Winning a client and completing the project is hard enough – so you really don’t want to wrap up with a wrangle about payment methods, currencies and exchange rates.
The default option for getting paid as a digital nomad is PayPal: it’s easy and it’s ubiquitous, but it’s not cheap. Especially, as we’ll see later, when multiple currencies are involved.
So is there an alternative? What method should you be using to get paid for your services? I’m not an expert, but I’ll run through the options we’ve tried and the challenges we’ve faced along the way.
(We have a UK bank account and UK PayPal account, and work with clients in the US, UK, Australia and Europe. I’ve tried to make the examples in this post more US-centric as that’s where the majority of our readers are.)
The old school option: cheque/check
The US banking system might be ludicrously archaic, with the most efficient way of paying someone often still deemed to be mailing a small piece of paper hundreds of miles, but a happy side effect of the continued American reliance on cheques (or “checks”, if you insist) is that most major banks seem to allow you to pay them in via your bank’s mobile app just by taking a photograph.
This means that if you have a US bank account and you’re being paid by an American client (but not currently in the US yourself), a cheque might not be an entirely unrealistic option: you could get it sent to a virtual address, forwarded on to wherever in the world you are, then use the app to pay it in remotely. It seems insane, but if you’re dealing with large accounts departments who won’t use another payment method, it is at least an option.
If your bank account is in the UK, Barclays has recently become the first UK bank to offer the “pay in by app” service, and others may follow suit.
The simplest-but-somewhat-upsetting option: PayPal
PayPal is easy and flexible – but it’s not cheap. The standard fee is 2.9% of the transfer amount plus $0.30 (or £0.20 for a UK PayPal account, or the rough international equivalent elsewhere). And if the PayPal account of the seller is registered in a different country from yours, it’s 3.9% rather than 2.9%,
That’s the bad news – and it is bad, because that’s a hefty amount to be giving away – but the upside is that the person paying you can use their PayPal balance, bank transfer or credit card so there’s no excuse for not paying you. PayPal also integrates with just about every piece of invoicing software out there.
Given how easy it is, you might decide to just factor the costs into the fee you charge for your services and try really hard not to look at the column in your account which shows the fees that have been deducted. However, there’s another unpleasant twist if your PayPal account is denominated in a different currency from the one you’re billing in…
When we do work for US clients, we quote our fees and allow them to pay in US dollars – because otherwise it’s hard for them to work out how much they’re paying us and makes it even more of a challenge for them to pay. As the dollar is pretty much the global currency, I imagine lots of other contractors do the same.
The challenge is that when a US dollar transfer is made into a PayPal account that’s denominated in another currency, PayPal converts the payment into that currency at a horrible exchange rate that bears no relation to reality. Yes, you could set up a separate US dollar balance on any PayPal account, but you’ll still get stuffed by that same nasty exchange rate whenever you convert the money back to your home currency – and on a recent invoice of ours for a few thousand dollars, the exchange rate left us worse off by $103.
We’ve considered just keeping a balance in dollars and using it whenever we need to pay for something that’s charged in that currency, but it’s not ideal: our main expenses (flights and Airbnb) usually can’t be paid using PayPal, and it makes our tax accounting even more complicated than it already is.
The secret option: Paypal Business Payments
PayPal Business Payments is an option so good that it’s impossible to find anything on their website about it: a flat fee of only $0.50 for any payment amount. For large payments, this can add up to a gigantic difference.
However, even once you do track it down it comes with a buttload of restrictions:
- You need a US-based PayPal account.
- It’s only for payments in US dollars.
- The payer can’t use their credit card to pay – only PayPal balance or bank transfer.
- You have to issue an invoice using software that supports PayPal Business Payments.
In other words, you can’t just tell someone how much they owe you: you have to issue an invoice using a specific piece of software, and they can click the button to pay.
And is there a list of software anywhere that supports PayPal Business Payments? Of course not: the whole thing is like a limited trial that was set up years ago and someone forgot to cancel. It does definitely work with Freshbooks (who have posted about it here) and Harvest, but there may be others.
The wildly unpredictable option: wire transfer
A wire transfer eliminates the small piece of paper and the high percentage-based fee, but it does introduce a whole new set of variables which mean you can never be sure how much money you’re actually going to receive. There’s a fee for sending, often a fee for receiving, plus intermediaries who may or may not take a cut depending on the route your money takes. And even then, the payment can take several days to arrive.
A wire transfer is initiated by the person sending the money through their bank – and depending on the bank in question it might need to be done in person or over the phone, but it can often be done online.
The benefit over PayPal is that even though the fees are unpredictable, for larger invoices at least they’re unlikely to add up to more than 2.9%. Also, for cross-currency payments you’ll only be charged the real exchange rate (as long as your bank isn’t up to anything sneaky, and you can check with them in advance) so you won’t be clobbered with that fee too.
The downside is that not all banks allow international wire transfers, and the fact that there’s a fee for the sender makes it both a hassle and a perceived expense for them (even if you tell them to deduct the transfer fee from the amount they send you).
The best option for cross-currency payments: TransferWise
TransferWise is 100% solid amazing for any situation where a client needs to pay you in a different currency from their own. For example, if you’re a European contractor who charges in euros and your client is in the US and holding US dollars, TransferWise is far cheaper than a wire transfer and not much more effort for the payer than using PayPal.
The basic concept (using euros and dollars as an example) is:
- The client visits the TransferWise website, says how many euros they want to send, and uploads the equivalent amount in US dollars from their debit card or bank account.
- TransferWise matches the transaction with one going in the other direction to save on conversion fees.
- The euros are deposited in your bank account a couple of days later.
The fee varies depending on the currency pairing, but can be as low as 0.5%. When the payer is setting up the transfer it clearly tells you what the fees are, when the money will arrive, and how much cheaper it is than a typical wire transfer – which can easily be more than $50.
Even better: If you sign up using our link, you’ll pay NO fees on your first transfer! Claim your free payment now.
The future for cross-currency payments: CoinPip
It hasn’t launched yet, but CoinPip is another service for cross-currency payments (based on bitcoin) which looks like it will beat TransferWise in two ways: the flat fee is only 0.3%, and it guarantees that you will get your money within 48 hours.
It’s not live yet, but you can sign up here to be notified when it launches.
So, to summarise…
Clearly there’s no perfect option, but the situation could probably be summed up as:
- If you qualify and don’t mind the restrictions, use PayPal Business Payments.
- To keep things simple, take a deep breath and use PayPal (or any credit card-based method based on Stripe, which I’ve excluded for simplicity but adds up to the same kind of fees).
- For cross-currency payments, use TransferWise (for now).
- Avoid wire transfers if at all possible because they’re so unpredictable and annoying to set up.
- Receiving a cheque/check isn’t ideal, but is possible if your bank has an app that allows you to pay it in remotely.
The most important thing is to discuss the payment methods you accept with your client before the job starts. We’ve made the mistake of not doing this in the past, and it leaves a bad taste for everyone when a great project is rounded off with a week of ping-pong emails about how you should get paid.
I’d love to know what payment methods you use – so please let me know in the comments!