PayPal is the financial lifeblood for many small businesses.
You use this top-of-the-line software to invoice your clients, keep track of your spending and income, and transfer money between accounts.
But thanks to PayPal’s transaction fees, that $500 project you just finished won’t be an extra $500 in your business account.
It’ll be more like $485.20.
As the year progresses, the $0.30 flat fee and 2.9% fee on all seller transactions will add up.
And as a result, your annual revenue will take a hit.
Big corporations already take enough money away from small companies like yours. No need to give them even more.
We’re going to show you tried-and-true workarounds for these PayPal fees.
1. Add PayPal’s Transaction Fees to Your Invoices
The standard invoicing fee that PayPal charges is non-negotiable.
But it’d be great if you could have somebody else cover these costs for you. If you’re willing to turn these invoicing fees back on your clients, that’s a real possibility.
How to Get Your Clients to Pay Invoice Fees
Letting your clients know that you’re including additional fees always causes anxiety.
You never know how they’ll react to the idea of higher costs, and there’s always the risk that they’ll never book another session with you again.
In reality, it’s all about how you approach the topic.
Most clients will understand and appreciate your transparency.
Calculating PayPal Invoice Fees
You want to crunch the numbers before you send out an invoice. Do the math, double-check your work, and add this invoice fee to the total amount.
Need help with the math?
Leave the number-crunching to a PayPal fee calculator. Just type in the amount you want to receive (post-invoice fee), and it’ll do the calculations for you.
Let’s say the original invoice was $1,000. That’s $1,030.18 after fees.
2. Transfer Funds Directly to Your Bank Account
PayPal doesn’t just charge invoicing fees on all transactions. They also may gouge you a second time when you attempt to transfer money between accounts.
But, there are a few workarounds if you’re willing to get strategic.
How Transfer Methods Impact Fees
A bank transfer through PayPal will take just 1–3 business days and cost you nothing more than the standard invoicing fees but that doesn’t help when you need money now.
For example, maybe you need to cover the cost of equipment by tomorrow. Or maybe it’s the first of the month, rent is due, and your bank accounts are running low.
The good news is that you can schedule an instant money transfer. The bad news is that it’s going to cost you.
Immediate transfers can cost you an additional 1% (or $10, whichever is higher).
Then it’s your money to spend in 30 minutes or less, though at a sacrifice of $10 on a $1,000 transfer.
Planning Your Spending Habits Accordingly
The best way to avoid losing another 1% of your income is by sticking to standard bank transfers whenever possible. So, it’s better to track your business expenses so that you’re never low on funds in the first place.
You can do that by:
- Keeping extra funds available on your business debit card for emergencies
- Linking your business credit card to your PayPal account for other online payments
- Setting up automatic transfers from PayPal to your bank account
- Maintaining a PayPal balance so you can make online purchases at any time
3. Invoice Your Clients Less Often
Invoicing through PayPal has made instant gratification the norm. You no longer have to visit the bank or wait days for checks to clear.
This convenience comes at a price, and you’ll have to cover those fixed fees.
The Financial Impact Of Frequent Invoicing
It makes sense to invoice clients after you finish a project or close out the workweek. After all, you have bills due at all times of the month, and you can’t wait until the 1st to receive an entire month’s worth of income.
But you have to remember that, for every invoice you send, you’ll take a $0.30 hit.
Here’s how big of a difference that can make:
This may not seem like a big deal right now, but it can make a difference of hundreds (or thousands) of dollars by the end of the year.
It all depends on the frequency of your invoices and how many clients you’re billing.
How Often to Invoice Your Clients Through PayPal
You want to cut down on the number of times you invoice each client, but you also can’t afford to collect all client payments on one day each month.
So how often should you invoice clients?
That depends on how often you work with each particular customer.
If you work with a client enough to invoice them weekly now, consider invoicing bi-weekly (on the 1st and 15th) or monthly instead.
Of course, let them know you’re changing your invoicing schedule ahead of time.
It’s a different story if you work with clients sporadically.
4. Deduct PayPal Invoice Fees On Your Taxes
When you invoice through PayPal, you say a permanent farewell to 2.9% of your total income. That’s money you’ll never see again.
Well, that’s unless you deduct PayPal invoicing fees when you file your tax returns at the end of the year.
How to Deduct Invoice Fees On Tax Returns
If you’re a small business owner or an independent contractor, you’ve likely become well-acquainted with the Schedule C tax form.
This is the form you’ll use when filing your tax returns to document business losses and expenditures throughout the year.
The good news is that you can write your PayPal invoice fees off as a tax deduction.
As a result, you can claim a lower “taxable” income as a small business owner. The lower your income, the less you’ll owe to Uncle Sam.
Don’t get hit by those invoicing fees and excess taxes!
Invoicing Software For Tracking Tax Deductions
You might be in the habit of waiting until early April to review your business write-offs.
But apps like QuickBooks and FreshBooks let you do this all year round. Both of these apps are invoicing and accounting tools for small business owners and independent contractors.
You can track billable hours, create project estimates, and send invoices. They also come in handy on the tax deduction front.
Snap photos of your PayPal receipts to “scan” them into your database. Then, you’ll have these deductions at your fingerprints come April. No more printing out your PayPal account history and doing the math by hand!
5. Apply For a PayPal Business Account
If you’ve been invoicing clients via your personal account up until this point, you’re willingly handing PayPal some of your hard-earned money.
How does a $0.50 flat transaction fee sound?
It’s possible, but only if you have a PayPal business account integrated with an approved invoicing app. Third-party apps like Harvest, Zoho, eBay, and Bill.com are all equipped to process PayPal business payments, and you get a discount for using them.
Either way, it can make a huge difference.
6. Choose Another Invoice Software or Payment Method
When you think about invoicing clients, your mind immediately thinks of PayPal.
It’s trusted by millions of independent contractors like you.
But who said PayPal is your only option? It doesn’t have to be.
Other Low-Fee Invoicing Apps
Have you thought about leaving PayPal altogether? There are plenty of other payment processing apps out there, many of which charge lower fees.
Some of the most popular include:
- QuickBooks: 2.4%–3.4% + $0.25
- Hiveage: 2.9%
- Square: 2.6% + $0.10
Apps like Stripe and Wave offer the same fee structure as PayPal but also have extra features like financial reporting and receipt scanning. These may be worth considering as well.
A Better Alternative: Bank and ACH Transfers
Bank and Automated Clearing House (ACH) transfers let you invoice your clients without having to charge them an extra fee or miss out on 2.9% of your income.
Clients can transfer money directly from their bank account to your own, no middleman necessary.
Not only do most major banks offer this service at no cost to either party, but you can usually access the funds within three business days.
You avoid invoicing fees, and your clients can avoid extra credit card payments. Everyone benefits!
Then, you can use your client management software for invoicing. Most CRMs offer unlimited invoicing for subscribers, so if your customers pay you via a bank transfer, you won’t pay any extra fees!
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Try Bloom free for 14 days!
7. Consider Micropayment Transactions
The 2.9% and $0.30 fees aren’t too big of a deal on hefty invoices. But when your invoices are just a few dollars, these fees hit your account hard.
There’s no need to leave PayPal because of this. They have unique merchant fees for micropayments.
What Is a Micropayment and How Much Do They Cost?
On PayPal, micropayments are defined as transactions lower than $12.
If you receive a payment smaller than that, you’ll pay a 5% fee (6% for international transactions) plus $0.05.
In other words, you have to pay a higher percentage than normal, but a much lower flat fee.
Now, these fees don’t apply to everyone. You must have a PayPal Business account or a PayPal Premier account, and it must have a positive balance.
When Micropayments Make the Most Sense
It’s rare that a real estate agent, photographer, personal trainer, or artist will ever invoice a client for $12 or less.
But e-commerce businesses that sell small products (think candle shops, toy stores, and bakeries) deal primarily in microtransactions.
And this fee structure is much better than the regular one.
Let’s say you sell a product worth $7. On the standard 2.9% and $0.30 fee rate, you’ll profit just $6.50.
But with a 5% fee and $0.05 flat rate, you’ll earn $6.60 on that same sale.
A difference of $0.10, or 1.4%.
This can be a massive difference over time. That’s a hundred bucks over a thousand transactions!
As of now, there’s no definitive workaround to avoid PayPal fees entirely. It simply comes with the territory of freelancing.
But there is a positive here:
With the money you save using our seven tips above, you can provide better service to your clients.
It’s a win-win for everybody.