Are you losing thousands in freelance fees to PayPal?

March 11, 2011 by Dean Rieck
Filed under: Business Smarts 

paypal freelance feesBack in the Jurassic period of my career, there was no World Wide Web. So there were no nifty online payment services for billing freelance fees.

I’d invoice clients the same way I sent them copy: in the mail. Yes, I’d print an invoice, address an envelope, and drop it in a mailbox. The client would get the invoice a few days later.

Today, we have PayPal.

Billing clients with PayPal is about as easy as it gets. You can send an email invoice or use PayPal’s “request for money” feature. When the client pays, it comes to your PayPal account and you get a notice upon arrival.

Some clients like PayPal because they can use a credit card to pay you, and they don’t have to fumble with checks or bother with sticking bits of paper in the mail.

But this convenience comes at a cost, namely PayPal’s transaction fees.

In the U.S., you’re charged 2.9% of your invoice plus $0.30 for each payment. So to receive payment on a $1,000 invoice, you lose $29.30. If it’s an international payment, it’s an extra 1.0%, so you lose $39.30.

That doesn’t seem like much unless you start doing a lot of business this way and add up your fees for the year. If you’re billing $100,000 a year through PayPal, you’re losing anywhere from $2,900 to $3,900. That could be two or three mortgage payments or maybe a year’s worth of car payments.

If you earn more, it can get into some serious money. Because I’m fairly frugal, I got tired of eating these costs for clients, and started asking them to pay the fee. After a few fumbled attempts to tack on the correct amount (I suck at math), I found a handy online tool that calculates PayPal fees. There are many, but this is the one I like best.

On the right side of the screen, you can plug in your invoice amount and see what PayPal will deduct. On the left side, you can enter the amount you want to receive and see what you must charge to get it. Actually, once you enter any amount, all the rest is calculated automatically.

Also, you’ll notice that you can click on the flag icons to change the currency and the fees charged in whatever country you live in. If your client is outside the country, click the cross-border payment box.

Right now, PayPal is considered a convenience by most of my clients, so they don’t mind paying the fees. It’s only fair, after all, since I don’t mind getting a check. And PayPal offers me only minimal convenience.

However, I can see a time in the future when electronic payment, by PayPal or some other service, will become the standard and clients will no longer want to pay these fees.  Though, I imagine by then, there will be other payment services, some of which may be free.

Sneaky Tip: If you don’t do a lot of PayPal business, you can ask your clients to send the money as a “personal” transfer. There are no fees for that. However, I’m not recommending this since PayPal is notorious for freezing or canceling accounts if they don’t like how you’re using their services. So beware.

Do you use PayPal for billing? Do you eat the fees or charge extra for them?

Related posts:

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  3. Should you ask for freelance referral fees?
  4. How to type thousands of special “hidden” characters
  5. The freelancer’s short guide to getting paid

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Smart Comments

14 Comments on Are you losing thousands in freelance fees to PayPal?

  1. Adam Green on Mar 11th, 2011 8:14 am
  2. I’ve been eating the fees, but I don’t think I will for much longer. While doing my taxes this year, I didn’t really like the number I got to key in next to “Paypal expenses.”

    Do you know if Google checkout is a good alternative? Or are there any others?

  3. Laura Townshend on Mar 11th, 2011 9:35 am
  4. Thanks for the online calculator link. And, I agree clients should pony up for the PayPal fees. I insist that my clients do so, and am glad to hear other writers ask, too. :-)

  5. Dean Rieck on Mar 11th, 2011 10:31 am
  6. Adam, I’ve not tried Google checkout. So far, clients who don’t want to send a check always ask for PayPal or, on occasion, direct wire.

  7. Patti on Mar 15th, 2011 11:51 am
  8. It’s been my understanding Google checkout fees are the same (2.9% + 30 cents), tho I’m not positive.
    I do know you have to wait longer to get access to your balance. (With PayPal you can execute a transfer out as soon as the transfer in hits your account).

    PayPal has a thing called “Mass Payment” where the sender pays the fee – which is 2%, _maximum $1.00_… much less than the fees on $1,000+ transfers.

    It’s a little more work for the sender and it has to be an account balance transfer not a credit card payment. Plus, it has to be a Business or Premier account.

    It’s intended for bulk payments such as affiliates, but you can send out a single payment.

    You can set up a txt file to do it. Most people just want to click a button, tho maybe you could do the file for a client and give them 1,2,3 instructions how to execute.
    It’s basically a few comma separated fields of data.

    You can do a search on PayPal. (They don’t publicize it.)

    Here’s an article I just found that gives an example:
    http://www.makeuseof.com/tag/paypals-mass-payments-save-money/

    And here’s a site that seems to generate the file for you:
    http://www.secondversion.com/my-scripts/paypal-masspay/

    So essentially with mass pay you get your full invoice price and your client pays $1.00 to send it to you. A little bit of cake and eat it too, yes?

  9. Dean Rieck on Mar 15th, 2011 12:03 pm
  10. Patti,
    Thanks. I’ll check it out. But as you say, it sounds like it costs about the same.

  11. Julia Markus on Mar 15th, 2011 6:11 pm
  12. I recently discovered a new online banking feature that might solve your problem … INTERAC e-Transfers. I think it’s the best invention since ATMs.

    You can transfer money online from a bank account to an email address – and except for a few restricted account types – it’s free.

    The recipient gets an email with a secure link where they identify where to deposit the funds. How great is that??

    Small wrinkle for you could be that I’m in Canada. But when I checked into it, I found that the service is powered by NYCE Corp – which is a huge U.S. debit network – so maybe you have it there too. There was certainly never any publicity for it here; I only discovered it through a friend.

  13. Belinda Weaver on Mar 16th, 2011 9:26 pm
  14. This is such a timely post for me. Thank you Dean!

    I am in a quandary at the moment as I have quoted a price for copywriting services for an international client, and only realised the extent of the PayPal fees when the invoice was paid. I decided to factor the fees into my quotes going forward but I’ve agreed pricing for this regular client and am wary of tacking another entry onto the invoice.

    I wonder if I should just tack it on and deal with the fall out or approach the client first. I’d appreciate your thoughts.

    Belinda

    PS I am definitely using the calculator for new clients that use PayPal!

  15. Adam Green on Mar 18th, 2011 6:44 am
  16. @Belinda: If you’re going to tack that fee onto the client’s bill, you need to let the client know about that first. Otherwise, there really could be a fallout!

  17. Belinda Weaver on Mar 20th, 2011 6:59 pm
  18. Thanks for your thought Adam. I think I agree as my instinct tells me to wear the fees for this client (and keep the client). It doesn’t seem good business to change the agreement just because I didn’t do my homework! Still … lesson learnt for next time. Thanks.

  19. Tombee on Apr 1st, 2011 10:17 am
  20. Seems only logical that clients should foot the bill for PayPal…

    If you’re fee is £100 for doing a job, you should receive £100 for doing that job. And before PayPal, did anyone ever nock the price of a stamp off the final cost so a client could send a cheque out?

    Cheque – there’s another one for your Anglo/American spelling post a few months back… I think anyway.

  21. Ed Estlow on Apr 5th, 2011 2:23 pm
  22. Just stumbled on this thread of comments – and my only question is, is this legal? For instance, my understanding is that it’s illegal for a retailer to charge an additional fee (the CC fee) for taking a VISA card for payment instead of cash.

    This seems to be a similar scenario.

  23. Dean Rieck on Apr 5th, 2011 2:49 pm
  24. Ed: You can charge anything you want for your services. $1. $1,000,000. Up to you. And what that covers is up to you as well. I can’t think of any reason why asking a client to cover Paypal fees would be illegal.

  25. Jenn on Dec 23rd, 2011 2:22 am
  26. Very interesting topic, thanks for starting it! Hope I’m not too late!

    I have a Premier Paypal account. What is the difference between sending a “Money Request” to the buyer versus “Sending an Invoice” through the Merchant Services tab?

    I did a test. I noticed that if the sender sends an Invoice through the Merchant tab, the buyer has the option of paying as a guest. But if you simply send a Money Request, you have to log into paypal???? Is that the difference????

    Thx in advance

  27. Dean Rieck on Dec 23rd, 2011 4:23 pm
  28. Jenn, the money request is just a simple request for payment. The invoice lets you get more detailed, itemize charges, add tax, etc. If you want better records, the invoice option is probably the way to go.