Pagamos por ello ayer.

Spanish often drops subject pronouns because the verb ending already shows who the subject is.

• Pagamos = we pay or we paid
• So nosotros is not necessary

You could say Nosotros pagamos por ello ayer, but that would usually add emphasis, contrast, or clarity. In neutral speech, just Pagamos... is normal.

It can mean either, because the nosotros form of:

• the present: pagamos = we pay
• the preterite: pagamos = we paid

The word ayer makes it clear that this sentence is about the past, so here pagamos means we paid.

In Spanish from Spain, the present perfect (hemos pagado) is very common for recent past actions connected to today.

But with a finished time expression like ayer, Spanish from Spain normally uses the preterite:

• Ayer pagamos... = natural
• Ayer hemos pagado... = generally not standard in most of Spain

So pagamos is exactly what you would expect here.

Because pagar por means to pay for.

• Pagar por algo = to pay for something
• Pagar para algo would not express that meaning

So:

• Pagamos por ello = We paid for it / because of it / on account of it, depending on context

This is a very common place where English speakers confuse por and para. With pay for, Spanish normally uses por.

Ello is a neuter pronoun. It usually refers not to a masculine or feminine noun, but to:

• an idea
• a situation
• something previously mentioned
• a whole fact or statement

So ello often means something like it, that, or this matter, depending on context.

This is different from:

• él = he / him / it for a masculine noun
• ella = she / her / it for a feminine noun
• eso = that, often more common in everyday speech

In many everyday conversations, especially spoken Spanish, people would often say por eso instead of por ello.

It is grammatical, but it sounds somewhat formal or written.

In everyday spoken Spanish, especially in casual conversation, a speaker might be more likely to say:

• Pagamos por eso ayer
• Ayer pagamos por eso

And if the meaning is literally we paid it yesterday rather than we paid for that, Spanish might prefer:

• Lo pagamos ayer

So por ello is correct, but it has a slightly more formal tone.

That depends on what it refers to.

• Lo pagamos ayer = We paid it yesterday
  • Here it is the direct object: the bill, the ticket, the meal, etc.
• Pagamos por ello ayer = We paid for it / because of it yesterday
  • Here the structure uses por

So the difference is grammatical and sometimes also a difference in nuance:

• pagar algo = pay something
• pagar por algo = pay for something

In many real-life cases, Spanish prefers pagar algo when the thing paid is a direct object:

• Pagamos la cuenta
• La pagamos ayer

But with an abstract idea or situation, por ello is more understandable.

Yes, Spanish word order is flexible.

All of these are possible:

• Pagamos por ello ayer
• Ayer pagamos por ello
• Pagamos ayer por ello

The most neutral and common version is probably:

• Ayer pagamos por ello

Putting ayer at the end is still correct, but it can sound a little more marked or stylistic, depending on context. Spanish often moves time expressions around for rhythm or emphasis.

Yes, it can be either.

It can be literal:

• We paid money for it yesterday

But it can also be figurative:

• We paid for it yesterday in the sense of we suffered the consequences because of it

Because ello is abstract, the figurative reading is quite possible if the context supports it. Spanish uses pagar por ello in much the same way English uses pay for it.

Because él is the masculine pronoun for a masculine noun or a male person, while ello is neuter and usually refers to an idea or situation.

Compare:

• Pagamos por él = We paid for him / for it if it is a masculine noun
• Pagamos por ella = We paid for her / for it if it is a feminine noun
• Pagamos por ello = We paid for it / for that, referring to a whole idea or matter

So ello is chosen when the reference is not a specific masculine or feminine noun, but something more abstract.