When PayPal Just Doesn’t Cut It

I’ve had a few posts praising PayPal for its simplicity and incredibly short setup time.  I understand it has a lot of enemies (as you can tell from some of the comments here), but for a very small business just getting started, it really can’t be beat.

However, there comes a time for every business when it grows up.  For some business owners this may mean a proper phone system, an email service service (exchange or an equivalent), incorporation, or an accounts receivable system.  For service based businesses, getting paid quickly is a huge priority for success.  There are a number of ways to get paid and a lot of considerations when planning this out for your business. 

The vast majority of payments (66% of payments made by FreshBooks users in November) are made by traditional means, ie. a cheque in the mail.  However, more and more companies are choosing online payment and many are starting out with PayPal.  A significant number, however, are applying for an online merchant account and a payment gateway and accepting credit card payments directly or using a service like FreshBooks or Shopify.  The burning question for a lot of businesses is why bother?  If PayPal is so easy to use and quick to get setup, as well as competitively priced, why not just continue using PayPal.  When businesses ask us this, we usually tell them that a merchant account and payment gateway is perfectly seamless for your customers and more reliable.  This may seem like a fairly minor reason to justify the cost and time required to setup a merchant account and payment gateway, but when you consider the implications, it can be worth it.  If just one of your customers pays you faster or is impressed with your sophistication, the costs can be worth it.  Not only do you have the cash in your bank immediately, but your customer may be impressed and end up referring you to a friend.  Back in the 90’s, I would have called this a “win-win”

Here is an example of how UN-seamless, the PayPal experience can be. To demonstrate this, I will walk through a typical client’s point of view when they receive an invoice:

1. If you are using FreshBooks, and you click “Send” on your invoice, the invoice will be sent as a link in an email.

2. The customer receives the email and clicks the link, the internet browser pops up with the invoice, here is an image of the top of the invoice your customer sees: 

3. The customer sees the pay link and thinks, “I would love to get this off of my plate, so I’ll just try and pay this right away”, and the PayPal pay screen appears as shown:

4. The customer clicks the PayPal logo and is redirected to the PayPal server which typically displays a screen that looks like this:

Now put yourself in the customer’s shoes, chances are you have no idea what PayPal is (or you have used it 2 years ago when you bought those designer jeans using EBay).  At this point, unless the customer is very familiar and comfortable with PayPal, they have to find the link to pay with their credit card.  After scanning the screen, they find it in the bottom corner.

5. They are now able to enter in their credit card information to pay for the invoice. Now this screen is extraordinarily long and complicated and just the opposite of what you want your customer to see when paying you money.  Security is very very important, but so is getting paid.  The kicker for me is the area to enter in the security code.  Note that the word actually looks like it has a space in it, but in fact it doesn’t and your customer could become very perturbed by little annoyances like this. 

6. After filling out the long form and clicking continue.  The customer is given yet another screen where they confirm the amount and click Pay.

7. Finally, the transaction is complete and the customer is shown the following screen:

Here is where some issues can occur.  At this point, the transaction has been processed, so the good news is that you have already received your funds.  However, if the customer does not click the small link in the bottom left “Return to Merchant”, then your FreshBooks account will not be updated and you will have to manually update their account information.  An oddity of this screen is that the bottom right, where normally someone would look to complete a purchase, is actually a login button, which makes no sense at this stage of the process.

8. If you are lucky enough to have your customer click the return to merchant link, you are displayed with the happy green FreshBooks success screen.

And voila, the process is complete, you have been paid, and if you are lucky, your records are all up to date.

Now compare steps 3. through 8. above, to the following steps if you are equipped with a merchant account and a payment gateway such as VeriSign or Authorize.net:

3. The customer clicks the pay link and is presented with a simple payment form where they confirm their billing address and enter their credit card information.  Everything is secure and safe since by default all FreshBooks accounts use an SSL certificate just like all other e-commerce sites.  The form looks like this:

4. After clicking pay, voila! the process is complete:

Two easy steps versus four complicated steps makes getting paid that much better with a merchant account and payment gateway over PayPal.  Some other benefits of using a merchant account with a payment gateway over PayPal are:

• More control over your funds – with a merchant account, all of your money is deposited automatically into your bank account and you have direct control over your money.  I have heard stories of PayPal witholding funds for various reasons, however this has never happened to us.
• Recurring billing – PayPal has subscription billing, but it is not supported in FreshBooks mainly because it is difficult to control and not designed to be used with an API.  PayPal does not allow recurring billing with its higher end product Website Payments Pro, which is the closest thing they have to a merchant account with a payment gateway.
• Better rates – PayPal has become more competitive with their rates, but if you have a stable business with very little risk, you should be able to get better discount rates with a merchant account