You’ve stressed about your startup’s name; you’ve fretted about funding; you’ve worried and worried about your workplace and workforce — but not until now have you even thought about how you’ll get paid. The primary goal of any business is to make money, but if you don’t have a system for accepting payments, there is no way you can be successful.
Fortunately, it doesn’t take much work to receive payments, which means you haven’t yet made a massive, startup-destroying mistake. This guide can help you through the basic process of setting up your business to receive essential payments — and point you toward a few less obvious payment-related considerations.
A Step-by-Step Guide for Receiving Payments.
In the past, you could hang your shingle in front of your house and start accepting coin for your work. It takes a bit more effort to accept payments in the Digital Age, but the following guide should help your business accept whatever payments you deem appropriate:
Step One: Obtain a tax ID number. If your business makes money, by law it must be taxed. Before you can take any other step, you need to contact the IRS for an ID number. You should fill out IRS Form SS-4 and fill out any appropriate documents for your state.
Step Two: Set up a business bank account. Once you incorporate your business under a business name — i.e., once you are no longer operating under your name — you need a place to put money addressed to your company. Thus, you should set up a separate bank account for your business, from which you can take and make payments. The bank should request your tax ID and articles of incorporation as verification for your account.
Step Three: Create a merchant account. To accept card payments, you need a merchant account. Merchant account providers deliver the tools necessary to perform credit transactions, which requires moving money from customers’ accounts to yours. Typically, there is a startup fee and monthly payments required to maintain a merchant account, which means it is worthwhile to shop around.
Types of Payments to Consider.
Now that you have all the basic elements to accept payments, you can consider the types of payments you are willing to accept. There are pros and cons to all payment types, which means you must carefully review your options while you are setting up your startup. Here’s a brief rundown of payment types:
Money in its purest form, cash is usually king. There are no transaction fees associated with cash, and some companies can get away with claiming less taxable income by accepting cash — though this is illegal. Still, cash is bulky, laborious to measure, and a liability for physical theft, so cash isn’t always sensible for every startup.
It is expensive to accept credit and debit cards. First, merchant account providers charge a variety of fees to complete transactions. Additionally, you must ensure your business is PCI compliant, which means maintaining extensive digital security systems. Finally, you need the tech to manage credit and debit purchases. However, because an overwhelming majority of customers use plastic to pay, you would be limiting your earning potential significantly by refusing to accept credit and debit.
Checks are the more annoying version of cash and the cheaper version of credit/debit cards. Though bad checks can cost businesses money, some customers simply prefer to write checks, and you might not want to lose this portion of your audience.
Ecommerce is becoming essential, especially for startups. If you want to offer your products or services over the web, you need to be able to accept online payments. Fortunately, there is a bevy of online payment systems to choose from, so you can find a service option that fits your baby business perfectly.
The newest payment option to develop, mobile payments have many entrepreneurs scratching their heads. Not quite credit or debit, not quite online, mobile payments are confusing and divisive, but they might be the future of payments.
How to Decide on a Payment Acceptance Strategy.
The payments you accept shouldn’t be decided on your whim; they should be carefully calculated to provide the most benefit to your business and your customers. As you are considering your payment options, you should keep the following questions in mind:
Who will your customers be? Different groups of consumers pay with different methods, and business and governmental entities also have unique payment preferences.
How large will payments be? Large transactions differ significantly from small transactions.
How often will you accept payments? Recurring transactions differ from one-time transactions.