A problem that just about every freelancer or even small business deals with is an even bigger bugaboo when you’re a digital nomad: cash flow.
Your side hustle, or even your full-time business as a digital nomad surely has low overhead costs. Which is a reason many people choose to live this way. Yet, when you are on the road, you need to have a positive cash flow to be able to pay your travel expenses and things like hotels and such.
It’s not like a normal life where you pay your rent or mortgage on the same day every month. In some cases, you are paying weekly so you need to have cash ready to go.
Having the right payment provider can go a long way towards having a positive cash flow so you can keep travelling without worrying about your money. In this article, I will go over several ways to make sure you are getting paid.
The best option for getting paid is to accept cryptocurrency like Bitcoin. If you are like most digital nomads doing client work, then you are likely getting payments from all over the globe.
Juggling the different currencies is a mess and expensive. Transferring money always involves fees, but there are also additional fees for exchanging currencies. If only there were a worldwide currency that didn’t have to be exchanged. Enter Bitcoin.
When you accept Bitcoin as a payment option, you are cutting your fees down dramatically as it doesn’t matter what country your client is in or where you are. Your digital wallet is your bank account and it remains the same no matter where you find yourself. As a bonus, you could even make some extra money if the Bitcoin increases in value.
The flipside of that is that if you leave your BTC in a digital wallet and the value drops, you will also end up losing money and could end up making less for the work than you had originally intended. Your choices are to cash out to fiat currency right away, or take your chances with the exchange market. It depends on your risk tolerance.
With some research into trends, you may find that letting it sit in your wallet is not as risky as it might seem.
To buy BTC is cheap for your client and then your fees are lower making it a win-win for both of you.
PayPal vs Transferwise
Paypal was always the gold standard of payment options for digital nomads. It was easy to accept and you could convert your deposits into any currency you wanted to cash it out. At a price.
The high fees have always made digital nomads cringe every time they transferred their money. Because of these high fees, they are facing competition and may be knocked off of their throne.
Transferwise does just about everything that Paypal does but with a fraction of the fees. It costs considerably less to transfer money with them than it does Paypal. And in any currency you can imagine.
The exchange rate is also very current for Transferwise so you get the best available exchange at the moment the transfer is made to your account.
There are a couple of downsides to using Transferwise, however. They don’t generate invoices like Paypal does so you have to pay close attention to your accounting making sure that your invoices are accurate. Another problem is that you don’t get any kind of insurance with regards to challenging a payment like with Paypal.
For instance, Paypal offers assurance that you’re covered in case there is a dispute over the payment or the work done. If you are not paid or at least not paid correctly, you can open a ticket and have Paypal be an arbitrator in the dispute. Also, if you use Paypal to pay for a service or product and it is not delivered or there is a problem, then you can do a chargeback and get a refund if Paypal sides with you on the dispute.
Basically Transferwise is a good borderless bank account that can handle your payments with very low fees but doesn’t do some of the extras that Paypal offers.
Unfortunately, some companies’ accounting offices are not yet in the 21st century. Some digital nomads still have to deal with accepting checks. Which is a challenge to deal with on the road. If you are one of the unlucky ones, your best option is to use a mail service in which you pay a monthly fee to accept and open your mail for you.
They may be able to send you the mail to whichever address you have overseas in which case you can open the mail yourself if you feel funny about somebody else accessing your personal or professional mail.
Make sure you then have a bank account that allows you to send a picture of the cheque to the app to deposit it and it won’t matter where you live. This is a bit tricky, however, as some banks won’t allow you to use their app if you are out of your home country. You could try using a VPN for your phone to be able to access those apps.
As you can see, taking cheques is doable but a real hassle and should be avoided when possible. If your client insists on cheques, then make sure you add a provision with your next client that you don’t accept cheques and go from there.
Take local payments
Not all digital nomads work remotely in a sense. Sure, they are far from home, but some also work in the local economy. Some living abroad have found a gap in a local market that they can fill. For instance, if you are a web developer, you could find local clients that need a website done for their business.
In these cases, you will be taking local currency, but doing so digitally is still the best way forward. For tax purposes, having a digital “paper” trail can help keep your accounting easier to manage.
There are many ways to accept payments with credit or debit cards by using a car reader on your phone. Stripe is a popular processor so something similar that plugs into your phone jack and allows cards to be read is the easiest way to process a payment.
There are fees with every merchant service, however. You usually pay a percentage of the sale plus a monthly fee. And in some cases you also pay fees to send the payments over to the bank that handles the payments.
This is not an ideal situation, but it is something that can work for you if you are taking on local clients. In the US to take cash sometimes requires that you register with the local chamber of commerce and have a special tax ID to create invoices for clients.
Make sure you are tax compliant
No matter how you plan to accept payments for your services, you do need to make sure that you are paying your taxes correctly. This is the biggest bugaboo for digital nomads and the information is conflicting at best as to how to deal with your taxes while working on the road.
If you are an American, then you have to file a tax return no matter how much you make or where your income comes from. You may not have to pay any taxes, but you are required to file. In many cases you should be eligible for the Foreign Earned Income Tax credit which covers you from having to pay taxes unless you go over $109,000 per year in income while abroad.
Now, you may be required to pay taxes locally depending on how long you stay in one place. Each country will have its own rules regarding when you trip the wire in terms of time spent in a country that requires you to pay local taxes. Some will say it’s 6 months and others a year.
Now, if you aren’t paying any taxes locally, then you will need to pay your SECA taxes to the US regardless of how much you make. This is essentially your payroll tax that covers your Social Security and Medicare that is usually withheld when you work for a company. If you work remotely for a US company then ignore this as these taxes are withheld automatically.
If you are a freelancer, then you will definitely need to hire an acountant or tax expert that specializes in these types of scenarios. The peace of mind that you won’t be receiving a tax liability with penalties at a later date is probably worth it.
When you live on the road and don’t have a permanent address, you can really feel free. Yet, at the same time, you also have a lot of complications when it comes to getting paid and paying taxes.
For many it is worth it. You just have to know your options so you can choose the best way to go which is the least complex.