Payment Processors: How to get paid
One of the biggest expenses for a service-based business like copywriting is payment processing. As a result, people try some tricky stuff to avoid the fees. There are good options for payment processing that help you have control of your money while minimizing the fees.
In the video below, I cover:
- 3 things to avoid during the payment phase (they make you look super unprofessional and could cost you big).
- Paypal vs. Stripe: advantages and disadvantages to each of the “big players” in payment processing
- A solid payment flow that easy to set up and keeps everything on the up-and-up (this is the exact flow I use)
- Avoid and minimize fees and still look like a pro with these 3 low-cost options
(Transcription is below)
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[00:00:02] Good afternoon, Business of Copy… Or morning or evening or whenever it is that you are watching this video. I want to talk about something that’s kind of on every freelancer’s mind all the time which is payment processors and how to get paid. This question comes up over and over again and I want to share my experience with you on payment processors. So to start I want to talk about a couple just overviews on payment processors. So number one there are very few options where it’s zero fees that you’re going to pay with payment processors. I’m gonna at the end of this video talk about a couple options that are really low cost. BUT, freelancers tend to not think of themselves as a business which is kind of the foundation of this whole site. A normal business… Think of if you have a restaurant, you’re going to factor in things like food cost, sales taxes, overhead like your electric and all that stuff into your profits at the end of the year. Freelancers tend to not think about their overhead and payment processing fees and transaction fees are, frankly, part of the overhead of your business and you need to price accordingly. So just like a restaurant would price the steak higher because the food cost is higher… you need to price your services that are going to have a payment fee higher. Now in some states it’s illegal to charge more if they’re going to use a credit card versus a check or versus cash. It’s illegal to charge more, so what you do is just build it into your pricing across the board.
[00:01:36] So if you were going to charge $5000 for a project maybe you’re going to charge 5500 because you’re going to take into account the fact that you have to pay payment fees. And that’s really, really important and foundational to think about when we’re talking about payment processors that you don’t think of it as an added expense. It’s part of your overhead. And so you should not be eating that cost. That should be part of the cost of doing business with you. And you don’t break that down and say it’s $5000 but it’s $5500 with the fee you just tell them the project fee is $5500 knowing that your take home is going to be $5000 and that’s what you need to do it. So you don’t need to break down your fees. Any client is going to expect that you’re going to put the cost of doing business into your pricing. That’s the way business works.
[00:02:24] So the second thing, I want to go over a few absolute no-nos when it comes to accepting payments from your clients and payment processing. So the first one and I see this all the time with new beginners is we all know the loophole in PayPal which is asking for them to pay via the “Friends and Family.” You should never ever, ever do this. And the reason is number one it’s against PayPal’s Terms of Service and what PayPal can do is completely shut down your account or hold your money or offer a refund to the client because you’re going against the Terms of Service of “Friends and Family.”
[00:03:02] It’s supposed to be exactly what it’s called when you’re sending money back and forth to friends and family. Business transactions are subject to the 2.9 Percent fee. So number one it’s against PayPal’s Terms of Service. And number two it makes you look really unprofessional. If you’ve ever been to a store, maybe like a small mom and pop shop where they ask you, “Hey can you play with cash? Because if you pay with cash then we don’t have to claim it on our taxes.” Maybe you’re going to do it but you’re going to be like this shady, like just pay your taxes. And it’s the same thing with asking for the “Friends and Family.” You’re asking them to go against terms of service and you’re showing them that you don’t take your business seriously that you’re going to pay the fees and the cost of doing business. So never never never do that. So the second thing is not creating an invoice. So in PayPal and Stripe –and I’m going to talk about the differences between the two– There is the option to create an invoice and send it to the client automatically. You should always create an invoice through PayPal. 17hats also has an invoice and there’s a thousand different ways to make an invoice where they click on the link and it takes them to a shopping cart page with your fee on it. You never just send them your e-mail address and say, “OK send me you know $5000 to this e-mail address.” Present yourself as a professional if you want to be treated as a professional.
[00:04:29] These are the ways that you get less respect from the client and where the payment situation becomes an issue. And the third part goes along with these two is complaining about the fees. Do not talk to your client about it. “It’s $5000 and I have to pay this stupid 2.9 percent. So it’s going to be $5500.” It’s not the client’s problem that you have costs associated with your business. Everybody has costs associated with their business and it’s really a bad idea to complain to your clients about that. It again makes you look really unprofessional. So those are the overview on payment processors.
[00:05:12] The second part of this, I want to go over the two most common payment processors and the two that I have the most experience with, PayPal and Stripe. So the advantages to first PayPal. The advantages to Paypal is it’s super easy to set up. Almost everybody uses it and it’s a really quick way to get paid fast. The disadvantages to paypal is in my opinion PayPal looks a little bit more unprofessional than other forms of payment like Stripe. Because of what I just said: everybody can set up a PayPal account. It’s used for friends and family. It’s used for eBay sellers. I prefer a more professional looking payment processor. The other disadvantage to PayPal is PayPal has kind of terrible terms of service for the sellers. Paypal is created to protect the buyers more than the sellers. So a couple of things can happen with PayPal. Number one if the client files a dispute.
[00:06:17] If they if you get in an argument, they can get their money refunded and then you have to prove that you did the work. And so it becomes a really long process to fight that with PayPal. PayPal always sides by default on the side of the buyer. The second thing, and this happened to me, if you are growing your business and you start making more money month over month on PayPal, they have a tendency to hold your money. So this happened to me when I was making over a certain amount PayPal sent me a notice and said, “Hey that check that you just got from the client we’re going to hold it for 21 days.” And this was true– 21 days, that’s three weeks! And it was not a small amount. “We’re going to hold that money because you made more money this month than last month.” So I got on the phone with them and I said, “I don’t understand. I’ve been a PayPal customer for five years. I’ve never had a refund. You know I’ve done everything right.” And they said “Well you make more money each month. The last six months you’ve made more money than the previous month. And this is all for your protection.” Obviously that makes no sense whatsoever. You know that’s the goal of every business and they should be happy that I’m making more money because that means I’m paying more in fees. But that’s just not the way it works. So after that happened was what motivated me to switch to Stripe. So I just want to put that warning out there that PayPal has a tendency to do that.
[00:07:37] And I’ve heard from other freelancers horror stories about PayPal holding their money for no reason or about these disputes or PayPal just took money out of their account and they had to fight it over months to get that money back. Because one shady client. And then the other thing is those disputes count against you and then PayPal could freeze your whole account. So, my experience with PayPal has not been good. And like I said it I don’t think it’s, as a professional medium, the best option. So now I want to talk about Stripe because Stripe has been really great for me. So Stripe and PayPal have the same fee structure it’s about 2.9 Percent. It’s a little bit different depending on volume and the country that you’re in. But on average it’s about 2.9 Percent that they’re going to charge you for a processing fee. Stripe has been really good because what happens is they just verify the transaction it takes about two days from the time the client pays to get the money into my bank account. And there’s no limits. They don’t hold your account unless there’s a pattern of fraud. So I’ve had no problems with money being held or anything like that. And the other great thing about Stripe is that the integrations. It has a ton of integrations. Pretty much any shopping cart or e-commerce thing that you use, Stripe has an integration for it, including 17hats which as you know if you’ve been on the site is a huge recommendation for me on project management software for freelancers. So the way that I set up my payment is we create an invoice in 17hats.
[00:09:14] It’s integrated with Stripe. The client can view the invoice and click “Pay Now” right from the invoice and then it gets processed through Stripe and within a couple of days I have that money in my account. So super important thing to figure out is how your payment processing flow is going to work. And I would recommend setting that up. It’s very easy to set up Stripe. It takes a little bit of work– maybe a day’s worth of work on the front end and then really there’s nothing to do after that.
[00:09:43] So I promised you I would tell you about two options that are super low cost. The first one is really easy to implement if you’re using Stripe and 17hats and it’s kind of seamless for the client which is the ACH option which is basically the online check-paying option. So when somebody through my 17 hats chooses to pay by check, I have a fee of five dollars which is really great if it’s like a $10,000 fee to pay five dollars versus the like $290 which would be the 2.9 Percent that comes from Stripe. So I always offer that as an option. Again, I’m not complaining about the fees that I’m charging so I never tell the client that I prefer them to pay about ACH but I do always in the invoice e-mail say, “Hey we’ve got this check option too if it’s easier for you.” And a lot of times they’ll take us up on it which is always great.
[00:10:43] The only difference there is that it takes about seven days to get to my account rather than the normal three days. But for 290 bucks that’s worth it. I’ll wait a couple extra days to get paid. So the other option is requiring your clients to pay by wire transfer. And I’ve done this with a couple of clients before. Sometimes big businesses are happy to do that. The problem with that is that there’s a fee on their end anywhere from $30 to $50 depending on their bank. And then, with some banks, depending on your bank, there’s a fee on your end, too. And so you both get dinged with a fee. So I don’t necessarily like doing that because I don’t like that the clients have to pay a fee to pay me. So that’s something to consider, however. You can also obviously ask them to send you a paper check. I don’t prefer this option because a lot of things can happen. It takes however long for them to mail me the check in for me to get it. So you get a week than it takes, you know, a week or so for it to clear in the bank and weird stuff can happen. I had a payment that was a check, that had a stop payment was issued on it totally by mistake. It was kind of a banking error or the long story that I’ll get into another day. But when you get online paid, you know that it’s valid and it’s going to go through so I don’t particularly like paper checks but I know a lot of copywriters that do and obviously there’s no fee on either end for that.
[00:12:09] So I just wanted to record this video and talk about the options for payment processing. Some things to avoid, PayPal versus Stripe, and some low-cost options for payment processing. So hopefully this was helpful. And as always if you have any questions please reach out and comment in The WaterCooler. The Water Cooler is the best place to do it because we can all see those discussions and especially this one is relevant for pretty much everybody across the board no matter what kind of clients you take. So let me know if you have any questions and we will talk soon.
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