Payment Methods for Paying Contractors

 

Contractors are a great way to get the work done that your business requires without incurring any employee costs. However, they have to be paid somehow.

Luckily, there are plenty of options for paying contractors. The key is to understand the pros and cons of each method and then make a decision that best suits your needs.

Wire Transfer

Wire transfers are a fast, reliable way to move funds electronically between banks or between a bank and nonbank third-party wire transfer service provider like Western Union or MoneyGram. This is a great option for people who need to move large amounts of money domestically or internationally quickly. However, this payment method has no room for error because once a wire transfer is initiated, it cannot be canceled. Therefore, it is important to double- and triple-check the recipient details before sending any money.

Suppose you are using a bank to send or receive a wire. In that case, they should provide you with a receipt that includes contact information for the financial institution and a detailed listing of fees associated with the transaction. You should save this receipt in case of any questions or issues with the transfer.

Other payment options for sending or receiving money include ACH payments (Automated Clearing House) or an online payment application. Using these methods instead of a wire transfer can be less expensive and time-consuming. However, you must be aware that these options could still be unforeseen issues, such as a lost or stolen credit card, which can leave you out of pocket. In addition, these options are less secure than a wire transfer.

Direct Deposit

In a world where mobile payments are the norm, many contractors prefer to get their paychecks through direct deposit. This simple method saves time distributing physical checks to contractors and eliminates the chance of a check getting lost in the mail. Additionally, it reduces the cost of payroll processing by removing the need to reissue missing or stolen checks and stop payment charges levied by banks.

To set up direct deposit with providers like Roll by ADP, contractors provide their bank account information to their employer or payroll service provider. They can either fill out a form provided by the payroll company or contact their financial institution and provide their routing and account numbers. They then must sign an authorization form stating they agree to the direct deposit process. The company or their payroll department then sends this form to their financial institution, which processes the ACH transaction and credits their employees' accounts.

Contractors can also benefit from the flexibility of direct deposit by depositing a portion of their paycheck into a savings or checking account. This gives them more control over their money and can help them meet savings goals, such as for a vacation or big-ticket purchase. The funds can be easily accessed through online banking or money management apps, which can help them track their spending habits and save for future expenses.

Checks

There is no need to register for an app or money transfer service; checks are tried and true, straightforward, and reasonably priced. However, despite their ease, there are certain drawbacks. 

Paper checks are cumbersome. It can take 2–5 business days for a check to clear and the money to become available in the contractor's account after it has been written, mailed to the recipient and deposited into their bank account.

The money is not guaranteed either. Because of this, contractors frequently hesitate to take checks from a new business they are unfamiliar with. A returned check may cause them to incur bank fees and cause a delay in payment. One of the main drawbacks is the long time it takes to deliver and process a check. It takes time for a paper check to be mailed to the contractor. There will frequently be another hold after it is placed until the check clears. Your contractor's payment may be delayed due to this hold. Some checks that are mailed may go misplaced, in which case you have to stop making payments on the first check and write a new one to your contractor, adding to the delays and work (and fees). 

Security is one of the most underrated drawbacks of checks. The issuing party's bank account information is put directly on the check. Thus the recipient is not required to provide any of their financial details.

Online Payment System

Another convenient way for customers to pay is through online payments. These services allow customers to send and receive payments directly from their bank accounts or credit cards. In addition, some of these services offer automated invoicing and other features to streamline the payment process. This can reduce administrative costs and improve customer satisfaction.

While many online payment services are available, finding one compatible with your contractors' needs is important. For example, if your contractors are often on the job site, you'll want to choose a service that offers mobile payment solutions such as payment apps and mobile card readers. It would help if you ensured that the payment platform has a low transaction fee structure and is easy to integrate with your accounting software.

Another option is an e-payment solution, which allows companies to disburse salaries and generate invoices on a unified platform. This system is fast and secure and offers a range of other benefits for both parties, including the ability to create flexible payment plans and detailed reporting. In addition, many online payment systems, such as Xoom and Transferwise, also provide foreign exchange services that can benefit businesses making international payments. Ultimately, finding a payment solution that meets your contractors' needs and provides a seamless experience for customers is vital.

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