How to Avoid High PayPal Fees: A Lucrative Trick for Freelancers

December 5, 2014

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.

Avoid high PayPal fees with PayPal Business Payments

PayPal’s fees have a way of emptying freelancers’ pockets.

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!

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    47 Replies to “How to Avoid High PayPal Fees: A Lucrative Trick for Freelancers”

    • Heather says:

      Great summary! It’s such an awesome chance for freelancers to take home more of their hard-earned money.

      And maybe one day PayPal will do something similar for its Canadian users, too *cough, cough* 🙂

    • Anna says:

      Great post! But I’d like to suggest one minor correction: Freshbooks is free up to 3 active clients, with unlimited invoicing. Depending on the definition of “active”, dormant clients may fly under the radar undetected and not count toward this threshold.

      Also, Freshbooks now supports credit card payments from your clients. Here’s an excerpt:
      “To existing FreshBooks users as of Oct 1st, 2014, we will be enabling this across your accounts over the next month. You will receive an email when you are enabled.”

      But there’s an associated cost “It’s 2.9% + $0.30 on all card transactions, with the exception of American Express, which is 3.5% + $0.30. There are no monthly or setup fees, and you only get charged when you make sales.”

      For those clients who don’t have Paypal accounts or are setup to pay by credit card, this is an alternative.

      I like Freshbooks because it provides a simple and elegant way for invoicing, time-tracking, and bookkeeping. But I’ve been hearing rumblings about Nutcache. They are trying to carve out a niche in the market that bridges the gap between free and the $19/month fees.

      For those on a tight budget (who are we kidding, aren’t we all?), Nutcache might be an alternative to those providers who already have a big chunk of the market. I haven’t reviewed or tried it, so I can’t intelligently comment on it.

      Happy invoicing!

      • Alexis Grant says:

        Thanks, Anna! I talked with Freshbooks today, and they told me the free account only supports one client — I think it used to support 3, but now only supports 1. (Maybe previous users are grand-fathered in?)

    • Wow! Let me say that again, wow! I had no idea the Paypal business payments options was available. Now I just need to try and avoid calculating how much his lack of knowledge has cost me. Thanks for an illuminating post.

    • John Soares says:

      I really appreciate this info Alexis. I’ve often had a difficult time making things happen with Paypal. I recently set up mass payments after a 30-minute phone call with Paypal, but it still doesn’t show in my account.

    • Raspal Seni says:

      Thanks for this informative post, Alexis.

      So bad, we guys outside the U.S. are out of luck here.

      The only option for us is to ask our clients to consider paying the extra 2.9%.

    • Wow, what good info Alexis, thanks! So I was unclear – you said they have to click the “Pay Now” button in Harvest or Fresh Books – does that mean the client can’t pay your invoice directly through PayPal and *also* have to have the special software (not just you)?

      • Alexis Grant says:

        Right — They cannot pay directly through PayPal, as I understand it. You have to use one of these invoicing platforms. But the client does NOT need to have anything special, they won’t even know what fee you’re paying. It’s all on your end.

    • I always put it into the contract that if a client uses Paypal they should cover all associated fees. So far, I haven’t gotten pushback on it.

      Since I also make it clear I’m fine with accepting checks instead and really don’t mind the extra couple weeks wait that comes with that, it only seems fair that a client’s preference for PayPal shouldn’t cost me extra. And you’re right, those percentages really add up!

    • Ashley says:

      I use Paypal for invoicing and most of my clients like to get that Paypal invoice but mail me a paper check. I wish Paypal would make their invoicing look a little nicer and also allow those of us who just want to use them (not with another service) to get the .50 cent flat rate. I may have to call them and ask about this.

    • Lori Parr says:

      I wonder about using Square? I use this for my Lavender products business. It charges a 2.7-3.5% fee per transaction. Their system is tidy and easy to use, but expensive compared to that 50 cent flat fee.

      • Ashley says:

        My understanding is that Square is more expensive than Paypal and it’s not as well known by consumers (potentially your clients) so they may not feel as comfortable using it although it’s somewhat popular here in the San Francisco based area because that’s where they are headquartered. And unless they’ve changed recently…I believe that Square customer service also is a situation where you can’t get a single living person *live* on the phone (email only support, I believe) and that’s something I really appreciate with Paypal when it comes to financial transactions.

    • Mike says:

      I am using Nutcache for months now and it’s a simple but great product.
      They have a pro version now for $14 / month with more features and without branding (the reason why I’m a Pro user).

    • Karla says:

      Residing outside the U.S it does not apply but I can see how it can save lots in the long run.

      What I do is ask the client to cover the Paypal Fees and normally they are aware of it and accept it.

      But I will be looking more into this.

      Thank you so much for this great info Alexis!

    • Chris R says:

      Would this only work for manual invoicing? I am guessing it doesn’t apply to recurring subscription payments, right?

    • Janet says:

      A client with an office 2,000 miles away, whose payments were always above the $1,000 mark and often late, due to a hectic travel schedule, wanted to pay me by PayPal. I knew she had an account at a major bank, so I stopped in a local branch to confirm that she could pay me by ONLINE BILL PAY. Yup, she could request the bank to mail me a paper check, the same way she paid her personal bills online. I never paid a fee and did not have to fuss with delayed payments on her end.

    • Carlo Borja says:

      Great alternatives there, Alexis! Paypal is indeed convenient but definitely not the cheapest. There are a lot of better options out there especially for sending money to offshore workers.

    • Alicia Rades says:

      I remember reading this article a while back. At first, my thoughts were that I wasn’t getting enough money through PayPal payments to make the $12 or $20 per month of these programs worth it. I was only losing a few dollars per month in PayPal fees because I had other clients paying via direct deposit. Now I just had a project where I lost almost $30 in PayPal fees. I like PayPal for clients I can’t do direct deposit with, but now I’m thinking that if I get more PayPal clients, I’ll have to go this route. Thanks so much for sharing! I will check back with this article again if I end up with big projects paid through PayPal.

    • Nicole says:

      Thank you so much!! Just signed on with Zoho’s free account. This is going to save me so much money in fees. Truly a blessing!

    • Russell says:

      When you say payment must be made via PayPal balance, does this include paying via checking accounts linked to one’s PayPal account? I have only been on the receiving end of payments, aside from paying for consumer goods via my own PayPal account (which I do via my linked checking account- I rarely hold a PayPal balance).

      • Alexis Grant says:

        I *think* you can do that, Russell, but honestly I’m not sure because it’s not how I use it!

      • Ashley says:

        Generally speaking when you’re talking to Paypal and they say you must pay from “your PayPal balance” they mean the actual money sitting in your paypal account. If you are talking to someone outside of Paypal they usually don’t care how you pay through Paypal with the exception of that odd e-check thing Paypal was offering (not sure if they still do this). This option causes a recipient to receive the payment in something like 7-10 days. It’s the most obnoxious method for someone to pay you by if you’re waiting for money and people know about this rarely know Paypal option and pay you that way. (And hopefully by posting about it I’m not encouraging others to use it.) If you invoice (and/or received payments) through Paypal you may want to make sure your settings are adjusted so that people can’t pay you with one of those things…you’ll be waiting forever.

      • Ashley says:

        Generally speaking when you’re talking to Paypal and they say you must pay from “your PayPal balance” they mean the actual money sitting in your paypal account. If you are talking to someone outside of Paypal they usually don’t care how you pay through Paypal with the exception of that odd e-check thing Paypal was offering (not sure if they still do this). This option causes a recipient to receive the payment in something like 7-10 days. It’s the most obnoxious method for someone to pay you by if you’re waiting for money. (Hopefully by posting about it I’m not encouraging others to use it.) If you invoice (and/or received payments) through Paypal you may want to make sure your settings are adjusted so that people can’t pay you with one of these Paypal e-check things if that’s an option because you’ll be waiting forever.

    • Ed Waldorph says:

      I have a bank – linked PayPal account. When I choose “Send money to friends and family” there are no fees of any kind to either party. Why can’t they pay me the same way?

      • Alexis Grant says:

        You can do that for friends and family, you just can’t do it for business.

        • Well, my bank account is a commercial account in the name of a corportion (S) and I have paid VO coaches and at least one conference and several webinars.

          I have received several payments from individuals and do not know what their arrangement may be but I have never been charged a fee to receive it into my PayPal account or transfer it into my bank. If they were charged a fee I don’t know.

          • Jay says:

            Ed, this is exactly what I do: have clients choose the Friends/Family option rather than the Goods/Services option. It has saved me a small fortune.

    • Jen says:

      The biggest problem for me is that I have had so many overseas clients that the .50 cent option doesn’t work. So, I’m stuck. But, thanks for walking us through this. I do use Harvest and didn’t realize that you can’t toggle back and forth on an invoice by invoice basis.

    • Marta says:

      Thank you Alexis!

      This is very helpful. Any advice on how to apply this tip in Europe, specially to receive payments for courses?


    • SM says:

      Well, Just got a ‘lightbulb’ moment when i saw $8 fee on my only $275 payment. I invoiced through paypal, tired of waiting for the check to arrive in the mail;) ( I am glad I read your post before doing this to myself again. I will certain follow your footsteps.. Thank you!!

    • bharat says:

      i am from india you know there are many restrictions for Indians. my all payments come through paypal they cut their fee but you know what they give us less money even after cutting their fee. my country has 63 Rupees value of a dollar but paypal pay us 61 Rupees for a dollar. so if real value of 100$ is 6,300 Rupees paypal will give us only 6,100 rupees even after cutting their fee

    • Megan says:

      I’m a freelance illustrator and artist. I’m frustrated with the high fee paypal takes when I sell small prints. I don’t sell very often but I am wondering if Freshbooks or Harvest would be a good option for me? It seems like- according to this post- these sites are designed more small businesses and or people who are selling items online at least every week. I was wondering if someone could give advice to me as someone who is just starting out? Should I just bring the price up on my work until it starts selling more and then open a freshbooks account? Is there a better service for than paypal for selling online? Thanks !

    • Kim Caloca says:

      Hey Alexis! You guys should get Braintree for The Write Life payments. No fees on your first 50k in transactions. Which is better than the $0.50 fee, right? 🙂 just a thought.

    • Colden says:

      Capital one 360 has a (person 2 person) that I think would be ideal for invoicing:

      Name+Email address+last four digits of receiver’s bank account (they fill out the rest when they get the email)+amount of invoice.

      I suppose you would reverse this for your client & they would need a free Capital one 360 account (but you could require this).

      No fee & you wouldn’t have to pay Harvest, Freshbooks, PayPal, Stripe, Square or any of these guys.


    • Peter L says:

      Interesting options.
      I checked on what was states about accepting payments using Paypal Business Payments, but it is not accurate. One can only accept payments at the low flat fee if they have as provenance the USA. It is stated on the website.then even expla
      Also, I would stay away from CoinPIP. They ask highly confidential information. Already at registration they ask one’s social security number. No way I would share that with an unknown startup and even without explanation beforehand. They know the drill any company knows it), so I suspect this is not an entirely kosher set up.

    • Susan Ross says:

      If you’re invoicing from international clients, try TransferWise. They recently built a feature called request money that works similar to PayPal. Your clients would have to create a TransferWise account though but you’ll save a ton on the exchange rate because they use the mid-market rate.

    • Kris says:

      Glad I found this article, I’m a little bit confused.

      Maybe I’m dumb, lol. After almost 10 years using Paypal Business, I just “Think” now, I sign up their freelance program, on paper they said they will give me bonus from each transaction, but now they charge me extremely expensive, I don’t know how much the exact percentage is, but for every $2000 paid invoice, they’re charged me more than $100. And there’s different currency when I transfer to my bank, plus I need to paid income tax to government.

      You said they only charge you $290 from $10,000. Maybe Paypal have different policies for small country like where I live.

      I never got a payment $10,000, usually my invoice is $1000-$2000, I got that payment 10-20 times a month, so if I calculate, their fees is very expensive.

      If I ask my clients to transfer the payment directly to credit card, it’s 5 times more expensive, and in my country, I can’t transfer it to cash, it locked as credit balance.

      I hope I can register American bank account. lol.

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