How to Accept Payments
Accounting for Small Business 101
This 10 part guide will provide you with the most basic fundamentals of accounting for your business. Whether you’re a budding entrepreneur with your first start-up or a stay-at-home mom selling knit hats on Instagram, lay the groundwork. Here’s how.
PART 7: HOW TO ACCEPT PAYMENTS
We can all say how our business is driven by passion, creativity, a desire to help others... but what does a business really run on? Money. You need to get paid. And it needs to be as simple and streamlined as possible. Don't overlook the importance of choosing the right payment gateway. It can be overwhelming, but this blog post will break it all down so you can pick the right payment gateway for your business.
Why do so many business owners overlook the importance of choosing the right payment processor? For one, it can be overwhelming to choose from the many options. There are many ways to get paid, places to collect payment, and multiple banks and merchants to work with.
We see it ourselves as consumers. Whether we’re grabbing a donut at a local shop, buying a new car from a dealership, or buying a new sweater online. There are so many options to exchange money from one entity to another. Sometimes we tap a card on a terminal, other times we fill out a financing application, or it’s as dangerously simple as clicking the “Pay Later” button.
Cash, check, credit, debit, tap, swipe, insert, fill out, click. These aren’t the lyrics to a new daft punk song. This is the complicated world of payment processing. So let’s break it down and help you decide on the perfect payment setup for your business.
What is a Payment Gateway?
A payment gateway is a setup for receiving money via credit or debit card. It connects a consumer’s bank to your bank. For the interests of this article, we’ll use the term payment gateway to refer to any method of payment that connects one bank account to another.
Depending on what you sell and where you sell it, payment processing may involve physical hardware like a card reader. Or it can all be done in the cloud with apps and online platforms.
The best place to start when deciding on how to accept payments is to figure out what works best for you and your customers. Likely you will want to prioritize what makes it easiest for your customers to pay, and what gets you the funds as quickly (and cheaply) as possible. If you are opening a brand new business, you will want to start simple with the option of adding on more functionality in the future as you grow.
Different Options for Taking Payments
You may have more options than you think for ways to get paid.
Cash and Checks
The oldie but goodie, cash and checks. You accept payments physically by accepting cash or checks, which you then take and deposit into your bank. Cash is simple, no fees are involved, but you have to put in extra work to manually track payments. Checks are also simple, but less and less people are using them and there’s extra work and time involved in getting paid and depositing the funds.
Credit and Debit Cards
Most people nowadays prefer to pay with a credit or debit card. This can be done by the customer scanning (or inserting or tapping) their card into a terminal. Or they can enter their card details online. This transfers money from their bank account into yours, sometimes instantaneously depending on your setup.
Cards are convenient, easy to track, and make money transfers quick. But credit card companies and banks do charge fees for transactions. And POS (Point of Sale) hardware, such as tablets and terminals, can be problematic and buggy.
Online credit card payment processing is highly customizable, with options for recurring payments and subscriptions, as well as partial payments, deposits, and financing. But they also have fees involved and can be complicated to set up. You also usually need an ecommerce website to go along with it.
NFC
Near-field communications, or NFC, is another fast-growing payment method. You may be more familiar with Apple Pay and Google Wallet. These are the top NFC payment systems that more and more consumers are getting comfortable with. While you wouldn’t want to make this your only available payment method, it can be a feature of POS systems you might consider.
Mobile Payment Apps
There are also now money transferring apps like Venmo and Zelle that you can use to exchange funds with other users. Cash apps may seem perfect for your business, since they’re supremely easy to set up and use and usually have no fees.
But it’s actually prohibited to use personal accounts for business transactions. There is no security or protection for transactions. There are no features for downloading finance reports or calculating tips. And it does not deduct or calculate taxes. There are business accounts available for most mobile payment apps that do charge fees and provide important business features, so if you’re going to use mobile payment apps for your business, that’s the way to go.
What Payment Methods Should I Offer?
Think about your business and your customers from all angles. You want to plan ahead and choose a payment processor that works for you now and in the future. Here are a few questions to ask to get started:
Am I selling services, products, or a combo of both?
Where will I be working and selling? At home, at the customer’s location, or in a store?
Do I want to open multiple locations at some point?
What payment options will my customers expect for my industry?
How mobile is my business? Will I be selling at markets or events?
How digital is my business? Do I have or want to run an online store or ecommerce website?
Do I want to offer options to my customers like financing, deposits, installments, cash on delivery, recurring payments, coupons, gift cards, refunds, and/or subscriptions?
What is my projected sales volume? How much monthly revenue, and how many transactions per day and month?
Once you have the answers to these questions, you can see what methods make sense for your business. The next task is to pick your payment gateways. There are many merchants and companies you can work with.
How Do I Choose a Payment Gateway?
Once you’ve figured out what methods you want to offer, research your options within that category. Here are a few of the most popular payment gateway options.
Online Invoicing and Billpay
Best fit for:
Service providers, especially those that are B2B and/or remote. Web designers, graphic designers, virtual assistants, bookkeepers.
Popular choices:
How to compare:
Check out the fees for the software, including upfront and monthly fees. Check if the online invoice payments are included, or an extra charge. Also keep an eye out for transaction fees for each payment processed. You’ll also want to research reviews to make sure the customer service and tech support are highly rated.
POS (Point of Sale) System
Best fit for:
Retailers, restaurants, hair salons, spas, fitness studios, and any other business that collects card payments on-site, and may also have an online store.
Popular choices:
How to compare:
Check pricing for setup, hardware, subscription, and transaction fees. If you want to use a mobile device to scan cards, look for available hardware options and apps, as well as device support. Make sure the system integrates well with your accounting, CRM, and inventory software. Compare security measures and seller and buyer protections. And make sure the POS system you choose can support everything you want to offer customers, such as refunds, coupons, gift cards, subscriptions, etc. If you also sell online, compare what companies offer for ecommerce integrations.
Online Payment Processors
Best fit for:
Ecommerce / online stores that may also have a secondary retail location.
Popular choices:
How to compare:
First check what payment gateways are available for the ecommerce solution you use. Platforms like Shopify and Squarespace have their own built-in payment gateways with unique fees and features. PayPal, Stripe, and Square have more boisterous POS systems, so if you also run a retail location you may prefer one of these. Compare fees and features like recurring subscriptions, digital downloads, donations, deposits, refunds, gift cards, financing, coupons, and anything else you want to offer customers either now or down the road. Try demos and test out your options. The look and feel of checkout can vary greatly depending on the gateway.
Mobile Payment Apps
Best fit for:
Small businesses and freelancers with low transactions that want to offer an additional easy way for customers to pay.
Popular choices:
How to Compare:
Check fees, security features, and protections put in place for buyers and sellers. You can also compare features like tip calculation, reports, and refunds. Check on compatibility for easily categorizing and importing transactions into your bookkeeping system, ecommerce, and other business management tools.
The Best Payment Gateway for Small Businesses
The best payment gateway for small businesses is the one that works for your unique needs. While this article hopefully cleared up some confusion and gave you guidance in researching the best choice for you, you may want some additional help.
Contact Pioneer Accounting Group and see how we go beyond bookkeeping. We get actively involved in all areas of your business to help you grow and thrive. Want to streamline payment processing? Expand into new areas? Simplify all things financial? We’re the accountants for you. Start a live chat or fill out a form and get to know us. We’ll guide you to growth.