Online Payment Systems: They Are Not All the Same

Mar 24, 2022 | Business Tips

Collecting money from customers is a key function in any business, and the more automated this process is, the better. The payment function varies by type of business, but more and more, there are online options available for collecting money over the internet. Here are few tips on what that looks like.

Your Website

The perfect place to collect money from a customer is your website. Or is it?  Actually, it’s not, but wait, let me explain first.

A typical website is not as secure as it needs to be to collect credit card information from customers. You almost always need an additional app for that. But what you can do on the website is add a link (usually behind a button) or an entire webpage (a sales or product page) to your site that seamlessly takes the customer to a secure site – a shopping cart with a payment gateway — to enter credit card details.

So, the only way your website gets involved is that it has the link or button that provides the bridge to the payment site.

The Payment App

The payment system needs to handle three functions:

  1. A shopping cart task, where the item is priced and added to a basket.
  2. A checkout page, where billing information and credit card information is collected.
  3. A behind-the-scenes settlement function, where the money is taken from the customer, held in a merchant account, and then sent to your business.

In the first step, you need shopping cart software to handle the function. Common retail solutions include Shopify, WooCommerce, and Magento, to name a few. But these don’t, by themselves, get you paid. They just process the transaction in a secure environment.

The second step requires a payment gateway application. The most common stand-alone gateway is, and you typically would connect this to your shopping cart. The third step is handled by your merchant account, and sometimes, a separate processor is involved too. From your merchant account, which is connected to your gateway, you typically get a reconciliation of the daily settlements that hit your bank account. You would also handle customer complaints and disputes with them.

In recent years, the second and third steps have often been combined into the same vendor. Companies like PayPal, Stripe, and Square act as the gateway, the processor and the merchant account, all in one, which is really nice, and so much more streamlined than a decade earlier.

Some vendors go a step further and combine all three functions into one vendor.  PayPal is the quintessential example. Together, WooCommerce and WooCommerce Payments team up to provide an all-in-one solution.

Getting Paid in Service Businesses

A shopping cart is standard for online retail businesses, but what about service businesses? Service businesses that package their services and charge in advance can use a shopping cart just like retail.

If the service business bills their customers after the fact, then the payment setup is connected to invoice distribution instead of a shopping cart. In this case, you would need to find out which solutions work with your specific billing system, or if there is an add-on you can use to extend your billing system’s capabilities. For example, QuickBooks users can sign up for QuickBooks payments, and Xero users can use Stripe.

When the invoice is sent to the customer, it will include a payment link the customer can use to pay. These service business payment solutions are fairly industry-specific; for example, you might have noticed medical and dental offices use different solutions than personal care service businesses.

Different Choices

When you are selecting a payment system for your business, some people simply look at the credit card fees to make a decision. While that’s important, don’t stop there. Here are some final tips on what to look for and look out for:

  1. Understand exactly what each apps’ capabilities are so that you have all of the pieces of the process fully covered.
  2. Applying for a merchant account is just like applying for a loan, but the process has been extremely streamlined in the last decade or so.
  3. Make sure you can get the reports you need, including settlement details, refunds (full and partial) and void processing, failed payments and retries, and dispute resolution, to name a few.
  4. Put business processes in place to deal with all of the items mentioned above.
  5. Make sure the app can handle the type of billing you need to do, including cart items, recurring payments, after-the-fact invoicing, sales tax, and shipping parameters.
  6. Find out how long it is between collection and bank deposit; this can range from 1-6 days.
  7. Watch for a high failure rate on customer transactions. If this is the case, it could be that the gateway and merchant account are rejecting perfectly good business because the merchant account’s acceptance rules are extremely strict. This can happen with merchant accounts tied directly to banks, and the best thing to do is avoid them and look for a different option.
  8. Expect any new provider to hold the first few days of transactions for longer than normal. This is a temporary safety measure and should clear up quickly.

Adding an online payment system is smart business and can save a ton of accounting time. Just make sure to choose the best payment system for your specific needs.

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MKBA, Inc serves clients in Thousand Oaks, Simi Valley, Moorpark, Agoura Hills, and Ventura County, CA

More Knowledge…Better Application

Bernadette Amos, CEO

As a CPA, I understand that managing the financial aspects of a business can be overwhelming. There are so many different factors to consider, from tracking expenses and revenues to preparing financial statements and tax returns. It can be hard to keep up with everything, especially if you don’t have a background in accounting or finance.

If you’re feeling overwhelmed by the financial aspects of your business, I encourage you to reach out and schedule a discovery call. Together, we can find solutions to lower your stress, avoid any issues with IRS and help you enjoy your business again.