Home Business Tips

Ways of Accepting Payments

Money coming in is one of the best news that any entrepreneur would like to have. But before the home business owner can visualize the things he will do with his profits, such as expanding the business or purchasing a cool appliance, he must first decide how he should accept payments from his clients.

In this decade of plastic money and electronic cash, the home business entrepreneur must provide his clients various ways of payment. There are five of the major ways of accepting payments: cash, checks, debit cards, credit cards, and online payments. Each has their own advantages and disadvantages.

To better manage the finances of a home business, the entrepreneur must be aware of the inherent costs for each method of payment.

• Cash
  • Advantages:
    - Cash is “liquid” and it can be immediately used to pay bills or to buy equipment
    - There is practically zero processing time when a product is paid in cash
  • Disadvantages:
    - Cash can get lost or can be stolen
  • Possible investment needed:
    - A safe for keeping cash that cannot be immediately deposited in a bank
  • What the entrepreneur must remember:
    - Some customers prefer to pay in cash, so this payment option must be always available
    - Immediately deposit cash payments in a bank, everyday if possible, and during the daytime when the likelihood of being robbed is small.
• Checks
  • Advantages:
    - Preferred option of clients who are paying for a service
    - Best option when there is no cash in hand and no facilities for debit cards, credit cards, or online payment
  • Disadvantages:
    - Payment can be considered delayed, when compared to cash
    - The check could be a bouncing check and may not be worth anything
  • Possible investment needed:
    - Not much investment needed, except that the entrepreneur must have a bank account
  • What the entrepreneur must remember:
    - With a new client, ask for a photo ID and get the client’s driver’s license number
    - If the amount is considerable, ask if it is possible to be paid using a bank draft or have the check certified first
    - Take a close look at the date and the amount. These should be exact. If the date is wrong, such as February 30, the entrepreneur will need to get another check. This wastes precious time.
• Debit Cards
  • Advantages:
    - Almost all consumers have debit cards.
    - Safer than cash payments
  • Disadvantages:
    - The entrepreneur will need to invest additional capital in setting up this payment option
  • Possible investment needed:
    - Buy or rent a debit card terminal, which is available from most banks and credit unions
    - Terminal connection fee (about $40 with a landline and $100 with a mobile phone)
    - The bank charges a transaction fee which is equivalent to about ¢10 to ¢50 per debit card transaction
  • What the entrepreneur must remember:
    - These are near real time transaction, make sure you have funds available to the transaction
• Credit Cards
  • Advantages:
    - Convenient for the client
    - Known to increase the sales by 50%
    - Can be accepted in many ways: in person, over the telephone, via snail mail, and over the Internet
  • Disadvantages:
    - Cannot be done if the home business entrepreneur has poor credit
    - Several fees needed to set up this payment option
  • Possible investment needed:
    - Application fee for the credit card merchant account
    - Set up fee
    - Rent or purchase fee for the processing equipment and its accompanying software
    - Administration and statement fees
    - Processing and transaction fees (about 2% to 8% of the sales)
  • What the entrepreneur must remember:
    - Must get a credit card merchant account from a bank, a credit union, or a merchant account broker
• Online Payment
  • Advantages:
    - Extremely safe
    - Fast and convenient
    - International transactions are possible
    - Cheaper than setting up the credit card payment option
  • Disadvantages:
    - During payment, the potential client will be redirected to the website servicing the online payment. This confuses the client who will probably cancel the business transaction
  • Possible investment needed:
    - Payment for setting up the business account
  • What the entrepreneur must remember:
    - Create a business account because personal accounts cannot accept payments from clients
    - The payment from clients can be retrieved by any of these methods:
    · Direct deposit into the bank account
    · Issued check and sent through registered snail mail
    - Or the payment received can remain in the business account and be used when the entrepreneur uses his debit card.

Doing the 21st century business entails expenses that are unheard of a hundred years before. But these costs replace many other expenses such as transportation and other overhead expenses. Thus the home business entrepreneur must invest in setting up these payment options to facilitate and increase the flow of incoming money.

Small/Home Business Tips, Finance 2006-05-09 Home Business Tips