The one thing about freelancing that I absolutely hate (besides self-employment taxes) is paying PayPal fees.
I hate doing great work for my clients and getting paid, only to see a big chunk of my income going to pay fees. Luckily, there are several options available to help us reduce PayPal fees.
You can reduce PayPal fees by using invoicing software to reduce fees but still get paid via PayPal. Or you can skip PayPal altogether and use other payment processors such as Venmo. Find out how to avoid PayPal fees in this guide.
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,” according to Wikipedia.
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.
PayPal is convenient, but it is not always free.
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 3.49% of the transaction amount plus a fixed fee of 49 cents.
Let’s say you invoice a client for $1,000, and the client opts to pay you through PayPal. You will receive $964.61. PayPal’s 3.49% amounts to $34.90, plus there is the fixed fee of 49 cents.
How to Avoid PayPal Fees
As a freelancer, if you can avoid PayPal fees (or lower them), then you can help your bottom line. Keep reading to learn 8 ways to decrease or avoid PayPal fees so you can keep more of your hard-earned money:
1. Opt to Be Paid Less Often
One way to lower your PayPal fees is to opt to be paid less often.
I have some clients who pay me weekly, some that pay me twice a month, and others that only pay me once a month.
There are a lot of benefits to getting paid more often, such as avoiding cash flow problems in your business. But, one major downside is paying more PayPal fees.
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.
The fee for each transaction is $0.49 USD, plus 3.49% of the amount you receive from U.S.-based clients.
For funds being received from someone outside the U.S., the fee for each transaction is 4.99% plus a fixed fee that varies depending on the country where the funds are coming from.
By opting to be paid only once a month you’ll avoid some of these one-time transaction PayPal fees. Yes, it’s only $0.49 per transaction, but savings is savings.
You just need to make sure your business can handle the change in cash flow that comes with only getting paid once a month instead of more often.
2. Change How You Withdraw Your Money From PayPal
How you take your money out of PayPal can be just as important as how you receive it.
To access your money fast and avoid PayPal fees, you should do one of two things.
Transfer Money from PayPal Directly to Your Bank Account
The most popular way to access your money is to transfer the money from your PayPal account to your bank account.
Standard Transfers have no fee to and funds are usually deposited in your bank account the next business day. This is an improvement as it used to take 3-4 business days for transfers. This is how I choose to access my money most of the time and how to avoid PayPal fees of any kind.
Or if you choose to do an instant transfer to your debit card or bank account, the fee is 1% of the amount transferred up to a maximum of $10. These funds are typically available in your bank account within minutes.
Request a PayPal Cash Card
If transferring the money to your bank account doesn’t work for you, you can request a PayPal Cash Card. This is basically a debit card for your PayPal account and will allow you to access your money right away.
This card has no fee for use at retailers that take Mastercards. You can also use the card at an ATM to withdraw cash — up to $400 each day. There are over 33,000 MoneyPass ATM locations where you can withdraw cash for free in the US. Using your card at other ATMs may result in fees.
3. Use Accounting Software to Lower PayPal Fees
I have been using FreshBooks for my accounting since 2015.
FreshBooks is an accounting software that has saved me tons of time and stress at the end of the month when I get ready to send invoices to my clients. Plus, FreshBooks Classic has an agreement with PayPal that saves me a ton of money on fees, too!
I currently spend $13.50/month on their smallest plan. But, the time and savings on PayPal fees more than pays for the cost of FreshBooks.
How I Save Money on PayPal Fees
FreshBooks Classic works with a PayPal pilot program to lower fees to a flat $0.50 per transaction. This means that no matter if you receive $20 or $5,000, the fee will be $0.50!
In order to take advantage of lower PayPal fees through FreshBooks, you and your client must both be located in the United States. You much also use PayPal Business Payments, and you must already have a FreshBooks Classic account.
UPDATE: You can no longer enroll as a new FreshBooks user and get a FreshBooks Classic account. However, FreshBooks still has a ton of other great features that make it a wonderful tool for freelancers!
Here’s how to connect your PayPal account in FreshBooks:
In order to avoid PayPal fees with PayPal Business Payments, your client must have a PayPal account, and they must pay your invoice via their PayPal balance or a connected bank account. (This is called an e-check.)
They cannot pay via credit card to qualify for PayPal Business Payments. If they pay via credit card, you will be charged a higher PayPal fee.
As mentioned, you and your client both have to be U.S.-based in order to qualify for the flat $0.50 fee on payments. So, if you have a lot of international clients, it won’t help lower fees for those payments.
How Much It Saves Me
When I first started using FreshBooks, it was saving me about $10/month (net) after paying for the cost of the program. (Meaning I was saving $10 in PayPal fees each month after the monthly cost of FreshBooks.)
But these days, I save around $360/month (net) on PayPal fees thanks to FreshBooks and PayPal Business Payments!
FreshBooks is definitely worth a look, especially because you can try FreshBooks for FREE for 30 days with my link!
Important Note About FreshBooks vs FreshBooks Classic
FreshBooks has changed to a newer version that no longer supports the $0.50 PayPal fee pilot program. If you have a FreshBooks Classic account, you can use this option as long as you don’t update to the new version of FreshBooks!
4. Ask to Be Paid as a Friend or Family
As I said before, whenever you receive money from clients, you’ll be charged a fee of $0.49 plus 3.49% of the amount. However, this is only true for money received for goods or services.
If your client opts to send you money via the friends or family option in PayPal instead, you won’t be charged a fee for receiving the money. The client also won’t be charged a fee to send money via this method either if they use their PayPal balance or a bank account, or a combination of both.
If your client sends money using a debit or credit card, they will have to pay a fee to send you the money. The fee is 2.9% plus a fixed fee based on location from this chart from PayPal.
How to Use PayPal Friends and Family
If you want to get paid via the friends or family option in PayPal, change how you send invoices to your clients. Instead of sending a PayPal invoice to your clients, which will automatically make the payment a business payment that is subject to the $0.49 plus 3.49% fee, send them an invoice via an accounting program or make one on a spreadsheet manually.
After sending your client the invoice, it does take an extra step for them to log in to PayPal and send money via the friends or family option since your invoice is not directly connected to your PayPal account.
Or if you still want to invoice via PayPal, you could also try asking them to make the payment via friends or family instead of paying directly through the invoice. Again, this would be an extra step for your client but it shouldn’t take long.
Risks of Using This Method
One risk for your clients is that they won’t have payment protection if they opt to send you money via the friends or family option. However, if you’re both comfortable with this method, it can be a good way to avoid PayPal fees.
Note also that there is a risk that you could possibly get into trouble with PayPal for using this method. If you are caught doing this for business payments that PayPal decides are not actual friends and family of yours, your account could be shut down. So use this one at your own risk!
5. Factor PayPal Fees into Your Payment Equation
A tip I’ve picked up that doesn’t really reduce your PayPal fees, but helps you to feel better about them, is factoring them into your payment equation.
For example, instead of charging your client $50 for writing a blog post, you could increase your rate to $55 per blog post. This will help you cover those fees so you are still making $50 after the fees are taken out of your earnings.
Another way to avoid PayPal fees is to ask your clients to pay the fees instead. Make sure you get this in writing as part of your contract. Then you can include a 4–5% fee at the bottom of each invoice to cover your PayPal fees.
Most clients are totally OK with this. You just need to ask!
6. 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 deposit. 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.
Finally, if you use invoicing software like QuickBooks Online, you can accept ACH bank transfers, which has no fee!
Related Post: FreshBooks vs QuickBooks: A Comparison
7. Use a PayPal Alternative
PayPal is far from 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.)
In addition to PayPal, I also have a Stripe account to accept payments in my business.
Related Post: 10 Best PayPal Alternatives for Freelancers
8. Include PayPal Fees as a Tax Deduction
Did you know you can deduct PayPal fees on your tax return? This won’t lower the PayPal fees you pay throughout the year. But, it will help you lower your tax bill so you can keep more of your money that way instead.
Just add up how much you paid in PayPal fees throughout the year and include that amount on your Schedule C.
Related Post: 18 Commonly Overlooked Tax Deductions for Freelancers
How are PayPal Fees Calculated?
The way that PayPal makes money is by charging a 3.49% fee from the total amount of each payment that is received from the U.S. In addition, there is also a $0.49 flat fee on each transaction.
For funds being received from other countries outside the U.S., the fee for each transaction is 4.99% plus a fixed fee that varies depending on the country the funds are coming from.
This fee is charged to the person receiving the money, not the person paying for the goods or services. This is similar to what happens every time you pay by card at a store. The store has to pay a fee for the “convenience” of being able to accept credit card payments.
PayPal Fee Calculator
Wondering exactly how much it’s going to cost you in fees to get paid via PayPal? Find out with this PayPal fee calculator.
PayPal fees are so irritating to me. I hate it when I get paid for freelance work, only to have a chunk of my income taken away by PayPal fees. I understand they are a business and they have to make money too, but I still hate paying their fees.
Luckily there are several ways to minimize them, or even avoid them altogether. To minimize them you can be paid less often, use invoicing software that pairs with PayPal, or ask to be paid “Friends and Family”.
To avoid them altogether you can be paid via other alternatives.
Have you successfully avoided PayPal fees? What method do you use?