How Clients Pay: Direct Deposit or PayPal?

This week, I was asked a very interesting question from a friend who freelanced and didn't know how to ask for payment.  Was PayPal or a direct deposit into her checking account a better method for collecting?  Here are my thoughts on the issue...

Benefits of PayPal
PayPal offers so many more options for payment than a direct deposit.  
  • You can accept major credit cards via PayPal.  (This may be important for getting paid from a solo entrepreneur or a small business that may be cash-strapped.)
  • You can offer refunds quickly. (I was once paid twice for the same invoice.  Instead of writing a check back, I could quickly "reverse" the transaction and get it off my books within an hour.)
  • Paypal can be used to pay for items online, without writing a check.  A Paypal balance that is tied to a PayPal credit account can be used to pay the balance of that card.
  • You can set up a recurring subscription payment for regularly used services with Paypal.  If you provide services for $100 a month, for example, you can authorize a subscription to automatically bill and charge the client's preferred method of payment.  (This results in less time going after payments and ensures you get paid promptly.)
  • Invoicing, tax info, and basic accounting can all be done within the Paypal interface and may make tax time easier with the sortable spreadsheets and tracking info Paypal provides.

Benefits of Direct Deposit to your Account

Having the cash put into your bank account via an ACH deposit has its upsides, as well.
  • Deposits are yours - often immediately. Cash deposited into your account is usually available as soon as the bank recognizes it.
  • ACH deposits may qualify as "direct deposits" for the purpose of offsetting banking fees or earning bonuses through your bank.  (My bank, for example, will charge a $6.95 monthly fee unless I have two deposits made each 30 days.)
  • Direct Deposits are treated like cash with no additional fees.  Paypal can charge a percentage of your payment in fees taken from your payment.
I'm sure there are other points to consider, but I suggest you weigh two main points when deciding which one to go with.  PayPal charges fees, but may make it easier to collect in this difficult economic climate.  Whether you choose to keep more of your money -- or get it more often and with less hassle -- is completely up to you and your business.

Which do you prefer?

1 comment:

  1. My stars! I've been doing this for five years and for the most part, I still wait on checks for my bigger clients (while my smaller clients generally pay me via PayPal or - if I can convince them to change over to a superior service -

    I'm not sure how to approach a client about this, but I'm sure I could figure it out pretty easily by calling my bank and speaking to my client. Like I mentioned on Facebook, the sure cashflow would likely be worth a small discount (about the price of a PayPal fee) for the client's trouble.

    Thank you for bringing this payment method to my attention!


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