Freelancing has never been as sexy as it is right now. Thanks to the internet, anyone with digitizable skills can work from the comfort of their own home. No more tight ties, flickering fluorescent lights, or soul-sucking commutes.
If you’ve really got your stuff together, you can take the office anywhere. You can crush it from your favourite cafe, or a beach halfway around the world. What a time to be alive!
Of course, working for yourself isn’t all sunshine and rainbows. When you are self-employed, you have to set your workflow, deduct your own taxes, and manage accounts. In particular, receiving and sending payments can become a pain in the butt. Banks are horrendously expensive. PayPal isn’t much better.
Thankfully, an explosion in fintech startups this decade has helped matters. Several companies focus on payments, making the lives of freelancers everywhere easier.
In this article, we’ll talk about everything you need to know about receiving payments as a freelancer in 2019.
Working from home = a crash course in financial management
The second you hand in your resignation, the training wheels are off. As an employee, HR deducts your taxes. Outside sales bring in the accounts. And accounts receivable collects the cash that funds your paycheck.
Guess what? You handle all these departments now. Fail to pay your taxes in full, and the government may come after you. If you don’t line up enough recurring work, you’ll burn through your savings before your business gets off the ground.
It’s a trial by fire, one that many aren’t prepared for. All those pump-up motivation videos on YouTube mention none of this. Thankfully, when reality sets in, most find skill and determination they never knew existed.
Things might not be perfect at first. But, through frenzied googling, phone calls, and trial & error, many find their footing. Lessons are learned and are applied by creating systems that prevent future mistakes.
One of the biggest: relying on banks and certain established non-bank companies to take payments. Their fees don’t seem like much at first. $10 transaction fees, an exchange rate a few cents off interbank – it just seems like the cost of doing business.
And then, you add it all up at the end of the year. Over 12 months, it can add up to a laptop, an OLED TV, or something beautiful for your partner. Don’t believe us? Let us show you how it can all go wrong.
The process of receiving payments can be fraught with pitfalls
In the early days of the internet, businesses and freelancers alike didn’t have many options. If you wanted to send or receive payments, you could either go through your bank or use PayPal. Effectively, both entities operated in a competition-free environment. They were free to charge whatever they wanted. And their users had no choice but suck it up and accept.
Today, they are superior alternatives to these major players. But, due to brand power and fear of the unknown, many continue to do business with them. How badly are we getting hosed?
Let’s say you invoiced a client in the United Kingdom for 1,000 GBP. If you choose to go through PayPal, they’ll expose you to a raft of fees. PayPal applies its first according to the payment method. If your client uses their corporate card, PayPal could deduct up to 7.4% of the amount sent.
Then, if you are a business client, they charge an arbitrary 2% for sending cash to the USA. There is no reason for this – they do it because they can.
Finally, they convert your 1,000 GBP into USD. Here, they offer a rate that ranges from bad to horrendous. At best, you’ll pay 2.5% off the interbank rate. In nations like Brazil, though, that disparity can be as wide as 4%.
So, to start: of your original 1,000 GBP, up to 74 GBP could be lopped off straight away (!). Then, another 20 GBP is deducted, because corporate profits. Finally, you get a GBP/USD exchange rate of 1.2012, which gives you 1,088 USD.
You almost got 1,100 USD – party time, right? Hold that thought – let’s see what you would have gotten through a service like Transferwise. So, your client uses their corporate card to move 1,000 GBP. Transferwise charges 7.42 GBP for card transfers. Secondly, they don’t charge a “cross-border fee” like PayPal, because Transferwise doesn’t engage in cash grabs like that. Finally, they convert 992.58 GBP at the GBP/USD interbank rate (1.2325).
Your final total? 1,223 USD – or 130 USD more than PayPal. That’ll pay for a really fun Friday night pizza party, or whatever 130 dollars are worth to you!
Online freelance marketplaces can also gouge you on cash transfer
You are no safer using the payment transfer systems that online freelance marketplaces use. Some are downright horrific – we’re looking at you, Upwork! This platform takes cuts so gratuitous that it would make a loan shark blush.
Here’s how Upwork enriches itself – first, they take 20% of the first 500 USD you bill. Then, they slice off 10% on the next 9,500 USD. From 10,000 USD onward, they only steal 5% of your money – woohoo!
Let’s apply that to our previous example, except, let’s assume you’re a Canadian with an American client. When you make your first 1,000 USD, you’ll lose 150 USD (or 15%) right off the top. And when you pass 10,000 USD in total billings? You’ll still lose 50 USD on earnings of 1,000 USD per month.
But wait, there’s more – what about exchange rates? It’s just as bad. This Upworker from Kenya experienced exchange rates approximately 6% off interbank. Let’s be generous and say they have a 3% margin between USD/CAD. That would mean they have a USD/CAD rate of 1.28420. When you convert 950 USD at this rate, it becomes 1,220 CAD.
What if our Canadian friend moved off Upwork and used a payment service with rates near interbank? First, there would be no 50 USD charge each month – they would get the full 1,000 USD. 1,000 USD converted at 1.32020 would give them 1,320 CAD – a full 100 CAD more than Upwork.
The cost of receiving cash hurts small operations the most
Hundred dollar disparities don’t hurt businesses with deep pockets. Companies like Microsoft barely notice when they lose out on thousands of dollars they could have gained, never mind hundreds.
However, losing out on this income means EVERYTHING to small business owners. Frankly, a couple of hundred dollars could make the difference between paying the rent and being evicted.
So, what should startup owners and freelancers do? By supporting companies that endeavor to solve their problems, they can avoid pitfalls set out by PayPal and Upwork.
More and more, freelancers are going with Payoneer
In today’s marketplace, freelancers and small businesses have more options than ever before. However, of all the choices they have, Payoneer stands out as one of the best.
Who is Payoneer? In short, they are focused on solving the myriad of payment problems that come with running a digital business.
It all starts with receiving accounts – Payoneer’s international reach allows customers to take advantage of free domestic transfers. Then, they offer transfers that bypass the expensive rates charged by the Upworks and the Amazons of the world. These offerings are just the beginning – from invoice creation to paying VAT in the EU, Payoneer offers one-stop shopping.
Around since 2005, then CEO Yuval Tal foresaw the online economy that was to come. Growth was slow, but the advent of wi-fi and high-speed broadband made telecommuting realistic in the 2010s.
Accordingly, their growth trajectory picked up in this decade. According to the most recent figures, Payoneer has attracted more than 265 million USD in venture capital. Owler estimates they pull in 174 million USD per year. According to Inc Magazine, Payoneer grew 200% in three years.
Clearly, business owners and freelancers love the functionality Payoneer grants. But how can you use this service? We’ll expand on that below.
How does Payoneer work?
As a small business owner or freelancer, how much you invoice determines your success or failure. Payoneer makes this an easy process. Start by logging into your Payoneer account. Then, select “Request a Payment” from the drop-down menu at the top of the screen.
Next, you’ll need to add a payer. Fill in your contact’s information, then proceed to the simple invoice form. With only a handful of fields, Payoneer makes the process easy for first-timers.
Once you’ve finished, your payer will only have to click a few buttons to pay you. This feature makes payment easy, convenient, and fast!
As we mentioned before, there’s more to Payoneer than just payments. They also offer a prepaid MasterCard that allows you to access your money quickly and efficiently. Rather than order a wire transfer and wait days for funds to arrive, you can gain immediate access.
Once the transfer processes, you can use your card wherever retailers accept MasterCard (virtually everywhere). Also, you can withdraw cash from your Payoneer card at any ATM on the Maestro, Cirrus, or MasterCard networks.
Once you receive your card, there are a couple of things you should remember. First, it is possible to have multiple currencies on one card. Because of this, wherever you happen to be in the world, you can avoid expensive currency conversion fees.
Second, there are fees associated with this card. Per year, it will cost you about 29.95 USD. Should you lose this card, a replacement fee of 12.95 USD applies. Then, there are money transfer fees. On MoneyTransferComparison.com, Payoneer’s review says fees are up to 1%. However, once you account for the difference between Payoneer and other services, you’ll come out ahead.
Take care of the pennies, and the dollars will take care of themselves
Most payment facilitators are in business to make money, as you are. As such, if they can convince you to pay an ungodly amount in fees, they’ll do so shamelessly.
Fortunately, they also have to compete against each other. By comparing the fees they charge against the value they provide, you can find the ideal payment processors. We like Payoneer, but be your own advocate – nobody else will do it for you.