Starting a business is a big undertaking, but getting paid for your work shouldn’t be. Electronic payments can improve this process significantly by making it more convenient for your customers to pay you online. If you’ve got questions about setting your business up to accept electronic payments, these five key factors will help you understand the basics and determine next steps.
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What are Electronic Payments?
Simply put, electronic payments are digital transactions that occur electronically without the use of physical checks or cash. There are several types of electronic payments, including credit cards, debit cards, and ACH options such as eChecks.
1. Electronic Payment Methods
It can be challenging for a business to migrate their customer base from legacy payments (such as mailed invoices and paper checks) to electronic payments. In most electronic payments systems there are multiple methods available to collect payments from customers. Many solutions offer one-time and recurring payments, along with invoicing, and even online payment forms that can be linked to your website. Every business wants to get paid as quickly as possible, and making that happen often involves catering to a customer’s preferences.
Example: Invoices give your customers control over when they make a payment, while recurring billing automatically debits the customer’s account or card, with no action necessary on their part. Weigh your customers’ preferences (control versus automation) against the most effective method for your business. And take advantage of the range of options offered by your payment system. When it comes to payment methods, purposeful planning will help you cater to all of your customers.
2. Credit Card Processing vs. ACH Processing
Electronic payments available to small businesses can be divided, most generally, between credit card and ACH (Automated Clearing House) transactions. Most payment systems offer the ability to process both, and many businesses see value in being able to offer more options to their customers.
There are many factors to consider when comparing credit card and ACH payments.
- What is the simplest payment method for your customer? This may override many of the other factors.
- What is the payment amount? Credit card processing fees can be significantly greater, especially as the transaction amount increases.
- Will the payment be collected once, or will it be recurring? Credit cards have expiration dates; bank accounts do not.
These are just a few things to think about that may influence the balance between credit card and ACH electronic payments.
3. Funding Time for Electronic Payments
Another element of electronic payments to consider is funding time (the period of time during which the payment is processed). Standard funding time can vary between two to five days, depending on multiple factors, including the type of payment (ACH or credit card), the processor, and the solution provider (a software provider, a financial institution, etc.).
Funding time is important to keep in mind, because this is the period between when a payment is entered and when the funds from that payment are deposited into your bank account. Planning for this time is very helpful in determining when to enter payments and what type of payment form to request.
Example: Say you have a large payment coming in from a client.
- If you accept payment by credit card, your transaction fee might be higher; however, but the finding time will likely be quick.
- If you accept an ACH payment, the fee will likely be lower, but the funding time may take a little longer.
What’s more critical to your business? The day you get paid, or the fee paid on the transaction?
4. Authorizing Electronic Payments
Obtaining proper authorization for electronic transactions is important. Transaction authorizations come into play most often during a review of specific payments. Sometimes they are part of a random audit, or part of a dispute involving a business, its customer, and their respective banking institutions or card issuer.
Authorization can come in a few ways:
- A document detailing customer and payment information
- A recording of a phone conversation between your business and a customer
- An electronic record of a payment entered on a web page (including the business’s terms of sale)
Your business should have a vested interest in obtaining proper authorization for all payments, not only to protect yourself during reviews and disputes, but also to document your customers’ payments and to protect yourself against fraudulent activity.
5. Marketing Electronic Payments to Your Customers
When you make the decision to offer electronic payment methods, let your customers know about your new payment options.
- Communication Method: The simplest way to let your customers know is to use the form of communication that is most effective in communicating with your unique customers. This might sounds obvious, but occasionally a business will be tempted to put an insert in an invoice or mail a flyer. If these are not the most effective ways that you communicate with your customers in day-to-day operation and, then use the channels that are effective for your business.
- Communicate Value: For the customers that haven’t been begging for the change, be sure to include the benefits of the new options, such as convenience and security. Don’t be afraid to make it clear that this will help you. Small business customers typically like supporting smaller organizations. Let them know that this change will make your life easier and they will likely be willing to help.
There’s a lot to absorb and consider when first accepting electronic payments, but if you evaluate the most crucial aspects at the outset, you’ll be a few big steps closer to getting paid faster and providing better service to your customers.
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