The Dangers of Accepting PayPal or Credit Cards

In the traditional business model of goods and payment the seller hands the goods to the customer, who then hands over payment. That works pretty well when the transactions take place face to face, over a counter where the goods get examines first and the payment is in currency that goes right into the cash register. Conflicts and questions are asked and answered right on the spot, and if they cannot be answered or resolved the seller and buyer go their separate ways with their goods and money in their respective possession and no one is out anything except a little shopping time.

As a freelancer, i.e. a single entity trying to make a living dealing with many different clients whom you rarely meet let alone transact face to face, and increasingly are doing business from different parts of the globe, getting paid for your work is something that can sometimes become an issue.

You try and protect yourself by doing things like requiring new clients to pay an advance before beginning significant work, collecting payments at various stages of the job, requiring payment in full before delivery of the final work, etc. That system works to a certain extent, but often times for me the short time frame between a client calling and the deadline of the job makes it impossible to go through that kind of a process. This is especially true when working with a publication, because they usually don’t have their accountants sitting around with checkbooks ready to whip off checks at a moments notice. Many publications, in fact it’s probably accurate to say MOST publications, are owned and run by a larger company that requires invoicing, purchase orders, agreements and a process before payments are cut and sent out from some department far away from the art director’s office. Some clients of mine pay within a week of submission of the work, while others take up to 60 days. It’s part of the job, and as with everything communication is the key. You as a freelancer need to ask about payment policy and have a clear idea of what to expect, so if it doesn’t happen you can follow up as needed.

All that is tough enough, but what happens if the very payment the client makes to you isn’t a “real” payment until up to 2 months after it’s made? What if that money the customer paid for those goods that went into the cash register had a fishing line tied to it, and later on the customer had merely to yank on the line and the money was gone?

That is the risk a freelancer takes when accepting payment via PayPal or a credit card.

Maybe Big Box retailers are really at fault here. Companies like Wal-Mart, Best Buy and Target will take a return on anything, and they have conditioned the consumer to think their purchase isn’t really a purchase until they have used it thoroughly and decided it’s worth the money. Caveat Emptor (let the buyer beware) is dead… Caveat Venditor (let the seller beware) is the new law of commerce. Payment options like PayPal make “caveat venditor” applicable to freelancers.

PayPal has a 45 day period where the buyer can open a “dispute” over a transaction. Since freelance creative work deals with intellectual property and not tangible goods, the “proofs” PayPal typically requires from sellers to respond to a dispute… stuff like delivery confirmation and photos of the goods in the condition sent do not apply in these cases. This is especially true when a job goes sour, and even if payment has been made at the end of certain stages it’s hard for a freelancer to prove he’s met his end of the deal as far as the payments thus far are concerned. As a result, PayPal can and will refund money out of a freelancer’s account without their permission if they side with the buyer in a dispute.It isn’t simply a matter of if they got the product, it’s also a matter of if the product was what they expected to get. This policy gives a client Carte Blanche to decide months after the fact if they feel like paying for a freelancer’s work.

Accepting credit card payments can result in the same issues. Credit card companies allow “chargebacks” and disputes over goods paid with their cards, and you can imagine which side they tend to protect in a dispute… the customer paying their credit card bills. Chargebacks can be instigated up to 90 days after the charge was made, and for the following reasons: “if the card was charged fraudulently, either by an unauthorized user or an ignominious vendor, or the items or services that were received by the card holder were not received, or not the same quality or type of item or service they had anticipated receiving.” Again, the decision of if they like the work and want to pay for it can be made months after the work is done.

It’s that last statement that is troubling. You see, it would be very easy for a disreputable client to decide well after the fact they didn’t like what you did and literally not have to pay for it. Accepting payments via PayPal or credit card leaves you vulnerable to those kinds of issues. Here’s an actual story illustrating just such a problem from the excellent resource Freelance Switch. In this story the client in question not only won their dispute through PayPal and was refunded payment for work that was done and delivered, but the client had the audacity to use the artwork they did not pay for anyway on their website and yet PayPal still did nothing for the freelancer. Hard to believe in the face of such obvious proofs PayPal would not return the freelancer’s payments, but they did not.

Of course, the real underlying problem with accepting a PayPal or credit card payment is the same as accepting any kind of payment…a bad client is a bad client. In fact I suppose you can say that if a client is unreliable with payments why would they bother to make a payment via PayPal or credit cards in the first place? They could probably string you along promising a payment and then not delivering it and achieve the same thing… you having done work and not gotten paid for it. The difference is that they can string a project all the way to final by delivering what seems like timely payments while knowing that if they decide not to pay for it they can get out of it, where as if they are pulling classic “the check is in the mail” tricks the freelancer has the opportunity to stop work and not deliver a complete job to someone for what may end up being no payment.

I didn’t have this problem with a freelance job, but did get stuck by PayPal when I sold an HD Home Theater projector for $1000 through eBay. In my description I said the projector had “about” 800 hours of run time on it. It was in perfect working order when I sent it to the buyer and I packed it like a tank. Exactly 45 days after the transaction he initiated a dispute saying that the projector had stopped working. I said I was sorry that happened but it was working fine when I sold it and there was no way I could foresee there would be a problem 6 weeks later. He claimed there were over 1000 hours used on the projector (there is an internal timer I didn’t know about and only estimated the time). My response was I estimated the time which is why I said “about” 800 hours. EBay/Paypal refunded his entire payment and I got a broken projector back because I used the word “about”. The guy probably dropped it, or had one like it that was broken and swapped them out. I had no proof of either, so I was the one who got screwed. I canceled my eBay account right after that and will never sell anything on eBay again. Likewise I won’t accept a payment via PayPal for anything except tangible personal property I can prove the receipt of… certainly not for freelance work.

With the increasing frequency of doing business with international clients, it would be nice to have a solid solution to getting paid that is more fair and protected that PayPal’s broken policies. Until then, I’d rather the check was in the mail.