Most freelancers, bloggers, eBay sellers, and anyone who makes money selling their services or products online should be very familiar with the PayPal invoice fee.
For this reason, the single biggest issue for those who use PayPal regularly is the fact that for every invoice transaction that is made through PayPal, they take a cut as a fee.
If you get the incessant charges, you will definitely want to know different ways to avoid or minimize these fees and that is exactly what we will show you in this article. Please read on to find out.
What is PayPal?
PayPal is “a worldwide online payments system that supports online money transfers and serves as an electronic alternative to traditional paper methods like checks and money orders.
Thousands of online companies use PayPal as their payment processor. It used to be if you wanted to accept credit cards, then you needed to open up a merchant account and purchase expensive equipment to swipe credit cards. PayPal eliminated the need for all that.
What is PayPal Invoicing?
PayPal Invoicing is an online service that allows you to make invoices that look and feel professional, to help you get paid faster. Simply create your professional invoice using the free invoicing software, and send it off to your clients.
your clients can then pay you via any method (bank transfer, cash, and cheque, credit cards), and they don’t even need to have a PayPal account of their own.
Does PayPal Have Fees?
When businesses accept payments via PayPal, they get charged a percentage of the sale and a fixed fee. Generally, in the United States, companies will pay a commercial fee of 2.9% of the transaction amount plus a fixed fee of 30 cents.
Let’s say you invoice a client for $1,000, and the client opts to pay you through PayPal. You will receive $970.70. PayPal’s 2.9% amounts to $29, plus there is a fixed fee of 30 cents.
PayPal fees automatically get deducted from the receiver of the payment not the sender.
Also, this means that if you are a freelancer requesting a payment via an invoice sent to your client, the fee is deducted from the money that your client sends to you the moment it reaches your PayPal account.
For businesses, the same principle applies – the customer does not pay any fees on PayPal.
The fees are taken out from your account right before your customer’s money hits your PayPal bankroll – a business expense in every sense of the word.
How Do I Send an Invoice on PayPal without a Fee?
Here’s how you can reduce or avoid their fees when using PayPal to receive payments from clients:
1. Ask Clients to Pay You as a Friend
A common method that freelancers (and small businesses) tend to use to avoid fees with PayPal during transactions is to label the payment as a personal transaction as opposed to a business-related one.
This is because personal PayPal transactions are not subjected to any additional fees, unlike business transactions.
2. List PayPal Invoice Fee as a Business Expense
Whether you are a freelancer or a small business, you can offset these PayPal fees as a business expense, and you can get reimbursed for them in one of two ways. Here’s how you can do either:
Pass on Your PayPal fees
As billable expense to your clients. This means that you’ll include in your contract that these costs will be passed on to the client (by including them in your final invoice).
Your client will be the one paying the PayPal fees, and your final amount will be the price that you are originally expecting to be paid for the work you’ve done. This involves a little bit of calculation on your part, so you’ll have to do your accounting here.
Also, be wary that these billable expenses must be contractually stated between you and your client beforehand – never spring on such expenses during payment time, as this may result in unnecessary delays and worst cases, a legal intervention that may cost more than it is worth.
Label PayPal Fees
As a business expense when paying taxes. Tax time is a dreaded time of the year – but for business owners and freelancers, knowing your business expense allowances will allow you to deduct certain costs from your yearly revenue.
This may significantly reduce the amount of taxes you owe to the government, potentially saving you a big chunk of cash in the long run.
Always track your PayPal fees as your business expenses throughout the fiscal year, and ensure that you keep all records of your PayPal transactions (including a breakdown of fees, etc).
It makes it easier for the tax authorities to audit your figures if necessary.
3. Reduce the Frequency of Payments
One way to lower your PayPal fees is to opt to be paid less often. Requesting to receive fewer payments from clients helps you to avoid paying the fixed-rate PayPal fees every single time.
This is because PayPal not only charges you a percentage of the money you receive, but they also charge you a fee for every transaction.
By opting to be paid only once a month you’ll avoid some of these one-time transaction PayPal fees. However, you’ll have to pay the percentage-based fee (2.9%) per transaction, but you’ll definitely save some money in the long run.
4. Accept Other Forms of Payment
Of course, the easiest way to avoid PayPal fees is simply to request your clients use other forms of payment instead. Many companies offer direct deposits.
With this option, you’ll be able to get paid just as quickly. Plus, you can avoid PayPal fees and transfer times altogether.
If direct deposit isn’t an option, you can always go back to an old standby method: a paper check. Getting paid via paper check will take longer, but there won’t be any PayPal fees.
5. Use a PayPal Alternative
PayPal is not the only option for sending and receiving money for your work, so you don’t have to use PayPal.
If you switch to a PayPal alternative, you’ll avoid PayPal fees altogether. Though the alternatives may have some fees too, so watch that carefully.
Do PayPal Fees Vary Depending on the Country?
The short answer is yes. PayPal fees are different from country to country. The fees are also different between invoicing a client living in your own country and an international client.