PayPal has revolutionized the domain of online payments -both for sending as well as receiving payments. However, the only downside to using PayPal is that you are expected to pay fees for executing transactions. While most fees are quite negligible, they could still add up to a larger amount. Let us help you understand essential tips to avoiding PayPal fees for your small business.
What is PayPal?
PayPal is a global online payments system capable of supporting online money transfers. The platform serves as the best electronic alternative to conventional paper-based methods like money orders and checks.
A number of online organizations across the world leverage PayPal as the reliable payment processor. As a small business owner, if you wish to accept credit card payments out of end customers, you are expected to launch a dedicated merchant account while purchasing expensive equipment to swipe credit cards. PayPal helped in eliminating all such needs. PayPal serves to be a convenient solution -but not always free.
Does PayPal Include Fees?
When your business starts accepting payments through PayPal, you will be charged a specific percentage of the total sale along with a fixed fee. Usually, in the United States, organizations are expected to pay a commercial fee of 3.49 percent of the respective transaction amount along with a fixed fee of 49 cents.
Ways to Avoid PayPal Fees for Your Small Business
The strategies you use for avoiding PayPal fees will ultimately depend on the type of account you use for your business. Here are some for you to understand:
- Change Payment Frequency or Structure
When you are running an e-commerce business or a drop-shipping business selling a one-time product or service to end consumers, this strategy might not help you avoid PayPal fees.
On the other hand, if you are operating a business model that goes ahead with charging your customers for recurring services (like coaching, subscriptions, and consulting services), you can think of saving significantly by altering the payment model as well as frequency of invoicing.
For instance, if your business features customers paying through PayPal on a weekly or bi-monthly basis for your products or services, switching to a month-on-month payment schedule will help in reducing the total number of times you are charged the transaction fee of $0.30.
- Leverage PayPal Family and Friends Invoicing
Payments made through PayPal family and friends work differently when compared with regular payments.
As per PayPal, if there is a request for products and services, invoice fees will only be 2.9 percent along with $0.30 for every paid request. When you request money from family & friends on the app or through PayPal online, it is free to receive money.
As a business owner, if you wish to avoid PayPal transaction fees, you can leverage the feature of family and friends to cut them completely. However, it is recommended to make sure that your clients are totally comfortable with the available option. Moreover, you should be involved in the business for quite a while.
Buyers tend to lose the respective payment protection if they continue sending money through a friend or family option. Therefore, using this strategy to avoid PayPal fees will take some time to gain trust and confidence. You can also opt for splitting the 2.9 percent in total fee savings with the client for incentivizing them to make use of the feature of friends & family of PayPal.
- Claiming PayPal Fees on the Tax Return
Are you doing a side hustle that is capable of generating a significant amount of revenue annually? Have you decided to start a proper business? You should consider all PayPal fees you will incur while doing taxes.
As a small business owner, if you are paying PayPal fees, you can go ahead with including these on the e-file tax return. It is because these are unavoidable costs of the respective business operations while allowing you to come across relevant tax deductions.
You should consider documenting the amount of money you end up paying in the form of PayPal fees across the year to achieve the same. However, it could be worthwhile when you process multiple PayPal transactions every calendar year.
- Planning Your Need for Cash Flow Beforehand
You can consider withdrawing funds available in your PayPal account to the linked bank account without incurring any PayPal fees. However, when you choose the option of instant transfer, you are expected to pay one percent of the total transaction fee -up to $10.
One of the easiest ways of avoiding PayPal fees is by just being patient. It is recommended to plan your overall cash flow in advance. Avoid using the feature of instant transfers to go ahead with withdrawing money to the linked bank account.
- Applying for the PayPal Cash Card
Yet another effective option for not ensuring charges of additional PayPal fees is by leveraging a PayPal cash card. The card will serve as the debit card while allowing you to spend the PayPal funds wherever Mastercard might be accepted.
Some of the benefits of the PayPal cash card are:
- Absence of credit check
- Absence of monthly fees
- Zero transaction fees
- Absence of minimum account balance
This card offers a wide range of additional benefits. You can look forward to avoiding PayPal fees upon receiving money if it is in the same currency you usually tend to spend with. Then, you can consider turning around and spending money directly from the account without thinking about monthly account costs or fees.
- Asking to Be Paid in a Particular Currency
Another simple way to avoid paying PayPal fees on conversions of foreign currency is by simply stating in the contract that you should be paid in the native currency.
- Planning Beforehand About Pricing
When your business will receive PayPal payments for a majority of online work, you can consider this option while determining how you wish to price the respective services.
- Applying for Micropayments
If you are used to accepting payments quite frequently for less than the amount of $10 on PayPal, you can think of signing up for the micropayment model.
PayPal micropayments are ideal for merchants conducting a major volume of low-cost transactions. When you are a merchant, you are expected to pay around 5 percent of the total transaction fee for customers in the United States and 6.5 percent for international customers.
You can think of applying for this option when you wish to ensure that your PayPal account is in good condition. However, when you pay the micropayment fee, it will make more sense than paying the 2.9 percent along with $0.30 per transaction on smaller deals.
- Accepting Other Payment Methods
While this serves to be an effective way to avoid PayPal fees while receiving money, it is sometimes the easiest way out there.
If you can receive payments through direct deposit or check, you can skip the entire hassle of PayPal entirely. Indeed, you are expected to make sure that your customer or client is satisfied with the setting. Moreover, when you are working with a large company, they would prefer paying you directly while working with a bank rather than PayPal.
Eventually, losing a minor amount every year on PayPal fees might not be the end of the world. As you learn how you can avoid PayPal fees during the early stages of your side business, it can help in saving thousands of dollars in the long run. You can eventually leverage your savings to invest back into the business or simply grow the overall savings.