Over the last month, I’ve talked to a handful of freelancers and entrepreneurs who thought there was no way around high PayPal fees.
Guess what: there is. And if you’re not using it, you are losing hundreds or thousands of dollars each year.
It’s called PayPal Business Payments. If you select this option when invoicing clients through Freshbooks or Harvest, you will pay only a flat 50-cent fee for each transaction, rather than the typical 2 or 3 percent.
I can see your jaw dropping. Either because you’ve been paying high fees all along and you’re now calculating just how much money you’ve lost, or because you’ve long used this feature and can’t believe any freelancer would be able to live without it.
How PayPal Business Payments work
Shockingly — or perhaps not-too-shockingly, since PayPal wants you to pay high fees — it’s difficult to find much information online about how PayPal Business Payments work. For the last year or so, I’ve been sending freelancers to Carrie Smith’s post on the 5o-cent flat-fee option.
Freshbooks has a good explainer about how to set up PayPal Business Payments in their system, and Harvest has some information on their site about it as well. Freshbooks explains this is a pilot program that began in 2011, and Harvest says it’s only available for invoices with U.S. currency. But I can’t seem to find any information from PayPal itself on the feature, nor a comprehensive list of invoicing services that offer it.
You’d assume PayPal offers the feature to people who use their invoicing service, but on their invoicing signup site they only reference their fee of 2.9% + 30 cents per transaction, and there’s no mention of the flat-fee option on their fees page. It looks like ZoHo offers the 50-cent option, but Quickbooks — a popular accounting software — does not; in fact, Quickbooks doesn’t offer PayPal payment at all.
My own experience with PayPal Business Payments
I’ve used PayPal Business Payments for years, and it has saved my company — no exaggeration here — thousands of dollars. Socialexis, my blog-management company, invoices clients monthly for payments up to $10,000 (that’s PayPal’s limit, by the way). What’s 2.9 percent of $10,000? $290! For just one client, we could pay nearly $300 in fees each month.
For invoices of $1,000, PayPal’s standard fee would mean $29 less in our bank account. And even if you’re invoicing clients for a $100 blog post, it all adds up. You can see what a massive difference this flat-fee rate makes!
I also put this feature to use when paying my team. I am the only employee of my business, and my team members all work as independent contractors. I pay them different amounts each month according to how much time we spend working, so it doesn’t make sense to set up a recurring bank draft.
Instead, each team member invoices me at the end of each month using Freshbooks. That means my bookkeeper can easily pay them through PayPal, and they only have to pay a 50-cent fee. (Unfortunately, this does not work for contractors based outside the U.S.)
If you want to access this perk, you have to send an invoice. You can’t just tell your client how much they owe you; they have to be able to click the Pay Now button through Harvest or Freshbooks or another invoicing system that offers PayPal Business Payments.
More tricks to make this work for you
What if you don’t use Freshbooks or Harvest? It’s worth signing up for an account.
Harvest, the tool I use for invoicing and time-tracking, is free for invoicing up to four clients, then bumps you to a $12/month plan.
Freshbooks also offers a free plan that allows you to invoice one client. Its lowest paid tier is $19.95/month for managing up to 25 clients.
Freshbooks seems to be more popular with freelancers and offers more features, but I’ve stuck with Harvest because it meets my needs, I love how simple it is, and they offer great customer support.
So far there’s only one feature Harvest lacks that Freshbooks offers that’s important to me, and it has to do with the topic of this blog post. Harvest forces the user to select PayPal Business Payments (the 50-cent flat fee) or PayPal Payments Standard (that’s the 2.9 percent fee) across the board, whereas Freshbooks lets you make that choice on an invoice-by-invoice basis.
At first glance, you’d assume you always want to use PayPal Business Payments to get the flat 50-cent fee — and you do. You want that to be your default. But here’s the drawback: with PayPal Business Payments, the person who pays has to do so with their PayPal balance or an eCheck, which comes directly from their bank account. There is no option to pay via a credit card.
For most of our clients, that’s just fine; they don’t want to pay with a credit card anyhow. But some of our advertisers for The Write Life do want to pay with a credit card. You can add this option via Stripe in Harvest, but Stripe charges a 2.9 percent + 30-cent fee for each transaction, which is the same as PayPal Standard Payments. I added the Stripe option to our Harvest account one month for an advertiser, but then a client who usually pays via eCheck opted for Stripe instead, which meant a loss of several hundred dollars in fees… so you can bet that option went out the window.
We’ve gotten around this by having two Harvest accounts: one for the client side of the business, another for The Write Life. For the client side, we use PayPal Business Payments (no credit card option and 50-cent flat fee), and for The Write Life, we use PayPal Payments Standard (has a credit card option, as well as a 2.9% + 30-cents fee). While this means paying Harvest’s $12 fee twice each month, it’s only slightly more expensive than Freshbooks’ cheapest tier. It also helps us keep our revenue for The Write Life separate from the rest of the business, which will benefit us as we grow the site or even if we look to sell at some point in the (faraway) future.
How to choose PayPal Business Payments for your invoices
Freshbooks offers a step-by-step explainer on how to choose the 50-cent option for your invoices.
Harvest also explains how to add PayPal Business Payments to your invoices.
If you can’t use PayPal Business Payments because you’re outside the United States, calculate the fee you can expect with an online PayPal fee calculator, and consider asking the payer to cover the cost.
Finally, if you don’t like Freshbooks or Harvest, we’ve written about the best invoicing systems for freelancers over at the Write Life. But before you sign up for any of them, make sure they offer PayPal Business Payments! It will save you a lot of money over the long haul.
Here’s how you can help other freelancers: If you have additional tips for using PayPal Business Payments, leave them in the comments! I’m especially interested in other invoicing platforms and whether they offer the 50-cent flat-fee option. Thanks for your insight!