Credit This: How Card Fees Reduce Freelance Profits
Building credit card processing charges into your rates can be a great idea
Offering payment by credit or debit card makes it easier for clients to pay you, and that's never a bad thing. Paying by card can increase the speed that your freelance invoices are settled and get money into your bank account faster. But, there is a processing fee for accepting cards that will reduce your revenue. You may want to include this cost when figuring out your rates so you're not too out of pocket.
Key takeaways for freelancers and card processing fees
You want to make it as easy as possible for clients to pay your invoices.
It's helpful to offer multiple payment options, including the ability to pay by debit or credit card.
Freelancers taking online card payments can expect to pay a processing fee equal to around 2.9% of the total transaction amount, plus 30c in the US.
This fee applies to almost all card processors, including PayPal, Stripe, Square, and others.
This is known as a card or merchant processing fee, and you can normally deduct it from your taxes as a business expense.
Some freelancing platforms may absorb this fee in the commission charge that you pay them when accepting work, check the terms and conditions of the platform you use.
This fee lowers the amount of profit you will generate from selling your freelance services.
You may want to build this cost into your pricing, as it can add up quickly if the majority of your clients pay by card.
Taking payment by check or bank account transfer can help you to avoid this fee.
Benefits of building card processing fees into your freelance rates
Many clients are short on time and love convenience, so offering card payments can encourage rapid settlement of your invoices.
Understanding card processing fees allows freelancers to build these expenses into their project, hourly, or other rates.
This can help you to manage the cash flow in your freelance business, and ensure you're compensated fairly for your time.
How to figure out card processing fees and add them to your rates
Calculate how much you are going to charge for your freelance services.
Decide if you want to give clients the option to pay by card.
Estimate roughly what amount of your overall revenue clients are likely to pay by card.
Multiply the total revenue you expect to be paid by card by 0.03, this will give you the rough amount you can expect to pay in card processing fees.
Decide if you want to build that extra amount into your rates and charge those rates when you raise invoices.
Show your card processing fees as a business expense in your bookkeeping and accounting, as that will reduce your taxes.
Frequently asked questions
How much can card processing cost me?
It's generally around 3% of the total transaction amount. For example, a payment of $50 with a 2.9% + 30c payment processing charge will create a fee of $1.75, making your amount received $48.25 in the US. Rates in other countries will differ.
Should I only add in a card processing fee for clients that pay by card?
That's up to you. It does add on some extra administration, as you'd need to keep separate internal pricing schedules depending on how a client pays. Also, unless you know ahead of time how a client will decide to pay you, that can make things awkward. It might be better just to split that expense across all of your pricing for every client.
Should I add card processing costs onto my freelance invoices as a separate fee?
Probably not. Clients don't generally like seeing administrative and unavoidable fees on their invoices. It's often better to just show an overall fee that takes your card processing into account. Please also note that some card processing agreements specifically forbid you from adding on credit card processing as a separate fee. Do check what your agreement is.
Do I need to add the card processing fee onto my freelance rates?
Not necessarily. If you're already charging a healthy amount for your freelance work, you may just be able to absorb the cost of clients who pay by card. For example, I don't personally add any processing fees onto my prices, as most of my clients pay me via direct bank transfer, and my rates are high enough that I can absorb the extra expense.
Will I always be charged a processing fee when clients pay by card?
If you're invoicing directly, then you'll normally be charged a fee for taking payments. When you use PaPal, Stripe, Square, or similar services, you'll see that shown as a processing fee. Many freelance third-party marketplaces like Fiverr and UpWork charge the processing fee directly to the client and don’t pass it on to the freelancer. Check the terms and conditions of the platforms you use.
Will I be charged a processing fee if I use a freelance platform?
If you use a third-party freelance marketplace, then they may include the processing fee in the commission they take or via other means. For example, both Fiverr and UpWork charge clients a processing fee for making payments. This means they do not pass that fee onto freelancers, although you will still need to pay their standard commission fees.
Can I show my payment processing fees as a business expense for tax purposes?
Yes, payment processing fees are normally fully deductible from your revenue as a business expense. They directly reduce your profits and the taxes you pay on those profits.
Please note that I am not a qualified professional and I do not provide tax, legal, accounting, or similar advice. These guides are provided for informational purposes only. Always consult with a qualified professional on your unique circumstances.