There are so many good things about freelancing that it’s nearly impossible to name the bad.
Seriously, I love working my freelance business that much. (I mean I better since I quit my job to pursue it full-time, right?!)
But the one thing about freelancing that I absolutely hate (besides self-employment taxes) is paying PayPal fees.
- How Freelancers Can Decrease PayPal Fees (or Avoid Them)
- 1. Opt to Be Paid Less Often
- 2. Change How You Withdraw Your Money From PayPal
- 3. Ask to Be Paid as a Friend or Family
- 4. Use FreshBooks Classic to Lower Your PayPal Fees
- 5. Factor PayPal Fees into Your Payment Equation
- 6. Include PayPal Fees as an Expense on Your Tax Return
- 7. Consider Other Payment Methods Besides PayPal
- How Much Does PayPal Charge?
- PayPal Fee Calculator
- Why I Hate PayPal Fees
How Freelancers Can Decrease PayPal Fees (or Avoid Them)
Here are 7 ways to decrease PayPal fees or even avoid them altogether.
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 of getting paid by your clients more often. Getting paid more often can help you avoid cash flow problems in your business.
But, one major downside of getting paid more often 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 $0.30 USD, plus 2.9% 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 4.4% 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 $0.30 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
After you get paid in your PayPal account, how do you take your money out to use it? If you request a paper check from PayPal, you’ll be charged another fee of $1.50, 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.
To access your money faster and avoid this PayPal fee, you should do one of two things.
Request a Free PayPal Debit Mastercard
Having a PayPal Debit Mastercard will let you access your money right away.
This card has no fee for use at any retailers that take debit cards. You can also use the card at an ATM to withdraw cash — up to $400 each day. But, using your card at an ATM may result in fees.
Transfer Money from PayPal Directly to Your Bank Account
This method of accessing your money has no fee. Plus, PayPal has also sped up the amount of time it takes to transfer money into your bank account. It used to take up to 3–4 business days, but now they estimate that funds should arrive in 1 business day.
This is how I choose to access my money from PayPal most of the time to avoid fees of any kind.
3. 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 $0.30 plus 2.9% 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 if they use their PayPal balance or a bank account, or a combination of both. If they send money using a debit or credit card, they will have to pay a fee to send you the money.
If you want to get paid via the friends or family option, 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 $0.30 plus 2.9% fee, send them an invoice via another program.
It does take an extra step for your client 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.
If you 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.
Risks of This Method
The other downside for your client is 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 save money on PayPal fees.
Note also that there is a risk that you could possibly get into trouble 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.
4. Use FreshBooks Classic to Lower Your PayPal Fees
UPDATE December 2018: FreshBooks Classic is no longer available unless you’ve already got an account. However, FreshBooks still has a ton of other great features that make it a wonderful tool for freelancers!
I have been using FreshBooks for my accounting since 2015. I used to do all of my finance tracking manually, but now that I’ve started using FreshBooks, I’ll never go back.
FreshBooks 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.
Here’s How It Works:
FreshBooks Classic works with PayPal’s 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 must be located in the United States and be charging a United States Client. You much also use PayPal Business payments, and you must already have a FreshBooks Classic account. You can no longer enroll as a new user and get a FreshBooks Classic account.
Here’s how to connect your PayPal account in FreshBooks:
Your client must have a PayPal account, and they must pay 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 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. These days, I save around $360/month (net) on PayPal fees!
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!
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 a blog post, you could increase your rate to $52 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 3–4% 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. Include PayPal Fees as an Expense on Your Tax Return
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.
7. Consider Other Payment Methods Besides PayPal
Of course, the easiest way to decrease your PayPal fees is simply to request your clients use other forms of payment.
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!
How Much Does PayPal Charge?
The way that PayPal makes money is by charging a 2.9% fee from the total amount of each payment that is received from the U.S. In addition, there is also a $0.30 flat fee on each transaction.
For funds being received from other countries outside the U.S., the fee for each transaction is 4.4% 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 handy PayPal fee calculator.
Why I Hate PayPal Fees
PayPal fees are so irritating to me. I hate it when I send out invoices for freelance work I’ve completed, only to have a chunk of my income taken away by PayPal. I understand they are a business and they have to make money too, but I still hate paying their fees.
For the longest time, I wondered if there were any legitimate ways to help decrease PayPal fees so I could keep more of my freelance income. After a year of working my business online, I’ve come up with a few strategies to decrease my PayPal fees. Now I’m sharing them with you so you can keep more of your money too!
The bottom line is, you deserve to keep as much of your hard-earned money as possible instead of giving it over to PayPal in the form of fees!
Do you have any other ideas for lowering your PayPal fees?