Freelancer Payment Methods Explained

Freelancer Payment Methods Explained

In this post, we’ll cover the most common freelancer payment methods and how to avoid common mistakes that cause headaches down the road.

This article is part of our guide on how to pay contractors.

Understanding the differences between freelancer payment methods

Here are the twelve common methods of paying non-payroll workers that can be divided to 3 categories: 

  • Bank transfers, like wire transfers, ACH, checks etc.
  • Payment Systems, like PayPal, Payoneer, Wise etc.
  • Freelance Management Systems (FMS) and freelance marketplaces

1. Wire transfer

When choosing which freelancer payment method is ideal, wire transfers are often the most common option when paying international contractors. Wire transfers allow you pay all contractors with a bank account.

However, wire transfers can be costly for both your company as well as the contractor, as most banks apply fees to both recipients and senders. 

These payments are secure since they require owner validation, but their high costs make them a less desirable option unless speed is truly crucial. For payments that are routine or have a low amount, wire transfers are probably not your ideal option.

2. ACH payments 

Also known as “direct deposits,” ACH payments are transferred directly into the freelancer’s bank account. This payment option is only relevant for companies and independent contractors within the same country, as you must have a domestic bank account. 

Freelancers often prefer ACH payments because it only takes two to three days for the money to appear in their account once the payment is issued, and they don’t need to bear any fees. For paying companies, the average internal cost of processing ACH payments is $0.29.

According to Merchant Maverick, typical fees are:

ACH payments are more secure than paper-based payments, but they are still vulnerable because there is no owner validation. Contractors often provide bank account information via email, but companies rarely have processes in place to verify that he or she indeed owns the account, as required by law according to Know Your Customer (KYC)

3. Credit cards

In order to pay a contractor with a credit card, they must already have a merchant account open with your bank, or use a compatible third-party merchant service, such as Square. Most independent contractors and freelancers are not set up to accept credit card payments, so this option is seldomly used. 

Moreover, the contractor may be responsible for fees of up to 3% of the payment total. Still, credit card payments do offer some benefits to both parties.

For one, payment is immediate, which helps you stay in your contractors’ good graces. Another major advantage is their security. Credit cards enable you to keep your company’s bank account information separate from your freelancer transactions. Additionally, many credit card companies offer zero fraud liability for their customers. 

4. Checks

Old-fashioned paper checks are probably your cheapest option for paying non-payroll workers, but they are difficult to monitor and few contractors opt for them.

Lack of speed is one of the biggest deterrents for most contractors. After your company issues the check, he or she needs to wait for it to arrive in the mail, then deposit it into their account. Whether they deposit it through their banking app or in-person at the bank, it could be a few more days before the money appears in their account. In the event that the check bounces, the contractor will face an even greater delay in getting paid, which can harm their experience with your company and lead them to quit.

Checks are also not the most secure freelancer payment method. The issuing party’s bank account information is printed right on the check, which can have serious repercussions if the check gets into the wrong hands. 

5. eCheck

You guessed it. An electronic check is the digital version of a paper check. It uses ACH to direct the funds from your company’s account into the freelancer or contractor’s account through a payment processor. 

eChecks are a great freelancer payment method because they are fast, have low processing costs, and they are secure. Processing fees can be as low as $0.10 per transaction, and freelancers can receive eCheck payments on the same day they are sent.  

They also help companies avoid errors and fraud because they are handled by fewer people. Merchant service providers also cross-check eCheck files against account databases that record incidences of fraud.

For businesses that maintain routine work with contractors, eChecks can be a cost-effective choice. 

6. Paypal

Paypal is the world’s largest online payment system, with more than 300 million customers around the world. It’s a popular freelancer payment method because it issues payments fast, it handles currency conversions, and it’s secure. 

PayPal includes seller and fraud protection and it ensures employer records are kept private. It also enables mass payments through PayPal payouts.

Their rates are mostly lower than Payoneer, but less predictable as they vary significantly based on freelancer’s location, credit or debit card, Paypal account or bank account.

However, your contractor must have an active account in order to receive funds through Paypal. And, although it’s written in some places, Paypal does not produce a 1099-K form at the end of the year. 

7. Payoneer

Payoneer is a financial services platform for online money transfers. The Payoneer Billing Service allows you to pay other Payoneer customers with ease. One of the greatest advantages of the platform is that it will pay your contractors and freelancers in their local currency (it operates in 200 countries and 150 different currencies). This makes it a good choice for companies that work with a globally dispersed non-payroll workforce. 

If the contractor has a Payoneer account, you can transfer their payment to them directly. If they don’t have an account, Payoneer will send a payment to their bank account via a bank transfer. According to the company’s website, there is a fee of up to 2% when sending payments from your Payoneer balance to bank accounts. 

Payoneer is fast and secure — contractors can receive the payment within one to three days, and all payments are validated. However, you should take into consideration that Payoneer doesn’t have a tax agreement with the IRS and they will not be able to produce 1099 for your freelancers. 


Another solution businesses can use to pay freelancers and independent contractors is This is a platform that uses AI to extract key information from invoices (such as the freelancer’s name, date, amount due, and payment method), and automatically route it for approval. 

The main benefits of are increased efficiency, less manual data input, and the ability to centralize payment information in one place. Ultimately, freelancers and contractors can get paid via  ACH, virtual cards, and international wire transfers.

9. Wise

Formerly called Transferwise, Wise is an online payment app that allows individuals and businesses to send quick and secure payments. According to its website, businesses can send payments to freelancers in more than 70 countries with better exchange rates than banks and PayPal. Half of all payments sent through the platform arrive within one hour, and recipients don’t need a Wise account to get paid. All payments go directly into their bank account. 

10. Tipalti

Tipalti is a global payable automation solution. It offers a similar service to Payoneer and PayPal, but they can also automate additional processes in the accounts payable (AP) process from onboarding to invoice processing and reconciliation.

Tipalti’s rates also vary significantly based on different parameters, so it may be cheaper for some use cases and very expensive for others.

Like PayPal and Payoneer, they check the validity of the account owner before issuing payments and do not produce 1099 forms for your freelancers at the end of the year.

11. Venmo

Venmo is one of the most popular social payment platforms in the U.S. Since its inception, the Venmo platform has added additional capabilities, including the ability to receive direct deposit payments from employers. It’s an attractive freelancer payment method because freelancers can quickly and securely receive payments to their Venmo accounts and easily transfer the money to their synced bank accounts.

Freelancers can also set up Venmo business profiles, which allow clients to issue payments the same way individual Venmo users pay each other over the app. 

12. Freelance Management Systems

Freelance Management System (FMS), like Fiverr Enterprise, utilize almost all of the payment methods mentioned above so they can offer you the best of both worlds. An FMS simplifies the payment process because your company will only need to work on one platform, while your freelancers and contractors can choose whatever payment method is preferable to them.

13. Freelance Services Marketplaces

Freelance services marketplaces like Fiverr, Upwork, Total and many other can be a great solution sometimes as they will provide you a full solution when it comes to both payments and tax compliance. The problem is that their marketplaces fee can be quite high if you’re looking for a talent to something more than a one time gig. Their rates also impact that type of talents that works with them, as freelancers who had enough experience and built a good enough client base will prefer to work directly with companies and not through marketplaces.

Additionally, these types of solutions can automate many other functionalities when working with contractors and freelancers, like recruitment, onboarding, and budget management. Most FMSs fall under the 1099-K definition so they can handle all tax compliance requirements, including issuing your contractors and freelancers 1099s and collecting tax documentation like W8/9.

How to decide which payment methods to support?

Before agreeing on a payment method with your freelancers or contractors, you’ll want to consider the following factors.  

  1. Transfer fee: Transfer fees can vary significantly from one freelancer payment method to another. Additionally, who bears responsibility for those fees can change—sometimes it’s the company, sometimes it’s the contractor, and sometimes it’s both. That’s why it’s important to understand what the transfer fees are before sending a payment. Certain payment options, such as wire transfers, commonly have expensive transfer fees. In some situations—such as it’s essential the payment is received immediately or the sum of money is quite large—makes these fees worth it. But in most other situations, other payment methods with lower fees make more sense.
  1. Tax compliance: Because freelancers and independent contractors pay their own taxes, tax compliance works a little bit differently than it does for regular employees. Before the work begins, each contractor should provide you with a W-8 or W-9, which you’ll want to keep in a centralized place. At the end of each calendar year, you will provide a 1099 form to each non-payroll worker, which they will use to file their taxes. Making sure all of the information on these forms is accurate, in addition to monitoring the nature of your relationship with the contractor, is essential to avoiding the penalties and back taxes that occur from misclassification
  1. Contractor location: In the era of dispersed work, companies are increasingly hiring non-payroll talent around the world. If you work with a contractor who is located abroad, they are likely to request payment in their currency. In this scenario, you may be responsible for paying for the currency exchange, which you’ll want to keep in mind when agreeing on a payment method.
  1. Number of contractors: Managing freelancer payments for just one or two workers may not add too much extra work to your day, but once you start working with more, payroll can become laborious and complex. In addition to considering how to pay independent contractors, you also want to prepare for the administrative work that goes with paying them. Do you have the necessary processes and systems for managing tax forms, monitoring project milestones, approving invoices, and issuing payments?

Go for speed, security, and convenience

Different freelancer payment methods offer different advantages and disadvantages. Your contractors have certain priorities — such as receiving their payments fast and owing the least possible fees — while security, compliance, and trust are paramount to your business. You should always remember that the payment method is only part of the payment terms that you need to agree on with your contractors, but usually carry the highest fees.

There are various payment solutions and accounting software that can help you streamline contractor invoices and simplify bookkeeping, but they are limited in the types of payment methods they support. Fiverr Enterprise, a freelance management system (FMS), supports all of the payment methods mentioned above, which gives you complete flexibility in deciding how to pay independent contractors.

With the ability to accommodate all of your contractors’ payment preferences and a secure and reliable platform to manage payments, you can check all of your boxes and keep working moving forward.