your agency sends you an invoice that you treat as a 1099 contractor in your payroll;
2. You or your accountant/CFO/controller writes out a check to the contractor;
3. You pay for international postage;
4. You put the check in the mailbox out of mind.
The issue with this method for your business is that it then relies on international postage carriers coordinating services, and each transfer point between carriers and service centers becomes another failure point in transmitting payment. For North American or European carriers, that might not be an issue, but working with freelancers in areas where service isn’t as frequent or reliable can cause pain points.
There also are additional risks incurred by the contractor when using this method. Beyond postal service mishaps, international banks may place holds on checks made in foreign currency lasting several weeks, further delaying the contractor's access to funds needed to operate and service their clients.
Wire Transfers
International wire transfers via the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network circumvent these mailing issues. The SWIFT network is an international messaging system connecting the vast majority of global financial institutions, permitting fairly easy and rapid settlements. Wire transfers come with flat fees to both the sender and receiver. They also can only be conducted during normal banking hours as they rely on traditional banking services, and often take two business days to complete.
The main issue with SWIFT transfers is that they rely on a system that is inaccessible to billions of unbanked individuals across the world. According to the World Bank, 1.4 billion people were unbanked in 2022. (The FDIC also estimated 4.5% of U.S. households are unbanked, in case you think this is only an issue in developing countries.) Additionally, most small banks and credit unions in America do not have access to the SWIFT network, leaving many U.S. small businesses and entrepreneurs in the lurch.
Entire countries can also be banned from participating in this international financial network. While there may be global strategic reasons justifying such actions, many innocent individuals remain harmed by being cut off from international revenue streams that provide for their businesses and families.
From a business operations perspective, SWIFT transfers can be expensive to conduct, especially for smaller transactions. Paying a $25 wire transfer fee on a $500 invoice essentially represents a 5% banking tax for your business transaction. For businesses working with many international contractors, the fees can represent a not-insignificant monthly budget item. Both physical checks and wire transfers also are at the mercy of foreign exchange volatility and friction, risks borne almost exclusively by the receiver. Banks in certain regions may offer steep foreign exchange service fees, or have foreign exchange rates that are wildly to the advantage of the bank or currency exchange service. This problem is exacerbated in many developing countries where international speculation and/or poor central bank policies create currency exchange whiplash.
Bitcoin: A Digital Solution for A Global Economy
The Bitcoin network is a well-established technology that has revolutionized the global economy. Among its many features and use cases, bitcoin has proven to be an excellent tool to facilitate the transfer of value across the global internet. We will not explore the technical considerations that enable this transfer in this article, but there exists a plethora of great free resources for those interested in understanding the technology backing the network and its native token. (The distinct capitalization will distinguish between “Bitcoin”, the network, and “bitcoin”, the network’s native token.)
Bitcoin enables permissionless, borderless, decentralized value transfers. It is permissionless in that anybody can participate in the network–there are no gatekeepers controlling which individuals can participate in the network, no credit checks to pass, nor any government identification to upload to use the protocol. It is borderless in that there are no regional or national restrictions on who can use the protocol. It is decentralized because it relies on a vast geographically distributed network of actors to collaborate to maintain, with each player incentivized by the protocol’s intrinsic rules. There is no corporation, nation-state, or individual controlling Bitcoin. You can interact directly with Bitcoin protocol users, just like you can communicate with anybody who uses the email protocol.
In today’s digital economy, U.S. businesses can easily leverage the internet-native Bitcoin network to pay international workers, with or without the business interacting directly with the Bitcoin network. Freelancers accepting bitcoin as payment often will identify themselves by including an alphanumeric string representing an “on-chain” Bitcoin address. Both employers and freelancers can (and increasingly should) offer bitcoin as a payment option, as it completely solves the issues presented by legacy financial solutions.
P2P Bitcoin Transactions
Business owners who are familiar with Bitcoin, have interacted with it, or who might even hold bitcoin personally or on their business’s balance sheets, can pay international freelancers via bitcoin with little to no friction on the end of either party through the use of Bitcoin wallets. There are three simple components to any Bitcoin transaction: the address (who to pay), the amount (how many bitcoins/satoshis to send), and the transaction fee (how fast the transaction will be processed by the network).
Peer-to-peer bitcoin payments between employers and freelancers start like any other business transaction. The freelancer will send an invoice to the business outlining services rendered and payments due in the currency of account (typically USD) and will include the alphanumeric string representing the wallet address to which the business will direct the payment. The business will process that invoice internally as they normally would, including (and especially) following internal protocols for tracking fiat currency to bitcoin conversions. The Financial Accounting Standards Bureau (FASB) issued an accounting standards update in December 2023 outlining how companies can account and disclose crypto assets. Once the fiat currency has been properly accounted for, converted into bitcoin, and moved to the business’s own wallet, the employer is ready to send the bitcoin payment to the contractor’s public key.
Bitcoin wallet software typically will monitor network activity and automatically propose the appropriate fee amount to choose based on the user’s preference. Higher fees translate into a higher transaction priority on the network. Transactions can be confirmed within 10 minutes or several hours depending on this fee paid to transaction processors.
On-chain transactions are the most secure way to pay a freelancer via Bitcoin. Once confirmed to the blockchain, both the freelancer and employer can rest assured that the payment has been finalized, and the value has completely transferred custody, irrevocably. This is also why it is extremely important for employers to triple-validate the address inputted for payment, as payments sent to the wrong addresses will be lost forever, similar to how emails can’t be reversed once they are processed by the servers and reached the inbox.
For the ease and other benefits that come with P2P payments that don’t involve nation-states, banks, or other private corporations, Bitcoin transactions do require the business operator to have an understanding of Bitcoin and knowledge of how to interact with it through digital wallets.
That said, your freelancer might be willing to help you with onboarding to the Bitcoin network–they have every reason to.