Some notes on Payment Processing
One topic I have spoken to many of you about is payment processing. There are a myriad of methods for accepting payment for your good and services, so how do you know which one is best for you? I have linked an article below that discuss the different methods to help you understand them. I can provide price comparisons and discuss which one might be best for the specific needs of your business. Contact me today to schedule a consultation and find out what kind of preferred rates I can offer you on merchant services.
Getting paid via credit card is the de facto payment method for online invoices, but with that convenience comes high fees. If you’re looking to get paid electronically without the high fees, ACH is the way to go. By the way, ACH stands for Automated Clearing House, and is the term used for the electronic network of bank-to-bank transfers in the United States.
In the past, ACH wasn’t a popular option for cloud accounting software, but now there are many integrations that allow you to add the payment options to your invoices.
Integrating your cloud accounting software with a payment processor allows you to add a “pay now” option to your online invoices sent out through your cloud accounting software. It’s generally quite easy to set up. Here are some of the common payment processing integrations:
While direct integrations with payment processors are handy, they also tend to offer limited functionality. Recurring subscriptions are generally not possible and there’s less flexibility around how you bill out customers. If you’re looking for more control, you’ll need to turn toward the accounts receivable apps.
They’ve been accepting ACH payments for a long time, and in the early days of cloud accounting software this was one of the benefits of going with QuickBooks Online.
- Fees are cheap, at $0.50 per transaction
- Established for a long time
- Quick and easy to set up
- Can only be used with QuickBooks Online
- No recurring payments
If you’re using QuickBooks Online, using Intuit Payments is a no-brainer, since it’s the only option available.
They allow you to accept ACH payments, but it’s not a default part of their service and it’s a bit of a hassle to set up (being a traditional payment processor).
- They’ve been established for a long time
- Largest amount of integrations
- Fees are not cheap, at $0.35 + 0.75% (plus you also need to pay a monthly fee)
- You have to specifically sign up for their ACH service
- Not as easy to sign up for as other payment processors
Stripe started accepting ACH payments in 2016, so they’re a relatively new player. Customers paying through Stripe have two choices to authorize payments: through micro-deposits, or via Plaid. Micro-deposits generally means that two small deposits (under $1) will be sent to a customer’s bank account in order to verify that the customer controls the account. The process usually takes 2-3 days. After that, they can pay via ACH. Plaid is much simpler and faster than micro-deposits—you log in to your online bank to verify that you control the account.
A point to note about Stripe is that while the payment processor itself allows for ACH payments, its integrations with cloud accounting software have, for the most part, yet to add that ability to their online invoicing. I expect this to be a temporary issue.
- Capability of charging for subscriptions
- No monthly fees
- Transaction fees are 0.80%, but capped at $5 per transaction
- ACH is currently not possible with most cloud accounting software integrations.
- Customers must verify their bank account, which can add time and hassle if using the micro-deposits verification option
- Xero, Zoho Books, FreshBooks, 17hats (only accounting software that has ACH enabled)
Read more about ACH payment authorization with Stripe here.
PayPal Business Payments
PayPal Business Payments is not actually ACH, but for all intents and purposes the end result is somewhat similar. You receive funds into your PayPal Bank account directly from a customer’s PayPal balance or their bank account.
- Low fee $0.50 per transaction
- Easy account setup
- No monthly fee
- Customer needs to have PayPal account
- The PayPal Business Payments options isn’t available with all accounting software integrations
- Zoho Books
Provided your customer has a PayPal account, this is a solid, low-cost option.
The Future of Affordable Digital Payments
To finish up the article, I’d like to point out some of the pros and cons of ACH and offer my thoughts about where digital payments may be headed.
- Less reversible than credit card payments
- A customer has 60 days to dispute a charge (unless it’s a business bank account, in which case they only have 2 days)
Slow to get paid (even though you get payment instantly, it’ll probably take at least 3-5 days to see the money in your bank)
Customers are wary of entering their bank details online
For customers, it’s not as easy and secure as using a credit card
When ACH payments are reversed, you cannot contest the charge through a bank (like you can with a credit card dispute)—you must contact the customer directly
For international businesses dealing with US customers (which is why you’d want ACH), I don’t think I’ve read of any service that allows non-US-based businesses to use ACH
- While ACH is a good medium for inexpensively sending between $1,000 and $10,000, it’s not as useful for one-time purchases and larger sums. For one-time purchases, customers would rather enter the credit card information, as they feel more protected for refunds and don’t have to authorize the withdrawal of funds directly from their bank account. For larger sums, many merchants have a limit on the transaction amount (which I’ve seen to be $10,000 in some cases).