PayPal is a useful way to invoice clients, process payments, and quickly transfer money online. Unfortunately many PayPal transactions come with fees, and those fees can add up quickly.
What Are the Fees for PayPal Business Accounts?
If you are self employed have an online business, PayPal can be a great tool for managing your business transactions.
In order for your business to offer PayPal as a payment option, a PayPal Business Account will be required.
For online domestic (U.S.) transactions, PayPal fees are typically going to be 2.9% plus a $0.30 flat fee.
There can be additional fees for sending or receiving money internationally, so be sure to check the PayPal Merchant Fees page for current rates.
What Are the Fees for PayPal Personal Accounts?
If you are using PayPal for personal purposes, you may or may not encounter fees.
For transactions directly funded from your PayPal balance or a bank account, luckily there aren’t any fees.
However if you are funding the transaction by credit card, you will have to pay a fee of 2.9% plus a $0.30 flat fee (for U.S. domestic transactions).
How to Avoid PayPal Fees
As a business owner or freelancer, making an effort to avoid fees can help you increase the amount of money you keep from each sale or transaction. Keep reading for 9 easy ways to decrease PayPal fees:
1. Get Paid as "Friends and Family"
The friends and family option lets you send and receive money through PayPal without any fees.
This is assuming that the money is being sent from a bank account or PayPal balance.
Unfortunately if money is sent using a debit or credit card, the sender will have to pay a fee. The fee is 2.9% plus a $0.30 fixed fee for U.S. domestic transactions.
Be aware that fees can be higher for international transactions.
How do I send money using PayPal friends and family?
- Login to your personal PayPal account.
- Click Send
- Enter your friend’s name, email, or mobile number.
- Enter the amount and payment method
- When prompted, select Sending to a friend.
- Add a note (optional) and click Send Payment Now.
Do be aware that using PayPal friends and family for business transactions is directly against PayPal’s user agreement.
PayPal does not reimburse fraudulent payment requests made through the friends and family feature. A good rule of thumb is to only use the friends and family option with people you know in real life.
2. Bill Less Frequently
PayPal charges fees for each transaction. For domestic U.S. transactions, these fees are usually 2.9% plus a flat $0.30 charge per transaction.
So, the less transactions you have, the less flat fees you’ll incur.
Although it is just a $0.30 charge, these small flat fees can add up quickly for businesses handling numerous transactions.
For freelancers, this may mean billing your clients less frequently. If you usually invoice weekly or bi-weekly, consider billing monthly instead.
Of course, before changing payment schedules with your clients, make sure that your business has enough cash on hand to handle the changes.
3. Change How You Withdraw Money From PayPal
If you usually withdraw money from PayPal using an instant transfer, you’re likely racking up unnecessary fees.
There are two easy ways to withdraw money from PayPal without fees.
Option 1: Standard Bank Transfer
By using a standard bank transfer, you can withdraw funds from your PayPal account while avoiding any additional fees.
The money you withdraw will usually take 3 to 5 business days to show up in your bank account.
How to Withdraw Money from PayPal on Desktop
- Login to PayPal
- Click Transfer Funds
- Click Transfer to your bank account
- Follow the instructions to complete the withdrawal
How to Withdraw Money from the PayPal App
- Login to the PayPal app
- Select PayPal Balance
- Select Withdraw Funds
- Follow the instructions to complete the withdrawal.
Option 2: Use a PayPal Cash Card
Another alternative to avoid PayPal fees is to request a PayPal Cash Card.
These are some of the benefits of using your PayPal Cash Card:
- Monthly fee: $0
- Transaction fee: $0
- MoneyPass ATM fee: $0
- 10-Day Mobile Check Cashing: $0
4. Include PayPal Fees in Your Pricing
One of the simplest ways to avoid PayPal fees is to simply include them in your pricing structure.
By anticipating these fees, or passing the fees on to your clients and customers, you can avoid taking the hit to your pay.
For example, if you invoice your client for $500.00, PayPal fees would be $14.80, leaving you with $485.20
But, if you were to invoice your client for $515.24, PayPal fees would be $15.24, leaving you with $500.00
Alternatively, you can charge a fixed fee percentage for your services (for example, 3%). You could also ask your clients if they would be willing to cover transaction fees.
If you choose to pass these fees off to your clients, be sure to communicate this clearly.
As a business owner or freelancer, it’s important to let your clients know if their invoice will include any additional charges. Always include this information in your contracts and pricing packages.
5. Apply for Lower PayPal Fees
If you have $3,000 or more coming through your PayPal account each month, you may be eligible to apply for lower merchant transaction fees.
Applying for lower merchant fees could bring the standard 2.9% rate down to as low as 2.2%.
This is something that PayPal doesn’t advertise. You will have to contact PayPal directly to see if you qualify for lower merchant fees, and to receive the steps for applying.
6. Request Payment in a Specific Currency
Dealing with international transactions through PayPal can result in lots of extra fees.
When you are using multiple currencies, at some point a currency conversion will likely be required.
To avoid currency conversion fees, request that your clients pay in your primary currency.
This will prevent you from paying currency conversion rates when trying to withdraw your money.
7. Accept Other Payment Methods
PayPal of course, is not the only method of receiving payment. To reduce the amount you pay in fees, it may be beneficial to ask your clients to use other forms of payment.
Direct deposit, checks, or ACH transfers are the easiest forms of payment to avoid unnecessary fees.
Some companies and clients may be able to send your payments through direct deposit. When you receive payments through direct deposit, the money goes directly into your bank account.
By receiving payment this way, you’ll successfully avoid any fees.
Many invoicing and accounting software programs allow you to accept ACH transfers to your bank with no additional fees. This can be a great option for receiving payments from clients.
Though certainly not the fastest method, receiving payments in the form of checks is another option. Many companies won’t mind paying this way – you simply have to ask!
8. Claim PayPal Fees in Your Tax Deductions
Remember that your payment processing fees are deductible! For small business owners and freelancers, payment processing fees are usually an unavoidable part of your business operations.
Be sure to keep good record of the fees you pay throughout the year.
Although you still have to pay the fees up front, claiming any PayPal fees your tax return can help reduce your tax burden.
9. Consider PayPal Alternatives
If PayPal isn’t working for your needs, luckily there are many other options to choose from.
A few popular alternatives are Stripe, Venmo, and Google Pay.
Some of these alternative payment processors have their own fees, so be sure to compare all of your options before deciding which company works for you.
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