- PayPal invoices allow you to submit requests for payment to clients through a customizable template, which includes options like description of services, numbered invoices, and personalized settings.
- The feature also tracks customer payment status and records the history of all your interactions with the client.
- PayPal invoices use a per-transaction fee in lieu of a subscription-based, monthly or annual cost.
- This article describes how PayPal invoices work, outlines how to use the feature step by step, and explains how a business or sole proprietor might incorporate it into their daily accounting.
With PayPal invoices, businesses, freelancers, and entrepreneurs can perform billing quickly and easily in one place. Within the PayPal platform, you can generate an invoice, offer your customer a variety of payment methods, and track an invoice's progress as well as the client's complete payment history with your company.
How PayPal invoices work
PayPal began its online payments system in 1998, and it currently provides a multitude of secure services. For example, it can function as a credit card processor and as a portal for collecting donations. The company had 392 million active accounts in the first quarter of 2021, according to Statista.
Editor's note: Looking for the right accounting and invoice-generating software your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.
PayPal invoices have existed for more than 10 years and are available through free personal and business accounts. These include additional features as part of the PayPal Commerce Platform, such as business financing solutions.
To use the function, you simply select a template, create the invoice, and save it for future use if you want. Once you're finished, a preview option allows you to review the details before sending. Customers receive a personalized invoice from you and can use a simple click-through interface to send immediate payment by a variety of methods (credit or debit card, PayPal account, or PayPal credit).
After you deliver the invoice, the PayPal platform tracks the payment and notifies you when the bill is paid, and when you should follow up on unpaid bills. The latter won't often be necessary, though: According to PayPal user data from 2019, 76% of the invoices it generates are paid within 24 hours of delivery. PayPal invoices can also handle different currencies and tax percentages.
"We find the PayPal invoicing system to be both efficient and effective, meaning that it takes us very, very little time to generate and send an invoice, and we then typically receive our funds [from overseas customers] in USD, our preferred currency, within days," said Steven Rothberg, chief visionary officer and founder of College Recruiter, a job search site for students and recent graduates. "It is also easy to then move the net funds we've received from PayPal to our company's bank account."
[Related: Important Accounting Terms You Need to Know]
These are some features the invoicing function includes:
- The ability to save invoice templates, customer contact information, items and taxes for quicker future input
- A scheduling option, which can automate recurring bills
- An ongoing tracking feature, which captures the history of all billing and payment transactions, including when clients pay by check
- A reminder function for when invoices go unpaid
- Notifications when an invoice isn't delivered or when payment appears in your account
- An option to create custom billing apps through the PayPal Invoicing API
- Acceptance of partial payments and tips
- Availability in more than 200 global markets
What does it cost to use PayPal for invoicing?
PayPal invoices incur no subscription or monthly fees, just a percentage of the transaction when you receive payment. PayPal, which changed its fee structure on Aug. 2, 2021, is transparent about the costs – just look at the bottom of most PayPal pages and click "Fees" to see the specific numbers.
In general, the fees range from about 3.49% to 8%, depending on the payment method and the transaction type, such as whether it is domestic or international.
- The PayPal Digital Payments fee for U.S. sellers is 3.49% of the payment plus 49 cents per transaction.
- There are various fixed fees for international transactions, depending on the locations.
There are no minimum or maximum transaction amounts for using the PayPal invoicing service. A company may use the feature regularly or just occasionally and can stop using it entirely without incurring a penalty.
Payments from domestic clients usually appear in an account soon after the customer transfers the amount billed. International interactions take a little longer.
College Recruiter, for example, uses PayPal invoices only for particularly small or overseas businesses that use its service.
"We try to minimize the use of PayPal to receive payments, as the fees they charge greatly exceed those charged by the other means we've made available to our customers (ACH, credit card, check)," Rothberg said. However, "were it not for the ability to send these customers a PayPal invoice and be paid through that system, we would not be able to do business with those customers."
How to use PayPal invoices: A step-by-step guide
Here's exactly how to fill out an invoice with PayPal's invoicing feature.
Step 1: Log in to your PayPal account or sign up for one.
Step 2: Click on the three dots in the circle labeled "More" for the dropdown menu, and select "Invoicing."
Step 3: Either fill out the default template provided or, for more options, click on the Invoicing arrow, which will open a new webpage, where you can select "Create."
Step 4: Enter the invoice recipient's email. To add an address, just click "Edit customer information" and insert the information you wish to include on the invoice.
Step 5: You can choose from three basic templates from the invoice generator: Quantity, which includes options for the item name, quantity, tax, and price; Amounts Only, which has spaces for items and amount; and Hours, with sections for the item name, hours, and rate.
You can also create your own templates with specific client information for future use. PayPal allows you to save up to 50 in your account. This makes it easy to send out your next invoice in just a few minutes.
Step 6: You can also customize each PayPal invoice and add details like the billing address, discounts, dates, and tax options.
Step 7: We suggest that you professionalize your PayPal invoice with your company logo. Just go to the Invoicing menu, click "Templates," add a JPG or PNG file where it says "Add logo," and then save the template, setting it as your default.
Step 8: Double-check your invoice with the Preview button before sending.
Step 9: When you're finished, hit "Send." You can also create estimates or recurring invoices at this point.
Step 10: Your customer will receive the invoice. They can submit payment through credit or debit card, PayPal, or PayPal credit. You can track their payment history through the Invoicing section, and send reminders. There are also options to issue a refund, print a label, cancel an invoice or add a memo for future information.
Interested in the alternatives to PayPal? Read our guide to learn more.