Practical tips for PayPal: Accounting, reconciliation and more

17 December 2020

Symbolbild: Hand mit Smartphone. Gerade bei mobilen Zahlungen wird PayPal als Zahlungsmittel immer beliebter.

Fast, safe and simple: For buyers, PayPal is becoming an increasingly popular payment method. For retailers, however, PayPal comes with some particularities, especially with regard to accounting for PayPal payments. Find out everything retailers need to consider with PayPal transactions, how to account for them, and how you can reduce your work effort.

Content of the article

    What is PayPal?

    PayPal is a popular online payment service, designed to make online purchasing in particular easier and safer. The increased security mainly concerns two special features which also affect accounting.

    • Data protection: When customers use PayPal to shop online, they are not obliged to provide the online shop with their bank details, as these are only stored at PayPal.
    • Buyer protection: If a product purchased by the customer doesn’t arrive or it does not match the description, the PayPal buyer protection comes into play: The customer is reimbursed by PayPal for the full purchase price including postal charge.

    What’s special about PayPal? Each money transfer is completely settled online. Unlike a regular bank account, a PayPal account is a purely virtual account assigned to an email address. This not only speeds up the payment process, it also has implications for the accounting of PayPal payments.

    How does PayPal work for sellers?

    The PayPal payment option can be embedded on the website as a button or in the retailer’s online shop.

    To use PayPal to transfer money, customer and retailer must be registered with an email address. Unlike other cashless payment methods, PayPal doesn’t require any bank or credit card details for identification. This means that neither party discloses their bank details.

    If a customer pays with PayPal for a retailer’s product, the respective amount is credited to the retailer’s PayPal account. You should note, that at first the money is held in this virtual account, and not automatically credited to the seller’s bank account. This is quite important for the accounting of PayPal payments.

    For the online payment service, PayPal charges a commission that the retailer has to pay. Find out more about the costs for the seller here.

    A graphic that shows the commission for a PayPal transaction: If a customer pays 100 euros, the seller receives 96.15 euros of this. 3.85 euros go to PayPal as a fee.

    Paying with PayPal: Advantages and disadvantages for sellers

    PayPal mainly offers plenty of advantages for the buyer, not least because it makes purchasing processes easier and safer. And the payment service is also beneficial for the seller. There are, however, some disadvantages to this payment method you should bear in mind.

    Advantages for the seller

    • Speed: With PayPal, payments are credited immediately. The usual bank processing times for money transfers don’t apply.
    • Internationality: With PayPal, retailers can receive payments from more than 200 markets in 100 different currencies.
    • Higher conversion rate: According to a PayPal survey, the payment option increases the conversion rate in online shops by around one third.
    • Easy reimbursement: PayPal allows fast and easy reimbursing of payments to buyers.

    Disadvantages for sellers

    • Access to PayPal account: In the event of inconsistencies, PayPal can block the retailer’s virtual account at any time, and the retailer no longer has access to the money.
    • High fees: Compared to other payment options, the retailer pays high fees for PayPal transactions.
    • Lack of support: If there are problems, e.g. with incoming payments, things may become complicated. PayPal cannot be reached via telephone and their email support can take several days.

    What are the costs for sellers?

    • PayPal asks online retailers for a commission.
    • Since 2018, sellers can no longer pass these costs on to their customers.
    • The percentage of this commission is between 1.9% and 3.4% depending on the total turnover of the respective month.
    • Add 0.35 € for each domestic transaction.
    • These fees must be posted correctly in the accounting of PayPal transactions.

    PayPal in accounting: Correct posting of payments

    When it comes to PayPal billing and accounting, there are some particularities to consider with PayPal payments. This is partly due to the fees charged to the retailer for each payment, and partly because PayPal accounts are purely virtual. In terms of accounting, however, a PayPal account needs to be managed just like a regular bank account.

    Make sure to save and archive statements of all PayPal transactions and retailer account reports. In printed form, they serve as necessary accounting records for the accounting department.

    Posting from a PayPal account to a regular bank account

    Do not leave incoming payments on your PayPal account for a longer period of time. PayPal can block your account in the event of complaints or if money laundering is suspected. Unblocking the account takes an enormous effort.

    • We recommend you keep a certain amount on your account for actual claims or complaints. Make sure to transfer the rest to your own bank account as soon as possible.
    • Besides the existing bank account (e.g. in DATEV SKR03 account 1200), the accounting department creates a PayPal account (e.g. with the number 1210) and a clearing account (e.g. in SKR03 account 1360).
    • For maximum transparency, you should always post payments from the PayPal account to the bank account via the clearing account (and vice versa).
    • In this case the accounting records are:
      • First posting step: PayPal clearing account 1360 (debit) to PayPal account 1210 (credit)
      • Second posting step: Bank account 1200 (debit) to PayPal clearing account 1360 (credit)

    Posting PayPal incoming payments and PayPal fees

    Due to the commission that PayPal charges, the amount that arrives on the PayPal account is (automatically) not the original gross price. However, it would be wrong to simply post the actual incoming amount of money as revenue.

    • Instead the accounting department must list the full price (gross invoice amount) as revenue and post the PayPal commission as “incidental costs of monetary transactions” (operating expenses).
    • The commission fees do not include VAT. Input tax can therefore not be claimed. You post the entire amount deducted by PayPal.
    • Here’s an example for a posting record (SKR03) for an invoice over €100.00 and 3.5% PayPal fees + 35 Cent (3.85 €):
      • First posting step: €100.00: PayPal account 1210 (debit) to customer/debtor 1400 (credit)
      • Second posting step: €3.85: Incidental costs of monetary transactions 4970 (debit) to PayPal account 1210 (credit)
      • Result in accounting: The debtor is balanced and the PayPal account shows €96.15 (debit).

    Keep in mind: Claim PayPal fees for tax purposes

    • You can fully tax-deduct the PayPal commission fees as a business expense.
    • The fees lower your profit, and therefore your tax burden.

    Automate the accounting of PayPal payments

    Manual accounting of PayPal payments is time-consuming. There’s the accounting of the fees as well as the postings from the PayPal account to the bank account – especially if there are several transactions to be accounted for.

    But there are a number of software solutions that offer an interface to PayPal, which can partially automate accounting processes and thus make day-to-day work in accounting much simpler.

    One good example is Matchbox by treibauf – the automatic debtor reconciliation in cashless payment transactions.

    • This solution first imports all data records from the online shop and PayPal to then reconcile them automatically.
    • Afterwards, the software transfers the data into transaction-accurate records and exports them automatically into the respective accounting system.
    • The PayPal fees can be accounted for automatically.

    Even when it comes to PayPal’s lack of support, Matchbox is there to help. Since the software monitors the transfer of data automatically, it quickly identifies all inconsistencies – and Matchbox’s support team is able to respond proactively.

    By the way: This is just one of many examples how digitalisation can simplify accounting.

    Summary: Correct posting of PayPal payments

    • The popular online payment service shows a number of particularities for (online) retailers, especially with regard to the accounting of PayPal payments.
    • As incoming payments first arrive on the virtual PayPal account, they need to actively be transferred to the retailer’s bank account – and posted accordingly.
    • In addition, the accounting department needs to correctly report the PayPal fees and should, of course, tax deduct them as a business expense.
    • Software solutions such as Matchbox by treibauf can automate the elaborate posting process and make life easier for accounting.
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