“Pay now!” Having this button on your digital invoice can shave 20 days or more off the time you usually wait for customers to pay. People love the convenience and flexibility of online payment. And that often translates into immediate action.
Here’s how small businesses can make online payment work for them.
Online Payment Methods
There are a variety of instant payment methods that don’t even require customers to visit their bank’s website. The most popular ones include:
• Automated Clearing Houses
Well-known providers include PayPal and Stripe
• Credit Cards
MasterCard, VISA, American Express, and Discover are among the most recognized. Customers like this option because it gives them the flexibility to pay you on time even if they don’t have the money right now. Then their debt becomes the credit company’s headache, not yours.
• Debit Cards
Customers transfer payment directly to you from their bank.
• Direct Debit
Customers authorize automatic, recurring payments from their bank to you. This option is ideal for retainer agreements or ongoing services which you would normally bill monthly.
Using a Merchant Service Provider
Merchant service providers are companies who will handle the online payments for you. Choose one that specializes in the online payment method you’ve decided to offer (it’s unlikely that you will find it necessary to offer more than one or two methods). Getting set up is usually free; after that, there will be a fee per transaction.
To work with a merchant service provider, you will need online invoicing software. If you have the software already, there should be a section for add-on apps with a list of providers that can integrate with your software. Choose your provider and use the wizard to install the app yourself, or have your accountant do it.
It’s important to note that you don’t have to accept online payments every time; the service can be switched on and off as often as you like. Many businesses prefer not to offer online payment if the invoice is for more than $5,000, because the transaction fee would be too high.
Dealing with Transaction Fees
Fees that you can typically expect are:
• Credit and debit cards: 2% to 4% of the invoice value
• Direct debit: not more than $2 (depends on the amount of the transaction)
• Stripe and PayPal: 2.9% of invoice value plus $0.30
For accounting purposes, transaction fees are a business expense that can be deducted on your income tax. Also, be sure to integrate this expense into your bookkeeping for the order, so that your profit is calculated correctly.
For small businesses that are more vulnerable to cash flow gaps when payments are late, online payment can be a dream come true. By making it easier for the customer to pay, you can expect more on-time payments — and one less obstacle standing in the way of growing the business you love.