Accepting Online Payments Part One: Why You Want to Accept Online Payments
At FreshBooks, we get a lot of people asking about using online payments for their business and wondering if it is worth the setup hassle and fees.
We thought it would be great to share some thoughts on online payment, collected from our experiences over the past few years, in a three-part series titled, “Accepting Online Payments: The Ultimate Guide” . For the second post, click here: How Do Payment Gateways Work and How Do I Choose One? For the final post, click here: So Which Payment Gateway Should I Choose?
For the first post, let’s start with the question of how to decide if it’s worth it for your business.
Part One: Why do I want to start collecting Online Payments for my invoices?
Simply: to improve your cashflow.
Have you ever run out of cash waiting for a client check? Did your business grind to a halt because of a missed payment? Then online payments might be for you.
Online payments give you the ability to accept credit cards through the payment gateway itself, or through a third-party add-on like FreshBooks, without a lot of trouble or delay. What does this mean? Your clients can now pay you quickly with a credit card and the money is in your bank much faster.
This will increase your cashflow; important for any business. You no longer need to wait for a physical check to show up in the mail, then go to the bank to deposit it, and then wait three to five days for the funds to clear before you can access them (it also means you can pay yourself or staff that much faster).
Also, if you want to charge your client’s credit card on a recurring basis (like monthly or quarterly), online payments can allow you to do that in an automated way as well. It makes recurring revenue (cash) very reliable and predictable.
For all this convenience and improvement in cashflow, as with all things in life, there are a few costs. The costs are worth every penny, in my opinion, but we should take a minute here to run through them so you know what to expect.
What are the costs of using online payment gateways?
Most payment gateways will charge a monthly fee and/or a “discount rate” (2-4% of the sale). Monthly fees are generally charged for the premium options, which could include better support, a smoother client interface, personal branding and other functions.
When evaluating any cost for your business, you always want to balance the straight-up costs against the additional value it brings to you and your business. If you can get paid faster (usually weeks), how much is that worth for you? Here’s one way to look at those costs and how to know when a gateway is right for you.
Also, with some payment gateways, there is some hassle to move your money over to your bank account. This is not always the case, but when you first start out with a payment gateway, you will need to become a trusted partner. With payment gateways that require a merchant account, your funds will be deposited directly into that account (merchant accounts will be explained in the next post).
At FreshBooks, we are big believers in giving your customers an easy option to pay. Removing any barriers to payment will increase your cashflow, and that is arguably the best thing you can do for your small business.
In the next post, we will go through how payment gateways work in more detail.