Pros and Cons of PayPal for Small Business (Plus How to Set It Up)

With a seamless platform for sending and receiving payments, PayPal for small businesses has become an indispensable tool for entrepreneurs looking to streamline their financial operations.

To find out if PayPal is the right solution for your small business, you'll need to learn the disadvantages of PayPal, the benefits of PayPal, and how to set up your own account. Let's get started.

What Is PayPal for Small Business?

First founded in 1998, PayPal is an online payment platform that enables individuals and businesses to send and receive payments securely over the web. Today, it's the most-used online payment brand in the U.S.

For small businesses in particular, PayPal offers a wide range of convenient features. You can:

• Accept payments from customers
• Pay suppliers
• Manage invoices
• Customize your check-out pages
• Create multiple online stores

Add its user-friendly interface and widespread acceptance, and it's clear why PayPal has become an attractive choice for businesses of all sizes — especially in the small to medium range.

So, whether you have a completely cashless business or are looking to expand the online presence of your brick-and-mortar, chances are that PayPal can help.

How Much Does PayPal Cost for Small Businesses?

Cost is a critical factor when considering any business tool for any purpose, and PayPal is no exception.

PayPal offers a tiered fee structure, which includes a transaction fee and a potentially fixed fee, depending on the transaction type and location.

For example, in August 2023, PayPal charged a 3.49% transaction fee for domestic transactions, plus a fixed fee based on currency type.

While the exact percentages can vary, PayPal's fee schedule is always transparent and freely available. This can help make it easier for small businesses to budget for such expenses.

Pros of PayPal for Small Businesses

Here are some of the benefits that PayPal has to offer for small businesses like yours:

Widespread Acceptance and Familiarity

PayPal is a globally recognized and trusted payment platform, and it has been for many years.

As a result, customers are familiar with its interface and feel more comfortable using it for transactions. That familiarity can be a useful asset for small businesses that want customers to feel confident buying from them.

Easy Accessibility and Integration

PayPal's user-friendliness is a boon for small business owners, especially those without extensive technical expertise.

PayPal can also be seamlessly integrated into various e-commerce platforms, websites, and even social media pages. The platform offers easy-to-implement code snippets and plugins that make it simple for small businesses to start accepting payments online.

Multiple Payment Options

PayPal offers customers a range of payment options, including credit and debit cards, bank transfers, and even PayPal Credit.

This flexibility accommodates various customer preferences, thus increasing the likelihood of them completing transactions.

Robust Security

PayPal employs advanced security measures to protect both businesses and customers from fraudulent activities.

Namely, it uses end-to-end encryption, fraud monitoring, email confirmations, and more to safeguard financial information and prevent unauthorized transactions.

Global Reach

PayPal supports transactions in multiple currencies, making it an ideal solution for small businesses with international customers. It also provides currency conversion services to greatly simplify cross-border transactions.

Mobile-Friendly

With over 75% of Americans using their smartphone for online shopping, mobile-friendliness is essential.

Luckily, PayPal makes it easy for customers to make purchases from their mobile devices. And for business owners, PayPal offers a mobile app that makes it possible to manage transactions, monitor account activity, and even send invoices on the go.

Invoicing Tools

PayPal offers more than just transactions. With its easy-to-use invoicing tools, small businesses can quickly create and send professional invoices to clients.

This feature streamlines the billing process, eliminates the need for additional invoicing software, and helps to ensure timely payments (according to PayPal, 79% of invoices sent through its platform are paid within one day).

Subscription and Recurring Payments

For businesses that offer subscription-based services or products with recurring payments, PayPal offers tools to seamlessly set up and manage such arrangements with customers.

Seller Protection

PayPal offers a Seller Protection Policy designed to protect businesses against unauthorized transactions, chargebacks, fraud, and other payment disputes.

This policy provides peace of mind when conducting transactions with new or unfamiliar customers. And in the event that a fraudulent payment dispute does occur, it can serve to keep the business's balance intact.

Reporting and Analytics

PayPal provides businesses access to transaction history, sales reports, and financial summaries and projections. These insights can be valuable for tracking revenue, analyzing customer behavior, and making better business decisions for the future.

Once you've downloaded your financial summary, for instance, you can send it to a licensed accounting service that can help keep your finances in order.

Quick Access to Funds

Once payment is received, funds are typically available on PayPal immediately. Businesses can then transfer these funds to their linked bank account either instantly (for a small fee) or over the course of several days.

Cons of PayPal for Small Businesses

Like all tools, PayPal has some drawbacks. Here are the disadvantages of PayPal:

Fees Can Add Up

PayPal charges transaction fees for each payment received, which can include a percentage of the transaction amount plus a fixed fee based on currency type.

For businesses with high transaction volumes, low-profit margins, or a large number of international customers, these fees can add up and potentially impact profitability.

Potentially Limited Customer Support

Some users — both customers and merchants — have reported difficulties in obtaining timely and satisfactory customer support from PayPal.

The platform's automated customer service system may not adequately or promptly address complex or urgent issues, and it can be challenging to reach a human support representative. This can lead to frustration and wasted time for small business owners.

Hold and Reserve Policies

PayPal may place holds or reserves on funds received, especially for new or high-risk accounts. This can tie up funds that businesses need for immediate operational expenses, which may cause cash flow challenges.

If you're starting a brand new business and need quick access to funds from your first transactions, this issue is especially important to keep in mind.

Account Freezes and Restrictions

PayPal has been known to freeze or limit accounts in cases of suspected fraudulent activity, high chargeback rates, or other violations of its policies. While these measures are taken to ensure security across the platform, it can be frustrating and stressful to suddenly lose access to PayPal accounts and funds.

Chargebacks and Disputes

PayPal's buyer protection policies, including its Purchase Protection Program, can lead to chargebacks and payment disputes initiated by customers.

While these functionalities are designed to protect consumers, small businesses can be at a disadvantage during disputes, despite PayPal's Seller Protection Policy. That's especially true if the business lacks concrete evidence to back up its case.

Competitive Pressure

As PayPal's popularity has grown, other online payment solutions and competitors have entered the market. This has led to increased competition and evolving customer preferences, making it wise for businesses to offer a range of payment options beyond just PayPal.

Perceived Unprofessionalism

Not all customers want to use PayPal to pay for their goods and services.

In some cases, businesses may be perceived as less professional if they exclusively rely on PayPal for transactions. Some customers prefer to use more traditional payment methods, and the total absence of such options might deter them from completing their purchases.

Limited Merchant Tools

While PayPal offers various features geared toward small business owners, it is first and foremost a payment platform. As such, it might not have the extensive suite of tools that dedicated e-commerce platforms provide.

So, small businesses with more complex needs may require additional software or solutions to meet their needs.

How to Set Up PayPal for Your Small Business

Dreading the PayPal setup process? Don't sweat it — you can set up PayPal for your small business in just three steps:

1. Create a PayPal Business Account

You can't use PayPal without an account, so your first task is to create a PayPal account for your business.

To do so:

• Visit the PayPal website and click the "Sign Up" button in the upper right-hand corner of the page.
• Select a business account when prompted. This account type is specifically designed for businesses and their needs, so be sure to choose it instead of a personal account.
• Provide details about your business, including its name, email address, and other contact information.
• Add legal details if needed. Depending on your location and business entity type, PayPal may need you to provide additional details, such as your business's Employer Identification Number (EIN).
• Link a valid bank account to your PayPal account (preferably a business bank account, if you have one). This will make it possible to transfer funds from PayPal to your bank.

2. Fine-Tune Your Payment Options

Next, ensure your PayPal payment buttons look exactly how you want by customizing them to your liking. Here's how:

• Navigate to payment buttons by logging in to your PayPal business account, selecting the "Pay and Get Paid" tab at the top menu, and clicking "PayPal Buttons" in the drop-down menu.
• Choose your desired button type (i.e., "Buy Now," "Add to Cart," or "Donate") and customize it however you'd like.
• Copy and paste the resulting HTML code into your website. Once you save the changes to your site, you're done — customers can now use PayPal to make purchases from you.

3. Send Invoices and Manage Transactions

Don't forget — setting up PayPal for your business is about more than just accepting payments. It's also essential to keep tabs on your invoices and transactions:

• Invoicing: If you need to send invoices to your clients, you can do so through PayPal. Just select "Create Invoice," enter information about your customer, items, prices, and due date, and you're ready to review and send your invoice.
• Transactions: Tracking your transactions is important for monitoring sales trends, gaining insights about customers, and more. To download your transaction logs, log in to your account and click "Activity," and then "Download." Enter the date range for the transactions you want to see, and then click "Download History."

And since it can be difficult to make heads or tails of complex transaction records, consider sending your logs to a professional accounting service. By doing so, you can ensure you're not overlooking any important details.

Is PayPal Perfect for Your Small Business?

The answer depends on your unique wants and needs.

For instance, if you're looking for an easy way to accept digital payments from customers around the world, PayPal could be an ideal solution for you. But if you're concerned about PayPal's transaction fees and potential chargebacks, it may be better to explore alternative solutions.

While we can't tell you whether or not PayPal is right for your business, we can help with just about every other aspect of managing your money. Our small business Accounting and Bookkeeping service takes the guesswork out of managing your finances, so you can focus on helping your business succeed.