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Accepting Payments with PayPal

By Heshy Friedman

PayPal-ccAccepting credit cards as payment will get you paid by customers fast and easy. To stay competitive in today’s aggressive business environment, healthy companies need to take credit cards for payment. However, the monthly statement charges and transaction processing charges make accepting credit card payments costly. For small businesses that do not have a high volume of credit card transactions, yet still want to be able to take credit cards, the simple and cost-effective solution is PayPal.

There is a common mistake that a PayPal account is required to pay with PayPal. This is incorrect. You can pay with any credit card using PayPal, and do not need to have an account. However, should you want to pay by credit card, and already have a PayPal account associated with that credit card, PayPal will ask you to use your PayPal account, but they do not force you to do so.

A basic PayPal account is free, meaning there is no monthly transaction fee, setup fee, or cancellation fee. PayPal only charges a per-transaction charge of 2.9% + $0.30. While this is high compared to other processors, there are no other fees involved. I have found that PayPal is generally worthwhile to use for taking up to twenty payments per month if they aren’t exceptionally large payments.

When dealing with a higher volume of transactions or payment amounts, the reduced transaction fee cost of a typical merchant processor will typically cancel out against the monthly fees and make it more worthwhile than PayPal. Since our company generally accepts less than twenty credit card payments per month, we use PayPal to handle our credit card payments instead of a full processor system.

There are two main drawbacks to using PayPal as the sole processor for website payments. The first problem is that it lacks smooth integration with a website, requiring you to leave the website for PayPal’s site for the transaction, and then returning to the original site. (The premium versions of PayPal have an integrated API but these are full gateways with a monthly charge.) The second problem is that PayPal is very unforgiving about chargebacks. If a customer does an accidental chargeback, PayPal gives little information and leaves you in the dark. They will put a hold on your account until you pay back the funds while they “investigate.” This can take weeks and they don’t tell you anything that is going on – even if the customer reversed the chargeback. The only solution when this happens is to have the customer who made the chargeback pay you back in cash or check, which then needs to be deposited and transferred over to your PayPal account.

My company uses PayPal to handle online payment processing. For us, using PayPal is more effective and efficient then using a full gateway processor like Authorize.net. Our credit card transactions are generally limited to fewer than twenty total per month, and we specifically only will accept payments up to $500. With PayPal’s high transaction fee of 2.9%, we need to ensure PayPal’s deduction is limited, since with larger payments the total fee will be significantly higher. In addition, our $500 maximum protects us from having to deal with a significant cost to have on hold in the event of a chargeback.


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