Online Payments: A Guide For Small Business

Posted on Apr 30 2015 - 2:39pm by Editorial Staff

Credit Card

Today’s small businesses can’t afford to be without an online payment processing system. Here’s why: Every 30 seconds, over $1.2 million is spent online. Of that amount, well over half (about $700,000) is paid for with a debit or credit card. Here’s what you need to know to get started.

The Key Players

Accepting online payments is a complex process involving several key players:

  • The merchant bank accepts payment from credit card transactions and deposits them into your bank account for a fee via a merchant account.
  • Third-party processors partner with the merchant bank to handle the nuts and bolts of credit card transactions. They are paid per transaction, a cost folded into the fee you pay the merchant bank.
  • The issuing bank provides your customer’s credit card (Visa, MasterCard, etc).
  • Credit card brands such as American Express and Discover issue cards directly to the consumer without an issuing bank.

The Basic Steps

The first step is to choose a payment processing provider. For most small business owners, the easiest way to go is to choose an accounting package such as Sage online accounting software, which includes an online payment solution that integrates with the business’s other financial functions. The payment processing provider will help you set up your merchant account.

When your customer enters his credit card information to initiate a purchase, the processor sends the request to the credit card brand, who approves or declines it, or forwards it to the issuing bank for a decision, if applicable. Once the transaction is approved, the credit card brand or issuing bank deposits the money in your merchant account, usually within two or three days.

Do Your Research

Before you choose a payment solution, take some time to learn the basic terms and definitions used in any online merchant payment system. Terms like authorization fee, rates (qualified, mid-qualified, non-qualified), interchange fees, and downgrades have significant impact on how much your credit card transactions cost you. Armed with this knowledge, you’re in a better position to choose the right payment processing provider for your business.

Take Steps to Reduce Fraud

For the most part, businesses can feel very secure accepting online payments, but there are simple steps you can take to protect you from fraud.

  • Call first-time customers prior to shipping their merchandise to verify the transaction details.
  • Use an Address Verification Service (AVS), which compares the customer’s address with the billing address on file with the card issuer.
  • Require customers enter the three-digit CVC 2 code to ensure they actually have the card in hand.
  • Protect data by becoming PCI compliant.

Tips for Choosing a Payment Processing Provider

This is the most important decision you will make in your online payment journey. Here are some points to consider:

  • Choose one that will grow with your business.
  • One that integrates with your accounting software saves time and avoids common errors.
  • Make sure they offer robust customer support.

Getting starting with online payments takes a little bit of time and effort up front, but the rewards to your business are more than worth it.

Image via Flickr by GotCredit

About the Author
Editorial Staff

Editorial Staff at I2Mag is a team of subject experts led by Karan Chopra.