These days a lot of freelance work is happening online, often internationally and often without you and your client ever meeting. Thanks to the web we now have access to a much larger client pool which is great news, however it does present a whole raft of new problems in terms of payment options and trust. Laws about payment, fees and facilities for transactions and legal fallbacks for chasing payment all differ around the world.
In this post we'll look at using payment services such as PayPal, Escrow, Moneybookers and others to relieve your client's wallet with a lot less hassle. And while I bring up the topic because of international transactions that I've recently had to pursue, all of these payment options would work equally well in a local setting, so don't feel you need to be a jetsetting freelancer to make use of them.
Bank and Cheque Processing Fees, and Effort!
When it comes to taking payment from international clients, your number one enemy is processing fees. It differs around the world, but certainly here in Australia processing a cheque from overseas or receiving a bank transfer can incur significant fees. For example recently I processed a US$100 cheque at a local bank, the total of fees I paid came to AU$33 which is about US$25. So basically close to a quarter of the cheque went to the bank.
On top of losing a quarter of the value of the transaction, the whole experience took ages. The teller looked at the cheque, looked a bit confused, sent me off to a special desk where I had to wait for 10 minutes, then was kept waiting another 10 minutes while the processing was handled. So the whole expedition cost me about 30 minutes of my time as well. After spending a quarter of the total PLUS half an hour of my time, all of a sudden this cheque was proving quite the waste of effort.
Bank transfers aren't that much better. On the occasions when I have received an invoice payment wired to my bank it usually takes a long time to arrive, the client will often have trouble making our bank account numbers work in their internet banking systems and again I usually lose a big chunk of money to "processing fees".
In short, the situation with banks and cheques is lousy. It may be better for other country-country transactions, but for me at least, I find myself looking elsewhere.
Using PayPal (or Moneybookers, PayPay and others)
These days there are a growing number of trustworthy online payment solutions and chances are you've used one or more before. PayPal is my own personal choice, however depending on what country you live in, this may not be available. Good alternatives to PayPal include MoneyBookers and PayPay which are similar services.
All three services have a basic payment facility where you can invoice your client by simply sending them an email requesting them to visit the PayPal (or other) website and make their payment using their choice of credit card or often various other payment options. With PayPal you can either use the basic "Request Money" tool or send an email invoice. And there's integration with Outlook and Quickbooks as well.
The main advantage is that the client doesn't need to actually have a PayPal account themselves, they can simply pay by credit card. When you receive payment in your account you can transfer it from there to your bank account in about 3-5 days.
What's the Catch?
There are some drawbacks to using these systems. The main one is fees. PayPal takes about 2.5% of your takings, so on a $100 transaction you'd lose $2.50 which isn't so much especially compared to the bank fees I found myself paying for the old school transactions mentioned above.. However if you have a $10,000 transaction, that number will be more like $250 which is quite a lot more. These fees come from credit card processing and are unfortunately somewhat unavoidable. My advice is to work it in to your quote at the beginning of the project if it bothers you.
For a full PayPal rate schedule click here. It works in a slightly more complicated fashion than my simplified '2.5%'.
Another catch is that when you take payment from a credit card you become vulnerable to chargebacks. Due to the way credit cards work if a transaction is disputed and you don't have a signature and physical documentation the money will be generally refunded back to the card holder. This isn't a big deal for freelancers however since generally speaking someone who isn't going to pay you will simply not pay you rather than going to the trouble of fraudulently using someone else's card. Still it's worth knowing that such a thing exists. PayPal has a payment resolution centre to deal with issues like this.
Integrating with a Website
One particularly neat trick you can do with PayPal is integrating payment facilities with your website. This might sound like you need some technical wizardry, but it is in fact pretty simple. If you can cut+paste HTML you can do it.
Basically PayPal gives you some tools to produce a form that you can place on your website to take an invoice number and payment amount. From there the payer will get sent to PayPal to make the payment which will show up in your account with that invoice number. Here's an example from my old portfolio site.
You can create a form like this using PayPal's Merchant Tools section. I'll putting up a step-by-step tutorial here on FreelanceSwitch in the coming weeks so stay tuned.
The neat thing about having a payment facility integrated with your website is that you can write it on your invoices. On my invoices I used to have a section that went:
Pay by Bank Transfer: ... details
Pay by Cheque: ... details
Pay by Credit Card: Visit thegoodness.com.au/client.html to pay via PayPal with any major credit card.
Having a few payment options looked professional and allowed different clients to use the method they preferred. Most international clients made use of the PayPal facility - except of course for the odd pesky client who insisted on sending a $100 international cheque!
If you want to take website payments further you can explore other options like Google Checkout and 2CO or go the whole hog and have a payment gateway and merchant account. These are a little out of the scope of this article, so I'll assume that if you are going to try one of those methods you probably know what you are doing!
So far we've discussed ways to make payment easier and incur less fees and charges, but this skirts another issue thrown up by international dealings and that is trust.
When you've never actually met or seen a person and you don't really know anything about the country they are contacting you from (or even if that's really the country they are in!) there can be some real trust issues. I like to think that I can gauge a persons genuineness through their tone of voice in email, but let's face it, that's perhaps a little optimistic.
Fortunately there is a service that caters to this market too, namely Escrow.com. Basically escrow works as an neutral third party in your transaction. They are like the Switzerland of internet transactions. Here's what happens:
- You and your client agree on the amount the job is worth
- The client pays that amount to Escrow.com who holds the cash
- You do the job and send the work to the client
- The client tells Escrow that it's all good and you get paid
What this means is that as the contractor you are secure knowing that the client really is prepared to pay, the client knows that you won't receive payment until you've handed over the work, and you both know that if something goes wrong Escrow has a long process of investigation to find out which party is in the wrong.
There are some additional fees called the Escrow fee which you can choose to split or have one party pay. Generally for a freelance transaction that would come from the client. You can find information about the fees here, they come to about 3-4%.
I've used Escrow only once (as a buyer not a seller though) and the experience was good. They make you jump through a few hoops in terms of identification, but this is a good thing as it makes the whole transaction more trustworthy.
For a big job with an unknown client Escrow is a good, safe bet.
There are doubtless other payment options you can pursue. One that springs to mind is Western Union - though I've never used their service before, perhaps readers might leave their thoughts on that in the comments. For myself PayPal has proven useful and Escrow for more scary transactions and I hope this post helps you take money from all corners of the world not just your own.