Taking Payment with PayPal, Escrow and other Online Options
Collis Ta'eed
These days a lot of freelance work is happening online, often internationally and often without you and your client ever meeting. Thanks to the web we now have access to a much larger client pool which is great news, however it does present a whole raft of new problems in terms of payment options and trust. Laws about payment, fees and facilities for transactions and legal fallbacks for chasing payment all differ around the world.
In this post we’ll look at using payment services such as PayPal, Escrow, Moneybookers and others to relieve your client’s wallet with a lot less hassle. And while I bring up the topic because of international transactions that I’ve recently had to pursue, all of these payment options would work equally well in a local setting, so don’t feel you need to be a jetsetting freelancer to make use of them.
Bank and Cheque Processing Fees, and Effort!
When it comes to taking payment from international clients, your number one enemy is processing fees. It differs around the world, but certainly here in Australia processing a cheque from overseas or receiving a bank transfer can incur significant fees. For example recently I processed a US$100 cheque at a local bank, the total of fees I paid came to AU$33 which is about US$25. So basically close to a quarter of the cheque went to the bank.
On top of losing a quarter of the value of the transaction, the whole experience took ages. The teller looked at the cheque, looked a bit confused, sent me off to a special desk where I had to wait for 10 minutes, then was kept waiting another 10 minutes while the processing was handled. So the whole expedition cost me about 30 minutes of my time as well. After spending a quarter of the total PLUS half an hour of my time, all of a sudden this cheque was proving quite the waste of effort.
Bank transfers aren’t that much better. On the occasions when I have received an invoice payment wired to my bank it usually takes a long time to arrive, the client will often have trouble making our bank account numbers work in their internet banking systems and again I usually lose a big chunk of money to “processing fees”.
In short, the situation with banks and cheques is lousy. It may be better for other country-country transactions, but for me at least, I find myself looking elsewhere.
Using PayPal (or Moneybookers, PayPay and others)
These days there are a growing number of trustworthy online payment solutions and chances are you’ve used one or more before. PayPal is my own personal choice, however depending on what country you live in, this may not be available. Good alternatives to PayPal include MoneyBookers and PayPay which are similar services.
All three services have a basic payment facility where you can invoice your client by simply sending them an email requesting them to visit the PayPal (or other) website and make their payment using their choice of credit card or often various other payment options. With PayPal you can either use the basic “Request Money” tool or send an email invoice. And there’s integration with Outlook and Quickbooks as well.
The main advantage is that the client doesn’t need to actually have a PayPal account themselves, they can simply pay by credit card. When you receive payment in your account you can transfer it from there to your bank account in about 3-5 days.
What’s the Catch?
There are some drawbacks to using these systems. The main one is fees. PayPal takes about 2.5% of your takings, so on a $100 transaction you’d lose $2.50 which isn’t so much especially compared to the bank fees I found myself paying for the old school transactions mentioned above.. However if you have a $10,000 transaction, that number will be more like $250 which is quite a lot more. These fees come from credit card processing and are unfortunately somewhat unavoidable. My advice is to work it in to your quote at the beginning of the project if it bothers you.
For a full PayPal rate schedule click here. It works in a slightly more complicated fashion than my simplified ‘2.5%’.
Another catch is that when you take payment from a credit card you become vulnerable to chargebacks. Due to the way credit cards work if a transaction is disputed and you don’t have a signature and physical documentation the money will be generally refunded back to the card holder. This isn’t a big deal for freelancers however since generally speaking someone who isn’t going to pay you will simply not pay you rather than going to the trouble of fraudulently using someone else’s card. Still it’s worth knowing that such a thing exists. PayPal has a payment resolution centre to deal with issues like this.
Integrating with a Website
One particularly neat trick you can do with PayPal is integrating payment facilities with your website. This might sound like you need some technical wizardry, but it is in fact pretty simple. If you can cut+paste HTML you can do it.
Basically PayPal gives you some tools to produce a form that you can place on your website to take an invoice number and payment amount. From there the payer will get sent to PayPal to make the payment which will show up in your account with that invoice number. Here’s an example from my old portfolio site.
You can create a form like this using PayPal’s Merchant Tools section. I’ll putting up a step-by-step tutorial here on FreelanceSwitch in the coming weeks so stay tuned.
The neat thing about having a payment facility integrated with your website is that you can write it on your invoices. On my invoices I used to have a section that went:
Pay by Bank Transfer: … details
Pay by Cheque: … details
Pay by Credit Card: Visit thegoodness.com.au/client.html to pay via PayPal with any major credit card.
Having a few payment options looked professional and allowed different clients to use the method they preferred. Most international clients made use of the PayPal facility - except of course for the odd pesky client who insisted on sending a $100 international cheque!
If you want to take website payments further you can explore other options like Google Checkout and 2CO or go the whole hog and have a payment gateway and merchant account. These are a little out of the scope of this article, so I’ll assume that if you are going to try one of those methods you probably know what you are doing!
Escrow
So far we’ve discussed ways to make payment easier and incur less fees and charges, but this skirts another issue thrown up by international dealings and that is trust.
When you’ve never actually met or seen a person and you don’t really know anything about the country they are contacting you from (or even if that’s really the country they are in!) there can be some real trust issues. I like to think that I can gauge a persons genuineness through their tone of voice in email, but let’s face it, that’s perhaps a little optimistic.
Fortunately there is a service that caters to this market too, namely Escrow.com. Basically escrow works as an neutral third party in your transaction. They are like the Switzerland of internet transactions. Here’s what happens:
- You and your client agree on the amount the job is worth
- The client pays that amount to Escrow.com who holds the cash
- You do the job and send the work to the client
- The client tells Escrow that it’s all good and you get paid
What this means is that as the contractor you are secure knowing that the client really is prepared to pay, the client knows that you won’t receive payment until you’ve handed over the work, and you both know that if something goes wrong Escrow has a long process of investigation to find out which party is in the wrong.
There are some additional fees called the Escrow fee which you can choose to split or have one party pay. Generally for a freelance transaction that would come from the client. You can find information about the fees here, they come to about 3-4%.
I’ve used Escrow only once (as a buyer not a seller though) and the experience was good. They make you jump through a few hoops in terms of identification, but this is a good thing as it makes the whole transaction more trustworthy.
For a big job with an unknown client Escrow is a good, safe bet.
Other Options
There are doubtless other payment options you can pursue. One that springs to mind is Western Union - though I’ve never used their service before, perhaps readers might leave their thoughts on that in the comments. For myself PayPal has proven useful and Escrow for more scary transactions and I hope this post helps you take money from all corners of the world not just your own.
Casey L. Jones
June 28th, 2007
I recently used PayPal to invoice a new client’s deposit of $650. PayPal took $18 of it for their fees.
I’m glad I can get money orders from most clients. I just got paid yesterday $1800 cash for the completion of a website after already having a $400 deposit from a check. I’d have hated to see the amount PayPal would have eaten from that.
Cyan
June 28th, 2007
Yeah it can get pretty depressing seeing them take your money, but I suppose its the price you pay for convenience.
Kuswanto
June 28th, 2007
Access denied:
6/28/2007 12:17:59 AM: Your access to Escrow.com has been denied.
LOL, maybe my country is blacklisted by Escrow.com.
Currently Paypal still suck for me, because i can not accept payment due to unsupported country (suck).
So far, i am using moneybookers, western union, iKobo, and 2Checkout.
Moneybookers, works pretty well. But all of my client in US can not use their credit cards, wether it’s Visa or MC. Amex does not work with MB. MB is cheap when comes to fees.
Western Union, i suggest don’t use this if you have other options.
iKobo, work pretty well. Slow on customer support tho. Hate the ATM fee. 2$ every withdraw.
2Checkout, i am still nervous about 2CO. Currently i am still waiting the money from 2CO, it’s been 8 days they wired the money. But, i haven’t received it yet. My finger still crossed.
Cyan
June 28th, 2007
8 days! Yikes! Keep us posted, if they turn out to be a bit dodgy I want to make sure I remove that link from the post
Joel Laumans
June 28th, 2007
Thanks for posting this Collis,
It is definitely something good to know before working with online payments.
Xavier
June 28th, 2007
I am still amazed by what Internet can do for us. As a recent user of the solutions you mention above, I feel Worldwide freelancing is a real opportunity for designers.
As now, place is not the key issue.
I’ve worked a lot in design agencies and figured that most of them work within an 80 miles radius from they office. What about going worldwide?
Think of the possibilities, and fairness it can be.
Because globalization has it’s good points! Anyone, well intentioned and skilled, can make a go from anywhere!
I’ve now worked for Australia, Norway, France, USA and coming up Canada, all that from my Belgian office and with really good relations with my clients too!
Of course payment is an issue! But with the solutions given in this article and a little trust for the start. It’s possible to build a real legitimate business!
And the fees can be easily evened out by the expanses you don’t make: going to your clients office all the time, printing endless versions of an eighty pages book ( ‘ve been there) or going to the restaurant and taking the bill to yourself.
think of it… And e-mail doesn’t order strawberries in winter! ( ‘ve been there!)
“Anywhere Freelancing” can be a pretty good solution among others!
Xavier
PS: And for those who wonder how to communicate with your international clients, there is e-mail, phone, Skype, All the IMs, Team work apps on the web.
There is noway your client is going to feel lonely!
Ana
June 28th, 2007
I also use Western Union.
Joe
June 28th, 2007
I have used escrow.com many times. Money well spent.
Wayde Christie
June 28th, 2007
I’ve used an Australian foreign exchange service called OzForex several times, but it’s only really doable if the transaction is over $1000.
Essentially, you register with them (for free), provide some details and you’re good to go. When your client is ready to pay you, you must ‘book a deal’ with OzForex, which involves entering the details of the forthcoming transaction into your ‘deals’ page on the website (can be done by phone also). At that point your international client deposits (usually via internet banking) into an OzForex bank account with a specific transaction ID. Then when OzForex spots that amount and ID go into their account, they can match it to your previously booked deal and assign the funds to you. Your funds are then transferred directly to your bank account.
The advantages of using a foreign exchange account like this are very low fees and a much better exchange rate than any banks can offer. The only drawback is that not all of your US clients will be able to use the service due to the arcane banking systems still being utilised by some US banks.
Andrew K
June 28th, 2007
I’ve started using Freshbooks and doing my billing through it… great tool, great integration with payment tools. I do use PayPal, and just deal with the hit — retailers deal with it every day with their credit card transactions, as does everyone else that accepts credit cards.
I chalk it up to the cost of doing business — I’d rather take a 3% hit and get a reputation as someone that’s easy to do business with than make it difficult on my clients.
People care about you being easy or hard to deal with — and everything you do adds up in that. Including how payments are handled.
Tony D. Clark
June 28th, 2007
I often recommend PayPal to small clients, and increasingly to larger clients. It’s easy to set up and comparably priced to other options.
SitePoint has a great article comparing PayPal, 2CheckOut, and WorldPay with a true merchant account. Very interesting how they add up over time:
http://www.sitepoint.com/article/merchant-account-review
Ana
June 28th, 2007
I’ve used Pay Pal today, an hour ago. And I am getting crazy. By the time I was writing my number card, my session gets expired, I made refresh and says that the money was transfer to my account. What account? If gets an error while inserting the number card, it shouldn’t anywhere. Right? :/
Oh Lord!!
Eric T
June 28th, 2007
Hey Collis,
Nice write up. I dig your payment solution through paypal on your old portfolio site. When is your article on integration going to be out? I have a serious need for a project exactly like that right now. I have tried to read through the complicated PDF files of the paypal API’s to try to create my own PHP driven solution but have had no luck. Any websites that you can recommend for help until your article is out?
Thanks,
Eric T.
Alfa
June 28th, 2007
I wish Xoom was featured, too.
Benek
June 28th, 2007
I’ve used Paypal a few times for international and local clients and found it’s perfect. To deal with the fees I have a note on my invoice that you should add an extra 5% or so if paying via paypal.
Rafal
June 28th, 2007
Well, if you do know that a client might pay using PayPal, just charge them the extra 2.5%. Problem solved… Just charge the extra fee you would pay. Because realistically, it’s not only convenient for you, but for the client as well. They don’t have to buy a stamp and mail a cheque, they don’t have to go to the bank and get a certified cheque, or direct deposit, or anything for that matter.
Els
June 28th, 2007
If your client makes sure they transfer money from their bank account into PayPal first, so they can pay you out of their PayPal balance instead of by credit card, it gets a whole lot cheaper!
Ash Haque
June 28th, 2007
I get most of my payments via cheque with the odd paypal payment, in Calgary (Canada) it works well. Even for international cheques there have been no service charges and it takes like 10 minutes to deposite it
Chloe
June 28th, 2007
With regards to cheques, I’d be interested to know how an online bank like ING Direct would handle an international cheque. Since they have no account keeping fees, maybe they would have no (or lower) processing fees? It’s worth checking out.
Tuan Nguyen
June 29th, 2007
I have never worked with a client that I don’t see face-to-face. My goal is to have clients both the real world, and cyber.
Jermayn Parker
June 29th, 2007
The amount paypal can take out surprised me a bit…
No wonder they make so much money…
Surely there is a service that does not charge that much
jeremy
June 29th, 2007
Hi Collis-
Great article, and timely as well, as I am a fellow Aussie in a similar predicament when charging o/s clients. Some of my client are larger publishing houses overseas, and I worry they would be reluctant to use a credit card with something like paypal, as they usually need an invoice to go to a different department and put things through that way. Can they pay through their own bank to paypal? What about issues such as not having a social security number? Can you elaborate any more on your experience? Thanks for the great advice!
Collis
June 29th, 2007
@Ana: Wow that sounds like an awful experience. On one of FreelanceSwitch’s sister sites - FlashDen.net we take payments by Paypal and I periodically get a support query from people who have similar experiences. It seems to be only a few people so I imagine its something to do with PayPal not making their site properly. Actually they are releasing a new version of the site shortly (the beta is up for testing if you’re interested) let’s hope its better than the last!
@Eric: Thanks Eric, I should have it up next week. Actually there are two ways you can do it, you can go the hard API route which I haven’t a clue about, otherwise you can do what I did. Basically when you get one of their “Buy It Now” buttons it is actually an HTML tag with lots of hidden tags in it. I just made two of the input tags not hidden so that the user could fill them out. I.e. instead of a fixed price and item description the user actually fills it in themselves.
if that didn’t make sense you can actually just click “View Source” on my example that I linked to and copy the whole form and change the paypal email address from mine to yours and it should work. You might need to change the currency is the only other modification probably.
Hope that helps! Otherwise I’ll have more for you next week!
Collis
June 29th, 2007
@Alfa: I’ve never heard of Xoom, what are they?
@Jermayn: Yeah it is a little high, but that’s Credit Card fees for you. Actually if you process a lot of transactions (like $5000+ a month) they reduce the rates down to like 1.5% which is a lot better. I guess its just not worth it for them on small transactions otherwise.
@Jeremy: Good point about larger companies. I must admit the bigger clients I had overseas all paid by bank transfers, probably for that reason. Paypal has facilities to take payments from banks but it involves setting up an account which I find most clients are reluctant to do - especially non-tech savvy ones.
As for the social security number I’ve never experienced that one! The clients I had worked with overseas were US, UK, Hong Kong, South Africa and one or two countries I’ve forgotten now, but none threw that issue up. Are you invoicing as a business (i.e. with your ABN and what not?) … Most of my experiences were pretty similar to invoicing local companies, one time someone got me to fill out a weird non-US tax declaration form but that was it. Maybe my clients were all slack tax-avoiders
Bjoern Fredriksen
June 30th, 2007
Yes, payment processing can often be an issue with global transactions. Particularly when your customer is in a different country than yourself.
If you take up-front payment, you’d better have a bloody good reputation, and buyers are likely to go elsewhere. If you accept payment on completion you risk delivering the product without ever seeing the money. I’ve ended up in that situation as a virtual worker myself.
All in all, sites like PayPal and other payment processors only make the process of moving money around easier, whilst sites such as Escrow.com provide some level of security for both parties.
The more secure online freelancing and outsourcing sites build in an escrow system on the site to protect both buyers and service providers. They do take a larger cut of the transaction, but they also provide work and projects at the doorstep of the provider.
Adnan
July 3rd, 2007
Collis,
Nice article. I have been thinking of using Paypal for charging for my services, but was unaware of the 2.5% they take. For the security and convenience to my clients, I’ll still go with it and pay the extra $$.
citra
July 4th, 2007
Collis,
Cool article
I want to use paypal and I guess the 2,5% fees are taken if somebody use creditcard, right?
somebody correct me if I’m wrong, because when paypal member send you money using his own paypal, it would be free. right?
Cant wait to see the merchant tool tutorial, cmon collis!!
David C.
July 9th, 2007
I couldn’t find instructions on Paypal as to how to create the web form mentioned in the article.
I looked for a good hour, but all I found were the “buy now” buttons.
Any details on how to implement that? That’s a pretty professional and convenient feature to have as a freelance web designer.
Aaron
July 11th, 2007
This was really great…actually, the comments were even better. (Kind of saved me from making a mistake with moneybooks.com - all of my clients pay with American Express cards.
I have had a pay pal account for a while now..but with one strange problem: my clients can’t pay with it. I’m a freelance English consultant in Mexico City - a country supported by PayPal. But for some reason none of my clients have been able to pay.
I wrote PayPal’s customer service email, and got friendly..but pretty useless help in return.
The service reps told me that my clients had to make a long distance call to their service department at the moment of their transaction…maybe that way they could iron out the problem.
For some reason, I feel really uncomfortable asking my clients to make a long distance call so they can pay me. What do you think?
Téa B
July 25th, 2007
As an Australian that has international clients, I use PayPal and find it to be a whole lot easier than buggering about with the Commonwealth Bank and their fees, plus the 21 day International cheque clearance time (ugh) and the aforementioned blank face when you hand in a cheque
Personally, I find that you cannot really avoid the fees, and whilst there are probably services that are cheaper than PayPal, I think its something that is fairly well accepted as a legitimate payment method. It makes it so much easier than having to deal with merchant accounts and whatnot.
For those international clients that do not want to use PayPal, or in instances where the fees are really prohibitive (say, over $3000), I make my Direct Deposit/Wire Transfer details available as well. I think that a combination of those two things pretty much cover the gamut, and even my local clients pay me with PayPal now too.
Claudia
September 5th, 2007
Very interesting article!
One related subject I’d be interested in is how other freelancers deal with clients that do not pay and what do you think about asking for a 10% deposit before delivering any work to see if the client is serious?
Andrei Potorac
September 28th, 2007
I read comments here about people complaining about PayPal fee. Well, what would you say if there is no way to withdraw money with PayPal in your country.
Let me tell you here it isn’t possible, so this is what I pay for a transaction:
Let’s say I have a 10.000$ project (being the only money the client pays)
1. Because the website where the project is from charges 15% of the cost of the project. I’ll have only 8.500$
2. The only type of transaction I can use in this case is Western Union - where the tax is about $200 for such an amount, plus I pay 10$ processing fee.
So from 10.000$ I would get 8290$ only.
Almost $2000 spent for fees. Why is that? Because there is no paypal here and the clients don’t want to use something else.
Not to mention the inability to buy/sell stuff online and more. So please, reconsider complaining.
Andrei Potorac
September 28th, 2007
@Claudia: I always charge 50% upfront before I start. Usually people send the entire amount upfront, but that might be only my case because of the good reputation I made in the last three years.
Andrei Potorac
September 28th, 2007
Uhm.. on FlashDen we use moneybookers now, and that’s really convenient for me! ( some kind of PayPal for more countries
)
Too bad 99% of the clients don’t have a moneybookers account though.
Greg Newell
December 13th, 2007
Paypal is OK but as far as accepting credit cards from clients merchant accounts are still better…
1. Getting a more conventional merchant account can actually be cheaper depending upon the volume of business you do. Paypal is free but the percentage is usually about .5 points higer per transaction. Only low volume business using paypal can be justified. Medium or higher volume business can offset the monthly fees associated with conventional merchant accounts by having a lower per transaction percentage. You also have more flexibility with respect to how you take payments (offline, online, swipe, phone etc.).
2. Paypal doesn’t allow subscription payments without the client actually signing up for a paypal account. (The process of charging a client for a subscription actually sets up an account for the client). Paypal will also not accept a credit card that’s already “registered” in a Paypal account (so I can’t take a clients credit card and enter a paypal payment for my client to me if the client has a paypal account set up already. If the client doesn’t have an account, the process of entering his credit card to get paid will automatically set up an account for my client. (this is an issue when you take credit card transactions over the phone or in person and need to process them) I think you also have to have a Paypal Pro account to take subscription payments. Currently that means you have a $30/month fee on top of per transaction charges.
3. Paypal Pro is more expensive that the merchant account I use…flat out. It’s not worth it. I pay $15/month with link point (the three major cards), have lower transaction fees overall and more flexibility. I have no problem setting this up, I get a virtual terminal, subscription payments and can easily integrate with website technology if I want to sell online. With authorize.net, I’ve got an additional $20/month. So it’s a total of $35/month vs. Paypal Pros $30. But the process is just about universally accepted in most shopping carts and the lower per transaction fees offset the difference in price.
4. THIS IS HUGE - Paypal does NOT protect your purchase like a credit card would. I will NEVER use paypal to buy soft products. Let this be BUYER BEWARE. USE ESCROWS or pay directly with a credit card. Charge backs are a good thing when its you that has to initiate it. I’ve been burnt twice and Paypal was nothing but a roadblock. In fact in both cases I lost my money. (I purchased software to unlock my cell phone that never worked and I purchased website software on Ebay that turned out to be a rogue copy and nothing but a backup of an existing site. I had MILES OF PROOF and got nowhere.
Chris Wilson
March 20th, 2008
On the PayPal payment thing,
I think here in the UK our banking system has “missed the boat” with merchant banking and the kinds of facilities sellers expect.
It seems that the majority of British banks are lagging behind the United states in the innovative sense when it comes to payment processing our customers needs. PayPal is the industry leader in that field and more than willing to adapt and change with market demands - well in advance or anticipation of what the future will mean for millions of users out there.
The problem has always been that our British banks have always been afraid to take the initiative and listen to what we as sellers wanted. Quite why this is so, has always eluded me and the opportunities missed are staggering. America takes the lead and we follow, we should be ashamed of ourselves and just simply follow our own initial thoughts and not just rely on catch up based on someone else’s efforts to succeed.
My suggestions were ignored for merchants to “adapt” with the technologies available over 10 years ago when I first started administering websites. Now of cource PayPal is the industry leader and a very successful company operating on a global scale… ah if only they listened to me back then! If they had we certainly would be looking at using a good old “British bank” on top of its game. Our current site http://www.sawebay.com (a online UK wholesaler) would probably be transacting through our own national UK bank and not paying the price for the success in commissions through PayPal.
Chris Wilson
May 3rd, 2008
Unfortunately PayPal has now started charging up to 3.4% on each transaction.
That’s no small cost by any standards and something we as wholesalers need to factor into our prices to cover this huge burden.
So how can we absorb these costs and still remain competitive in the marketplace?
Although our wholesaler company ‘SAWebay’ still accepts payment through PayPal, we now provide alternative payment methods such as bank transfer.
SAWebay has become the newest wholesaler which has positioned itself as an
industry leader offering some of the lowest prices typically: 80-90% off the
RRP.
The main advantage of selling compared with other Wholesale companies is the
ability to provide these competitive prices to the Trade & General public
without buyers having to prove trading status or go through an online
registration process. But more importantly we accept payments through a bank transfer at no additional cost to either party!
Added bonus?
An unproven company will suffer if they cannot convince buyers of the
quality of their merchandise before placing an order. SAWebay provide sample
stock (no minimum purchase) offered for sale at a starting bid of 0.99p on
EBay. Anyone thinking of buying as a market trader, shop keepers, stalls
party-planners etc. can initially get quality branded samples before a major
purchasing commitment.
Major commitment indecently - is only £100 minimum purchase anyway, with an
average buy and many lots available from £50 or so for fashion and branded
clothing.
http://www.sawebay.com
monis raza
May 12th, 2008
hi
iam monis raza and i will be saying that this is money showing……………