If you’ve freelanced for any length of time, you’ve probably considered several options for accepting payment for the invoice templates you submit. Since cash flow is especially important for your small business, it’s likely that you are looking for an option that is both easy for your client to use and for you to collect. Many businesses are moving away from paying with paper checks or even electronic deposit. They are instead requiring many of their independent contractors to take freelance invoice payment online.
There is quite a bit of conversation around this choice, including whether it’s a good deal for freelancers, after all. Fast money should always be a preferred method, right? Things aren’t always so simple. Here are the pros and cons for receiving money online using PayPal that every freelancer should be aware of.
PayPal is one of the oldest, largest, and most popular third-party payment processors used today. The payment processor of choice for retail sites such as eBay and Etsy, it allows any person or business to send money in real-time to any other registered user. It also makes it easy to process payments using major credit cards or transfers from a checking account. Freelancers can receive money on PayPal for a fee.
PayPal is an all-in-one payment provider that also offers options to return all or just a portion of the purchase price of any service or product via their uncomplicated refunds process. Purchasers are also fond of the ability to dispute payments for lack of service, a product not being delivered, or conditions of a buying contract being met. These protections are in addition to any provided by a credit card company, and so many clients prefer to protect their purchases through PayPal’s built-in resolution policy.
PayPal has made it very simple for freelancers to invoice clients and receive payments, almost instantaneously. If you are looking for a solution that increases cash flow and will make things simple for your client, PayPal can’t be beat. They accept many common payment options, and you don’t have to set up more than one account to get access.
One amazing perk of PayPal is that it is also a good cashflow solution for your clients. A cash-strapped customer who may be reluctant to use your services may be persuaded with the option to pay with credit. PayPal’s generous credit card acceptance policy – along with their own Pay Later program – ensures that lack of funds need not stop a potential client from using your services.
A negative to using them, however, is their customer-focused refund policies. Since they make it very easy to dispute charges for a number of reasons (including an item not being in good condition or not representative of what was sold), sellers can be on the hook for money earned if the buyer changes their mind. While there is a resolution process that allows freelancers to provide documentation supporting their side, PayPal almost always refunds the money to the customer while the dispute is taking place (not unlike a credit card dispute.)
In addition, PayPal’s refund policy makes it likely that an unscrupulous buyer could make a false complaint against you, collect their money back, and retain the work you provided them. While not common, it has happened.
Freelancers who have concerns about this practice may want to reserve PayPal payments only for qualified clients or long-time buyers who have earned their trust and aren’t likely to flake out.
This refund practice (also known as a “chargeback”) isn’t specific to PayPal, however. Major credit card companies all have procedures in place to protect buyers, and they will often side on the customer when a dispute arises. One way to ensure you are in the clear is to carefully lay out payment terms in the original contract, along with remedies for an unhappy buyer. (You may, for example, require that they come to you with problems and allow you to resolve them before requesting a refund through PayPal.)
Another drawback for some are the PayPal fees for receiving money through it.
Paypal isn’t free, even if it is convenient. In fact, when most freelancers do their taxes at the end of a year, they should include this as a deductible expense against earnings. While the exact amount you’ll pay per transaction will vary based on the amount you received, here is the current formula:
On a $500 job, for example, you’d pay $22.30 in PayPal fees for receiving the money. Then, it would cost an additional $1.50 to have a check issued.
For a freelancer who does $35,000 in sales each year, with 60% of those sales coming through PayPal payments, you can expect to pay fees on $21,000. This would be a minimum of $924.30 in fees, but likely more (since the $.30 charge is per transaction, it would really depend on the transaction numbers.)
Considering that you are paying up to 5% of your annual earnings in fees to PayPal, it is understandable why some freelancers are looking for an alternative.
One way that freelancers are getting around the PayPal fees when receiving money is by bundling them into their service costs. If you normally charge $250 for a blog post, you can choose to charge $265 and more than cover your PayPal fees. The client doesn’t necessarily know what all goes into your pricing formula, so this is a safe way to feel good about the value you provide while also keeping your expenses in check.
(Note that PayPal prohibits passing on the cost of fees as a fee “surcharge”. Just as a restaurant can’t charge you more for using a credit card vs. cash, you can’t charge an additional fee for accepting PayPal. You can, however, charge a bit more across the board to account for your PayPal expenses. Be sure that you aren’t adding this extra charge as a line item on your invoices. Simply bundle it into your service cost.)
In the end, it’s hard to avoid using PayPal entirely. Some clients insist on using it, and it’s really one of the most convenient ways to get paid – and in a hurry. When tied to a PayPal Mastercard, it can simultaneously serve as a tool for both tracking expenses and payments. (Many freelancers use their PayPal payments to then pay off their card, making it easy to keep debt paid off each month).
For the freelancer on a strict budget, losing a bit of each paycheck to Paypal may not be an appealing thought. Many have successfully ditched the processing giant altogether. For these freelancers, however, it mostly works because they have just a few large retainer clients who have no problem paying via electronic bank transfer. The vast majority of freelancers, however, have over a dozen clients a month, and even more in the course of a year. It’s a very tedious process to set up a new or one-off client for a check or direct deposit situation – not to mention a bit scary.
In truth, PayPal may be the best option for those looking for quick payments from any source, and without the need to expose your personal information or bank account numbers. There are also few things more satisfying then getting a notification that payment has been received for a job well done. Perhaps the best part of freelancing, getting paid is an amazing feeling, indeed. Ensure it happens fast by signing up for a free Bonsai trial.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?