PayPal is the world’s biggest online payment provider and it has helped millions of traders, professionals and businesses to process payments securely, quickly and easily. But these payments don’t come cheap and if you do any kind of business through PayPal you could be losing a small fortune to PayPal fees every year.
But there are ways to avoid these fees and to significantly reduce the amount that you give PayPal.
What Fees do PayPal Charge?
PayPal charges a range of fees, but what you pay and how much you pay will depend on a number of factors.
You can pay when you send and receive, you can pay when you withdraw, and then you have PayPal Credit, Working Capital and business fees to consider.
The basic fee you pay is $0.30 and 2.9% for each transaction, but there are ways of getting around this and other PayPal fees.
1. Request to be Paid as “Friend or Family”
This is not something you can do if you run your business through PayPal and accept payments though a website, but if you are a contractor it works perfectly.
When someone pays you through PayPal they are asked if they are paying for “Goods and Services” or “Friends and Family”. If they choose the former then the recipient will be charged the 2.9% and $0.30 discussed above. If they choose the latter then there will be no PayPal fees paid by the recipient.
There are a few important things to note here:
- If you send them an invoice, the payment will always go down as a business transaction and will therefore always incur fees.
- You can either ask them to pay directly and select the “Friends and Family” option, or you can send them an invoice via another service.
- There is no payment protection for payments made through the “Friends and Family” option, which means there can be no chargebacks. Obviously this is another benefit for the recipient, but if the sender does not know you then they may assume that you are trying to con them.
2. Get a Business Account
If you use PayPal for business purposes then you will benefit from a business account. There are a number of benefits to having such an account, including reduced fees. You won’t save a huge amount of money, but it’s worth it for the convenience alone and it will also allow you to take advantage of PayPal Working Capital.
3. File Your Taxes Properly
Did you know that you can deduct PayPal fees from your tax returns? Well, now you do. This is true whether you are in the US, UK, or anywhere else for that matter.
If you run a business that relies on online payments then simply add-up how much you paid over the course of a year and add them to your deductions. It may also be easier to simply add your income based on the amount of money that you receive after fees, but this will likely make the invoicing and filing process more time-consuming and it will not cover the fees you pay for withdrawing and converting.
4. Charge Clients/Customers
The easiest way to get around PayPal fees is to start asking your customers to cover the costs. This is not unusual—simply add an extra 3% to every payment made through PayPal.
Customers are used to paying more to use certain methods and while this is much more common with credit cards than it is with PayPal, it’s still a tactic that many e-commerce sites employ and it’s not one that will raise too may eyebrows.
Of course, this only works if you are giving them other options, otherwise it looks a little greedy on your part. If PayPal is the only option that you offer then your only alternative is to increase the price of your products/services by 3% to 5% to ensure PayPal fees are covered.
5. Ask to be Paid in a Specific Currency
You can have separate wallets in your PayPal account and receive money into both of them. But when it comes time to withdraw that money into your bank account a currency conversion will be needed.
If you run a business account with more than one wallet then request that your customers pay you in your main currency. That way you won’t need to pay currency conversion fees.
This is more of an issue for non-US businesses using USD alongside their own currency, but it can still impact US contractors who do a lot of work in Europe and are constantly switching between Dollars and Euros.
6. Use Invoicing Software
Invoicing software like QuickBooks can help you to better understand how much money you are spending on PayPal fees, which in turn can help you to eliminate certain payments and reduce how much you spend overall.
You may find that you are losing tens of dollars every day or week because you are accepting too many small payments and taking a hit of $0.30 every time. You may find that currency conversions or “Goods and Services” payments are stinging you hard.
Software like this can also direct you towards cheaper options, while making your life considerably easier when it comes time to fill your tax returns.
7. Apply for Lower Fees
If you make more than $3,000 a month on PayPal then you can apply to pay a reduced rate. It only makes sense—you earn more, you spend more, so you become a valuable asset. Rather than risk losing you, they will be happy to make you an offer that tempts you to stay.
Business customers can get those 2.9% PayPal fees reduced to 2.2%. This may not sound like a huge amount of money and if you’re only generating a few hundred dollars in earnings it’s not. But if you receive $5,000 in payments every month you will save $420 a year. Even if you earn the bare minimum needed to acquire this reduction, you will still save $252 a year.
It doesn’t matter how big and successful you are, free money is free money.
8. Try a PayPal Alternative
Finally, if you still don’t agree with PayPal and can’t find a way around all of those fees then it might be time to consider an alternative. We discussed the best PayPal alternatives in this guide, but here is a quick rundown:
- Venmo: Perfect for payments to friends and family and when selling occasional items, but not for business use.
- Skrill: It can be cheaper in certain areas, but it’s more expensive in others and has terrible customer support.
- Neteller: A viable alternative to PayPal that operates in a similar way to Skrill.