There comes a point in business where taking cash from hand to hand is not a sufficient solution for transferring money. Nowadays, customers expect to be able to pay various way, and the more ways you’re able to accept, the more conversions you can expect. This article will explain how you can choose the best online payment processing service, and things you should consider when you are taking that next step towards accepting more cash!
The Purpose of a Payment Processing Service
The payment processor is the friend you’ll be needing if you want to take the leap and begin accepting other forms of payment. You will need a partner company who has a device, a phone app, or an online application that enables you to quickly and easily accept alternative forms of payment. The payment processor’s ultimate responsibility to you is to make the process easy for you to accept payment from your customers by verifying customer billing information, verifying funds for each customer payment method, approving fund transfer requests, allowing you to issue a confirmation number, and ultimately deposit the money in your account! This whole process is about GETTING PAID!
Before You Can Consider the Best Online Payment Processing Service, You Must…
- Set up Your Business Bank Account
- Obtain an EIN number
- Obtain your State Tax #
-  To obtain your state tax ID form, go to Tax and Accounting Sites Directory and click on “State and Local Tax.”
- Incorporate Your Business or Apply for your Fictitious Name (otherwise called “DBA”)
I’ve written two other articles on this process of setting up the preliminaries of you business. You can check out How To Open A Business Bank Account and How To Incorporate A Business in 7 Simple Steps to get information on how to complete the EIN number, incorporation, and opening your business account. Hopefully those give you all the ammo you need.
Step One – Choose a Merchant account vs. Payment processor: Which is the Best Online Payment Processing Service for You?
In addition to completing the preliminaries you will need to choose between the two common types of payment processors: merchant accounts or payment processor/payment gateway. There are pros and cons of accepting payment thru both, the merchant account and the payment gateway.
Pros and Cons of the Merchant Account
The merchant accounts are the traditional “old school” form of payment processors. They do an intense vetting process to ensure you won’t be committing fraudulent transactions. They have an underwriting team, and do a background check.
Typically, you will pay monthly fees, and sometimes you will pay per-transaction fees as well. According to Woocommerce–a free e-commerce plugin company for WordPress–If you choose the merchant account option, you want to give yourself 4-6 weeks of processing time before accepting payment this way! Two popular examples of traditional merchant accounts are Authorize.Net and WorldPay.
Some advantages of a merchant account includes:
- Lower fees (especially for companies with higher volumes of transactions) in comparison to payment processors
- Less fraud suspicions due to the vetting process, so lesser chances of funds being put on hold
- Typically self-hosted options are available, so you wouldn’t have to redirect customers to another companies’ page for checkout
- Self-hosted can higher conversions because the companies may have lower suspicion. Alternatively, many people are safer with names like Paypal or Square, so self-hosted could mean lower conversions. A/B testing would be required to see which option (self-hosted payment processing versus off-site hosted payment processing) would be preferred by your customers.
- They integrate with various devices (cash registers, credit/debit card processors, etc.)
Some things to be careful of when choosing a traditional payment processor are device leases, long contracts with high cancellation fees, and bad customer service. Many traditional payment processors require contracts, and some want you to lease their devices (ATMs, card processors, and so on) for high lease fees. Read the agreements closely and comparison shop.
Pros and Cons of the Modern Payment Processor
Some examples of modern payment processors — those that don’t require a merchant account — are PayPal (all variations), Stripe, and Simplify Commerce. They offer pay-as-you-go payment processing. Their fees typically range from 1-4% per transaction, and they’re usually quite easy to set up. Many startup businesses choose Square, Paypal, or Stripe to start out because there are no invasive processes that would cause a lag time between setting up an account and accepting the cash.
These modern payment processors offer easy mobile options where you can accept payments very easily from your phone by placing an external device in the headphone jack, or simply entering the card number or email address into the prompted fields.
Medium and large companies see the 1-4% add up to big numbers very quickly, and they may prefer a traditional merchant account to save on transaction fees. You’ll have to decide if you prefer the upfront lag time for lesser fees, if the monthly fees will be burdensome to you during the startup phase, and if the mobile experience is important to your users. You may find that you’ll need both, a merchant account and a modern payment processor to accomodate “brick and mortar” and mobile needs.
Step 2 – Consider Accounting Software as a Payment Processor
In addition to choosing direct payment options, there is also capabilities in accounting software like Freshbooks and Quickbooks that allows you to invoice customers easily and accept payment. Accouting software usually will enable you to send branded estimates and invoices to your customers for work done. Some software will also do important functions like inventory management, draft profit and loss statements for you, measure your sales volumes, and track your income goals from a very user friendly interface.
As a solopreneur (for now), I use Freshbooks and Paypal integrations on my website. The two of them satisfy all of the simple needs I have for payment processing at this time.  With Freshbooks, their integration even cuts the per-transaction fees of Paypal down, so you may find it easier to work directly with your accounting software to track your income, expenses, and invoicing all in one place.
Step 3 – Consider E-Commerce Integrations with Payment Processors
If you are planning an e-commerce business, you want to choose a payment processor that integrates easily and smoothly with your chosen e-commerce solution. Not every e-commerce platform will be compatible with every payment processor.
Sometimes, you may have to purchase an additional e-commerce extension, and if you heavily invested and have compatibility options, you may need to hire a web developer to modify the coding to make your process compatible. If you complicate the process too much, it can be very time consuming, expensive, and no fun to deal with, so try to keep it simple.
Step 4 – Check compatibility of Payment Processors with Other Apps You Use
Check compatibility of your payment processor with the other apps you’ve invested in. You don’t want to waste money and time buying technology that’s not compatible with one another. Save yourself the time and money, and do the research about compatibility so you won’t have any hangups.
Step 5 – Check for Fraud and Identity Theft with Payment Processors
With the rise of identity theft, the last thing you want is a fraud case creeping up on your business reputation. Picking the wrong payment processor can lead to legal issues, cases of customers dealing with identity theft, innaccurate charges, and so on.
You want to make sure you take your choice to pick the best online payment processor seriously. Your customers will largely appreciate you taking the time, choosing a good company, and protecting their information like that.
Before choosing the payment processor, ensure, they have PCI compliance measures in place, and they have measures to ensure your customers some level of fraud protection. As with any alliance, it’s always nice to make sure the payment processor has a good reputation with the BBB and reviews online.
Choosing reputable allies will make a good name for your company and help you achieve that massive success we’re wishing for you here at How To Entrepreneur!
Final Comments on Choosing the Best Online Payment Processing Service
Hopefully, you found this article helpful and informative. Choosing the best online payment processing service for your company is monumental in your business growth, and hopefully, will accelerate how much cash you receive. If there was anything, I didn’t address enough or you have questions, feel free to leave them in the comments below, and I’d love to help you out.
Also, if you’d like help as you set up your online presence for your business, I’d love to invite you to my free online community of fellow entrepreneurs who are making major things happen online. You’ll get access to set up a website and get world-class internet marketing training for free.
Now, it’s Your Turn…
Have you chosen a payment processor? What process did you use to choose? Are you happy with your choice? Did I miss anything? Do you have advice for readers on choosing the best online payment processing service?
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