One of the most important factors in running a freelance business is getting paid. Without cash flow your small business would no longer be able to function successfully.
As a business owner this means it’s your job to offer as many payment options to your clients as possible. Not only will this help you increase your bottom line but it will prove to your clients that you care about their payment preferences.
On the flip side, you must also strive to decrease your overhead and find better ways to streamline your costs and reduce fees. Whether you’re receiving funds from invoices or making sales in an online store, there are no shortage of ways to process online payments.
So how do you know which payment solution is the best and most cost effective? This post dives into how you can balance the right payment processing solution while minimizing fees.
What are payment processors?
A payment processing solution, also known as a payment gateway, is the best way to process payments as a freelancer or online business owner. It allows you to authorize payments using a bank account, debit or credit card, when an individual makes a purchase online or pays an invoice.
Similarly to when someone makes a purchase in person and swipes their method of payment, a payment processor authorizes the transaction digitally so the payment can be made from any location in the world, at any time.
The importance of accepting multiple payment options
Why is it so important to offer multiple payment options anyway? Couldn’t you just request a check or bank transfer and call it a day? This might not be the best option.
According to a recent report by the Federal Reserve, nearly 60% of U.S. consumer use credit cards over any other means of payment, including cash. In addition to this, 69% of Millennials polled told a WePay Small Business Survey they won’t shop with businesses that only accept cash as a payment option.
And let’s not forget one of the most often cited studies conducted by Dun & Bradstreet, where they found that individuals spent 12-18% more per transaction when using credit cards instead of cash. This was tested through a McDonald’s drive-thru where the average ticket sales for credit was $7 and the average sales for cash payments was $4.50.
These stats confirm that as a self-employed freelancer, you could be missing out on a quite a bit of revenue if you’re not offering multiple payment processors to your clients. Here are five payment processing solutions that will help you get paid on time while minimizing transaction fees.
5 payment processing solutions
As a freelance business owner, you’re likely hoping to increase your bottom line this year. It’s a good idea to expand your payment processing solutions and test out a few different ones to ensure the right choice. Not only will you receive more revenue and minimize the amount of fees you pay, but your clients will be happier because they have more payment options.
1. Merchant services
The most popular form of payment processing is connecting with merchant services. This includes third-party payment gateways such as North American Bancard, Stripe and Square so you can accept all types of credit and debit cards.
Each merchant service comes with various monthly fees, transaction costs and other charges so it’s important to know the terms of each one. This is why it’s so important to compare services before choosing a specific one, to ensure you’re choosing the best and most cost effective plan for your business.
Merchant accounts are required if you want to accept credit card payments directly on your website, whether you’re freelancing or have an online store.
2. Online applications
When it comes to online payment applications, PayPal is by far one of the most popular. It’s widely accepted across the world and trusted by a large amount of consumers and businesses. PayPal also works with many bookkeeping and invoicing programs, which is one of the reasons it’s so convenient.
The only problem is that you’ll pay a higher price for the convenience of using PayPal — the fee for each transaction is 2.9% plus $0.30 USD of the amount you receive. Many other merchant services will cut you a deal so you’re able to process payments with far less transaction fees.
With PayPal, if you’re planning on having a high volume amount of sales each month, you may want to consider a less expensive payment processing alternative.
3. Bank transfers
Direct deposits and bank transfers are an excellent way to reduce the amount of fees you pay. Here’s how it works: online payment services, such as Dwolla, work with the Automated Clearing House system (ACH) to securely process bank-to-bank transfers. They allow your customers and clients to pay using a direct withdrawal from their bank account and deposit it straight into yours.
This means it could take anywhere from 2-3 days to see the funds fully deposited into your account, but the wait could be worth it when can pay a flat monthly fee instead of per-transaction. However, there may even be little to no fees for this type of payment, depending on the volume.
4. Invoicing programs
As a self-employed business owner, one of my favorite payment processing solutions is to use an online invoicing program. In the past I’ve used and recommend services like Xero or QuickBooks because they offer streamlined invoicing features in conjunction with payment processing options.
Giving clients an option to pay your invoices using PayPal, credit cards or bank transfers, means you’ll have a higher chance of getting paid on time. Steady cash flow is a vital component of being a freelance business owner, so take your time to consider the right invoicing program that works with third-party merchant services.
5. Payroll software
As your business grows you may find that you need to use payroll software to help manage all of the incoming and outgoing payments. Many payroll software programs work with third-party merchant services to process payroll payments via direct deposit while simultaneously allowing you to accept payments from other businesses and individuals.
Some of the most popular payroll services include Intuit Payroll (which works seamlessly with QuickBooks), Gusto and Paychex. You will likely have to pay a monthly fee to use the payroll service but many of them have a special deal worked out with other payment processors to give you discounted transaction fees.
How to minimize transaction fees
It’s important to choose the right payment processing solution for your small business. Take time to shop around and compare what each service offers, their fees and any other monthly charges. Depending on the amount of transactions and sales you expect to make each month, this could greatly impact your bottom line.
As a small business owner your goal is to keep more of your hard-earned money so you’re able to fund your business and reinvest it as needed. Reducing the amount of overhead you have is a small but important part of this puzzle.
If you’re unhappy with your payment processor, don’t be afraid to seek out a better solution elsewhere. Nothing is more frustrating than being in a difficult relationship with a merchant service where you’re simply trying to make sales and deposit revenue into your account.
Finally, another way to minimize the amount of transaction fees you pay each month is to enforce a minimum credit card sales policy. If your business deals with smaller transactions on a daily basis, consider only accepting credit card sales of $5 or more. This will help reduce the overall cost on smaller transactions leaving you with a higher profit margin.
How do you minimize payment processing fees in your business?