If you’re a small business, taking payments from customers and clients is a crucial component of your success. PayPal business is a popular payment processor choice for many small business owners, but is it right for you?
Let’s walk through the basics of PayPal business, including the perks and tools they offer, transaction fees, risks of the platform, and other alternatives you can consider.
Using PayPal for Small Business Transactions
PayPal Business gives you a full arsenal of financial tools. You can give your customers flexible payment options: accept debit and credit card payments, offer PayPal checkout on your website for online payments, take digital wallet payments through Venmo, and more. You can also pay your own vendors and suppliers through the platform, too. You don’t even need to have a website to take advantage of many of their payment tools.
PayPal Business also offers a wide range of tools for setting up recurring payments, sending customer invoices, and creating payment plans. No matter how your business operates, you’ll probably find the payment method to suit your needs.
Understanding PayPal Fees for Small Business
One of PayPal’s biggest virtues is their reasonable, transparent fees. There’s no setup fee. Plus, you can clearly see every single fee type on their website — before signing up. PayPal Business doesn’t have a membership fee with flat-rate pricing; instead, you’ll pay a small fee for each transaction handled through the platform. For most standard credit and debit card transactions in the U.S., that means a fee of 2.99% plus $0.49. Transactions handled through PayPal checkout cost 3.49% of the total amount plus $0.49.
If you’re hoping to keep fees to a minimum, your best option is actually to utilize PayPal’s QR transactions for in-person sales, which has a processing fee that starts at just 1.9% plus $0.49. Beyond that, some small businesses can receive volume discounts, but you’ll have to qualify.
Small businesses can also enjoy simple currency conversions and fees for international sales, cryptocurrency transactions, and more.
Common PayPal Issues for Small Business
PayPal Business is a great tool, but like any payment solution, it does have its potential issues. First, PayPal is notorious for putting holds on accounts, freezing merchant balances until the issue is resolved. PayPal highly prioritizes safety to protect all their customers from fraud and guard your banking details and financial info. And that’s important, but sometimes PayPal can be (arguably) overly cautious, putting you at risk of a freeze any time there’s “suspicious activity” on your account (even when it’s legitimate). Those problems can be corrected, but who wants to deal with that hassle?
Additionally, if you’re in a business that frequently deals with customer disputes of fraudulent transactions or “items not received,” you’ll find PayPal’s chargeback fees to be a pretty hefty extra cost. It also takes an average of three business days to complete the bank transfer to receive your transaction funds. For smaller, newer businesses, that delay can present challenges.
Risks of Using PayPal
Like any business tool, PayPal Business has its risks. We’ve mentioned many of them already. Account freezes for fraud protection are the most common issue, and they can be a big hassle. Some customers even complain that PayPal’s support is slow, making account freezes even more of a hassle.
If you’re a business with a high risk of chargebacks, PayPal Business might not be the right fit, or you might consider their chargeback protection program. The program has additional costs per eligible transaction, but you won’t be charged the $20 penalty fee.
Alternatives to PayPal for Small Business
PayPal is just one of many options available to small businesses who need to accept customer payments. Square is a popular payment processing company for many, as they’ll offer pretty reasonable fees and a free mobile card reader for credit and debit card payments when you sign up. Stripe is especially useful for tech-savvy vendors who want the freedom to code and customize a payment processing option to truly meet their needs. You can even create your own app on their platform.
Our recommendation? ZenBusiness Money. Granted, we’re tooting our own horn here a bit. But we’ve done our best to create a truly comprehensive small business finance portal that doesn’t just help you accept payments but also helps you maximize your tax deductions, easily track all your income and expenses, send invoices, and much, much more. Get access to our full range of tools with a free trial (and a low monthly fee after that).
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Starting a business can be an expensive and stressful endeavor, but you don’t have to go it alone. Whether you need help creating your first LLC for $0, want worry-free compliance, or need a money app to streamline your finances, we’ve got you covered.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.