Do you use PayPal? If you do business on the internet, there is a good chance you do. Many web sites accept PayPal for payment. Our small business used PayPal quite extensively in the beginning, but now we are moving away from it. Why? It’s too expensive.
Most people associate PayPal with EBay. That’s because the most convenient way to pay on EBay is via PayPal. However, many smaller online merchants use PayPal as a convenient way to accept payments.
Accepting Payments
If you’re a small business you can accept payments several ways. You can accept cash. However, if you business is online only, it’s rather inconvenient to get cash from a customer. You can take checks but it’s inconvenient and very risky. People are always coming up with new schemes to commit fraud with checks.
That’s why most small online businesses prefer electronic payment methods. Credit cards come to mind right away. However, credit card processing can be expensive and time consuming to set up. Usually you have to use a third party provider like Authorize.Net. They take a small percentage fee and deposit the rest in your bank account.
When you’re starting a business, you have a lot to worry about. You have the legal issues (trademarks, patents, business organization, etc) to deal with. You have technical issues (servers, software) to deal with. And you have money issues.
Usually the money issues revolve around not having very much. When you’re running a business on a shoestring budget the last thing you can afford is wasted time or money. As a compromise, many small business owners accept PayPal payments.
PayPal is a good option for many small businesses
You can accept payments from customers directly. Your affiliates can deposit money right into your account. For instance if you have a website that accepts advertising, the advertiser can often pay via PayPal or direct deposit. On the other hand many vendors (like web hosting providers) can accept PayPal as payment.
PayPal can function as a separate business account. You can tie your checking account to your PayPal account and have money automatically withdrawn from your checking account to make payments. You can also move the money into your checking account if you’ve somehow managed to make a profit.
PayPal Can Get Expensive
All in all, PayPal is a pretty good deal. However, one thing you’ll quickly grow to dislike is the fee. PayPal can take a part of every deposit that comes into your account. For instance we recently deposited some money into our PayPal account to cover some business expenses.
The 3 of us each transferred $250 into our business PayPal account. Of the total $750, $729.90 made it into the account. So we spent $20.10 just to fund our PayPal account. In the past we had ignored the fees or just considered them part of the cost of doing business. However, recently, we realized how much PayPal has been costing us.
We had also been paying some contractors via PayPal so if we funded the account and then paid the contractors; we were going to get double charged. PayPal would get their fees when we deposited funds and then again when we paid the contractors. Sometimes we get fees, other times we don’t. It can be somewhat confusing trying to figure out when you do and when you don’t get charged a fee.
At this point we have moved everything we could to our business checking account. Currently the bank we use charges us no fee for our business checking. Obviously we wanted to do as much business with this bank as possible. We moved all of most of our funds to this bank. We had our advertisers deposit directly into this account. We know pay our contractors via the free bill pay via the bank.
PayPal is Just Another Tool – Use It Wisely
I don’t want to criticize PayPal too harshly. They allowed us to do conduct business online in a convenient matter. The fees were typically 2% to 3%, not outrageous by any means but they can add up.
My point with this article is that when you’re running a small business, small expenses can add up. If you’re using PayPal, keep an eye on your fees. You may be better off with an alternative solution.
Tags Banking & Money PayPal Small BusinessRelated Posts
- Protect Yourself with Credit Cards
- Why You Shouldn't Buy a New Car
- TurboTax Direct Deposit Stimulus Payment Questions
- What is Prosper and How Does it Work?
- Why I Use a Credit Card for Every Purchase - Dispute Resolution
Comments
3 Comments so far
Very good article. I agree Paypal is to expensive, and i hope another company starts one up a like a paypal, but with cheaper rates.PayPal is not a bank. The can hold your funds, or do whatever they want. If A dispute occurs with a buyer, paypal will freeze your account until the matter is solved.. this can take weeks! So think again about using paypal, unless they step up to the plate, and handle their in house operations differently. Surely they can afford to implement new structures, but i think they are solely based upon greed. Did you know that Ebay owns Paypal? yeap! thats where the greed starts from. A bank, any bank should become a new paypal. Just transfer money, from bank to bank.. thats all, and charge a fee for it.. As soon as they start this Paypal is over. Just a matter of time i think.
Just want to let you all know there is a new program that dose not charge the fees, RME if anyone would like info on it email me and I will send you an invite.
Shelly
yes please do, but I am a consultant can I use it?
LG