There is no better feeling for a business owner than seeing that business bank account balance go up when your client pays you. Cue the mini-celebration!!! Let’s be honest - one of the main (if not the top) reasons people get into the entrepreneurship game is to make money. We want to be successful; we want financial independence, and we want freedom and autonomy over our time. Writing this gives us goosebumps because those are exactly what drove us to entrepreneurship 3.5 years ago.
What else do we love? Getting paid on time and setting up the right payment systems and tools to make that happen. Below we break down the top ways to get paid and what you need to know about each payment method.
Cash and e-transfer are two common ways to accept money. They can be convenient in certain situations, but have their limitations as well. E-transfer transactions are often limited in terms of how much funds you can transfer and how many transactions you can make. For example, the maximum amount that you can send is $3000 in a 24 hour period, or may even be less than that depending on the limitations established by your financial institution. This can create an inconvenience for your customers as payments are required to be made over multiple days and might even require an awkward follow-up on your part. If you are accepting e-transfers make sure you set-up auto-deposit. This means your customer won’t have to create a password to transfer you money, therefore reducing one of the barriers to payment.
E-transfers can be a bookkeeping nightmare. Unfortunately many bank statements do not show who the e-transfer is from, making it time consuming to look up details through online banking. Also, if customers send payments over multiple days due to limits the payment might not match the amount receivable.
While not convenient for anyone, e-transfers are cheap! Actually if there is a fee it will fall on your customer to make and free for you to accept. Weighing the hassle with the fact that this method is cost effective is something you should do if you are still accepting e-transfer.
Cheques are a thing of the past in a lot of cases, but some businesses are still accepting cheques. Certain clients might also insist on paying you cheque. If you are accepting cheques be sure to have online banking that allows you to deposit cheques by taking a picture so that you aren’t making trips to the bank. Also, be aware that often holds are put on cheques so those funds aren’t available for a period of time from the deposit date. Cheques also tend to come in the snail mail which can delay you getting paid.
Cash is also an option, but comes with added bookkeeping and the inconvenience of keeping and depositing paper money. If your business accepts cash, check out our blog on cash and the tax implications for taking it.
Pre-authorized debit is a great option that many service providers don’t consider. It pulls a pre-authorized amount from your client’s business chequing account at the same time each month and deposits it into yours. You may want to use this option if you have transactions that occur regularly each month. Subscriptions, memberships and monthly service packages are great candidates for this option.
There are three big advantages of collecting your fees through pre-authorized debit. First is that you always get paid on time. You won’t be waiting for your customer to make a payment because you’ve already initiated a withdrawal from their account under the terms of your contract and pre-authorized debit agreement.
Second is that it is absolutely frictionless for your customer. They have no inconvenience to pay you at all, you are taking care of it all.
Finally, pre-authorized debit is very inexpensive compared to collecting credit card payments. This is especially true for larger, recurring amounts (for instance a contract for $1,500 monthly for one year). You will save significant fees by getting a pre-authorized debit agreement in place.
How do you set up this unicorn of payment methods you ask? Fellow Canadian business owners can use apps like Plooto or Rotessa to set up and process pre-authorized debit payments. Both have slick, user friendly interfaces and look good on both your end and the customers end.
Are there any downsides you ask? There are a few - your customers may not love the idea of you having access to their account, but this can generally be overcome with great communication and solid processes that prevent any mistakes. Additionally if the PAD fails due to non-sufficient funds (NSF) you'll be charged a costly NSF fee, which can be upwards of $35 a pop!
Let’s talk about credit cards for a minute. Some business owners shy away from accepting credit card payments because of the high processing fees. It is true, compared to other payment methods, accepting credit cards does come at a cost to the business owner. The average fee is between 1.5% and 3.5% per transaction; some have monthly fees. Although costs may scare some business owners, the pandemic has pushed merchants towards touchless and online transactions.
Accepting credit cards also has its benefits. The most obvious one is the convenience for your customer. This has one big advantage, the easier it is for your customer to pay you, the faster you are likely to get paid. When you get paid faster, you have more money in your business for paying your costs. Convenient payments also reduce the risk of bad debts - a.k.a people not paying you. On top of that, if you use a cloud based bookkeeping app like Quickbooks Online as your payment processor, your transactions get logged and organized automatically, making your bookkeeping easier.
Every business is different. So when accepting payments, there is no one size fits all solution. What makes sense for someone running an artisanal hand-made soap company may not make sense for a business consultant. Businesses (like people) come in all shapes and sizes. When deciding on what payment method to accept, consider, take a close look at what type of transactions you are processing and pay attention to volume and frequency. A high volume of transactions probably means you should be thinking about accepting credit cards. If you have a limited number of 1:1 clients, pre-authorized debit might work best for you.
The stage of your business also comes into play. Suppose you are just starting and still figuring out your market, product, and everything else; you may not need to sign up for expensive payment processing platforms at this stage, as they can be costly. You should also consider what is easiest for your customer. We want to have as little friction as possible in the whole process so that purchase decisions are quick and so that paying you is painless.
Want more tips on how to get paid faster? Check out our FREE resource: 3 Steps To Get Paid Faster. This free guide will help you improve your receivables turnaround time, leading to improved cashflow, better communication with your customers, and overall greater confidence for you in managing your money.
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Wishing you success in your business,
- Martina + Ashli
Date published: August 15, 2022
Disclaimer - The information provided in this blog is general in nature and solely for educational purposes. Readers use and implementation of the information comes at their own risk and is their own responsibility.