Small businesses are doing more of their business through PayPal. And I’m not talking simply about purchasing online using a PayPal button.
Small businesses are receiving an increasing share of invoice payments through PayPal.
FreshBooks, a Toronto-based online invoicing service that has logged 150,000 small business users, recently started sharing aggregated data on usage. This chart, showing the most recent FreshBooks data from March 2007, tells an interesting story:
It shows that PayPal is the third largest source of payments on invoices, after checks/cash and Visa.
These invoices are paid via PayPal because the vendor (the small business) issues an invoice through FreshBooks and includes a link for paying through PayPal. This is done partly for the convenience of the party receiving the invoice, but also for the benefit of the small business issuing it. Many small businesses would rather have an immediate payment via PayPal than waiting for a check to arrive, making a trip to the bank, depositing the check, and so on. Receiving payment through PayPal also eliminates the need to have a merchant account to process credit card payments.
FreshBooks also noted that the usage of PayPal jumped almost 17% from the previous month, the largest increase since FreshBooks started collecting data in November 2006.
FreshBooks told me in an email that the majority of their customers are small businesses with 1 to 100 employees, with most having 1 to 10 employees. Over 60% are from the United States, 14% are from Canada, 8% are from the U.K. and the rest from other countries.
According to FreshBooks CEO Mike McDerment:
“FreshBooks has been designed for service-based businesses. Therefore FreshBooks users primarily fall into two categories: service-based businesses that bill for time (i.e. billing for time like lawyers, web designers, IT consultants, PR firms) and/or service providers that offer recurring services and benefit from recurring billing (alarm system monitoring companies, web hosts, ISPs, pool cleaners, lawn care companies). Technical competence does not seem to be limiting factor for uptake as we have both tech savvy customers (IT consultants, web designers, etc) and extraordinarily non tech savvy (dog walkers, dance studios, nannies…). We offer outstanding customer service by phone and email and therefore any business owner can take comfort in knowing help is available if they need it. That said, most of our paying clients never contact us directly, they self-serve thanks to the ease of use of the service.”
FreshBooks is an impressive efficiency tool. I set up a trial account and experimented with it. You can go online and issue invoices and send them out via email — or send a hard copy via snail mail through a service FreshBooks provides. FreshBooks keeps employee or contractor timesheets, including an online timer that automatically logs time spent on a task. You also can use FreshBooks to create an online help center for customers, with the ability for customers to lodge work orders and support tickets online. Your staff then goes in and handles the tickets. As the business owner you can monitor everything from the online control panel.