The Online Selling
Handbook

Don’t sleep on setting up your online payment methods. Sure, the topic may sound a little dry, but this process makes it possible for you to accept purchases from your customers (read: rake in the dough). Today, we’ll cover all things payments—from picking a gateway or processor to understanding the fees involved.

Learn how to successfully set up your online payment methods, so you can start saying, “Show me the money!”

Setting Up Online Payment Methods Checklist

• Choose an Online Payment Provider
• Integrate With Your Online Payment Provider
• Create a Business Bank Account
• Leverage Accounting Software
• Understand Federal and State Taxes

Step 1: Choose an Online Payment Provider

It’s important to provide customers with what they want in online shopping, with a recent survey showing that they want “trust, security, and data privacy, while also expecting digital transactions to be fast and frictionless.”

Fortunately, there are payment systems that are pretty simple and straightforward, and can provide those wants and needs to customers.

What is an Electronic Funds Transfer (EFT)?

When customers buy products online, e-commerce businesses get paid through an electronic payment system, with numerous choices available today. Each is a type of electronic funds transfer (EFT) where funds are transmitted from the buyer to the seller without any physical, in-person transaction taking place.

Since you’ve probably used a variety of these online payment systems to make purchases without giving the nuts and bolts of them much thought, it makes sense to delve into specifics when you’re deciding which one to use.

As you consider online payment methods for your business, investigate the following:

• Fees:
• Setup fees
• Monthly fees
• Transaction fees
• Chargeback fees
• Hidden fees
• In-person transaction fees
• Minimum monthly requirements
• Ease of use
• Security
• Geographical limitations
• Integration capabilities
• Other factors that are unique to your business needs

Merchant Accounts

Before the advent of e-commerce, business owners who wanted to accept credit cards needed to set up a merchant account at a financial institution that provided this service. This also allowed them to accept debit cards and automated payments through the ACH system—and this system is still often used by businesses that are brick and mortar.

Nowadays, merchant accounts are less relevant for e-commerce businesses. First, though, here are a couple more important definitions.

Payment Gateways and Payment Processors

In the world of EFT, there’s some basic lingo to learn (isn’t there always?). For example, there’s the difference between a payment gateway and a payment processor.

A payment gateway is a secure form of technology that connects your company’s website with a credit card processing company through a browser. The gateway helps to keep financial information provided by your customers secure while they purchase your products. The process works as follows:

• Credit card information provided by customers is encrypted to protect the data.
• The transaction is verified for authenticity.
• The process is completed as smoothly and securely as possible.
• The customer is charged the appropriate amount on their card.
• Your business receives funds for the purchase, minus any fees.

You can work directly with a credit card processing company to create a payment gateway, which can be a streamlined, cost-effective method to use. Not all credit card processors use their own gateways, though, with some using third-party solutions.

When comparing choices, make sure you’re clear about processing fees you’ll need to pay, including costs due upfront when you set up a system and monthly and/or transactional fees. Overall, you’ll want to pick the solution that provides the services you need at a fair value without hidden fees.

A payment processor plays a different role in the EFT process. As the name suggests, this type of company processes the transfer of funds. There are two general types:

• Front-end payment processors: These companies act on behalf of their clients, handling the merchant accounts themselves.
• Back-end payment processors: These companies move money from the customer’s bank and ultimately place them into yours.

So, what system should you use for your online business?

Deciding Among Online Payment Providers

There are a few different payment processors and gateways for online sellers. Here are five of the more popular options.

Stripe

Stripe is the fastest way to start accepting online payments and unify everything you need into a single system. Accept payments from customers around the world in 135+ currencies, as well as Apple Pay, Google Pay, and other local payment methods like Alipay and iDEAL.

• Stripe costs 2.9% + 30¢ per successful card charge—there are no setup fees, monthly fees, or hidden costs.
• Optimize conversion with Stripe’s PCI-compliant checkout flow. It dynamically adapts to match your customer’s local language, currency, billing address format, and browser size.
• Reduce fraud with Stripe Radar, built into every Stripe account. Radar’s advanced machine learning algorithms automatically detect and prevent high-risk transactions, and constantly adapt to new types of fraud.
• Streamline operations with the Stripe Dashboard. You can add team members with granular permissions, quickly handle disputes, access built-in reporting, or even send invoices.
• Stripe’s support team is available 24x7 via phone, chat or email.

Stripe partners with nearly every e-commerce platform to process payments from your customers and make sure you get paid fast. You can also integrate Stripe directly into your website or app with the help of a developer.

PayPal

If you decide to accept payments from PayPal (Standard), you won’t need a merchant account. Customers who purchase items from your site and use PayPal will automatically be redirected to PayPal to send you the funds. Fees are similar to Stripe (2.9 percent plus $0.30 per transaction) but, if the total purchase is less than $10, the fee structure is different: 5 percent plus $0.05 per transaction.

If you want the customers to stay on your site—rather than being redirected to the PayPal site to process the transaction—then you can choose PayPal Payments Pro. Although the fees are the same, you’d also pay a monthly fee of $30. With the Pro version, you can also take orders and payments over the phone—although transaction costs are somewhat higher (3.1 percent per transaction plus $0.30).

If you decide to use PayPal for your e-commerce business (Standard or Pro), there is a $20 chargeback or payment dispute fee that would be returned to you if the situation is resolved in your favor.

Advantages of PayPal include the variety of credit cards accepted (including Visa, MasterCard, American Express, and Discover) and how they help your business stay in compliance with Payment Card Industry Data Security Standards (PCI DSS). PayPal accepts a wide variety of currencies, as well, allowing your business to acquire customers in many countries around the world.

Braintree

PayPal acquired Braintree in 2013 but they continue to operate separately. This payment system works differently in a key way: Your business would receive its own merchant account. This means that, if your business volume expands to the point where you need that account, you can stick with Braintree. Fees are the same as PayPal Standard, except that the chargeback fee is $15, rather than $20—and again, it will be refunded if the situation is resolved in your favor.

With Braintree, your business can accept a wide range of payment forms, including credit and debit cards, PayPal, Google Pay, Apple Pay, Venmo, and more. They accept more than 130 currencies in 44 different countries. This payment system has PCI Service Provider Level 1 certification.

Authorize.net

If you decide to explore Authorize.net for your business, there are three different plan tiers to consider. They include:

• All-in-One Option: If you’re a small business and don’t have a merchant account through a bank, then this might be a good choice for you. There isn’t a setup fee, which is a plus. The monthly fee is $25 with transaction fees of 2.9 percent plus $0.30.
• Payment Gateway Only: If you have a merchant account and are simply looking for a system that allows you to accept and process payments, the monthly fee is the same as with the All-in-One, but the transaction fees are less: $0.10 apiece, with a daily batch fee of $0.10.
• Enterprise Solutions: If your company ships out more than $500,000 annually, then you can reach out to Authorize.com and talk to them about customizing a plan for your business.

This e-commerce payment system accepts a wide variety of payments: all major credit cards and signature debit cards, as well as Apple Pay and other digital payment solutions. You can also accept e-checks and integrate your system with PayPal. This system can handle transactions from merchants in the United States, Canada, United Kingdom, Europe, or Australia, in multiple currencies.

If your business uses the All-in-One Option or the Payment Gateway, there is a $25 fee for chargebacks/payment disputes that will be refunded if the bank finds in your favor. Authorize.net is PCI-DSS compliant and offers customizable fraud protection options.

Square

If you still need to create your online store, you can build an e-commerce website using Square Online Store technology with the payment system integrated on the site. You can choose among four service plans, including one where your business would only pay for payment processing. Besides the free (payment processing only) plan, options include:

• Professional: $16/month
• Performance: $26/month
• Premium: $72/month

You can pay annually to reduce your overall costs.

Processing fees are 2.6 percent plus $0.10 per transaction. With Square, your business can accept payments by Visa, MasterCard, American Express, and Discover. You get free SSL security (more about that later) and, if you have a paid plan, there is unlimited storage available.

The Square online payment system can be integrated into e-commerce platforms by Weebly, BigCommerce, Ecwid, and WooCommerce. If a dispute happens with a customer, Square does not charge a fee (more about that soon), which can be a real plus for your business.

Currently, Square can be used in the United States, Canada, Japan, Australia, and the United Kingdom, and they are working on expanding international availability. Credit cards accepted include Visa, MasterCard, American Express, and Discover. With a higher plan level, your site can also accept PayPal payments.

Comparing Costs

Armed with this info about online payment methods—which one is most appealing?

Some of the ones we’ve listed, for example, don’t have a monthly fee. Others charge $25-$30 per month. Transaction fees, in general, are often similar in our examples, but this isn’t universally true.

When comparing costs, also consider in-person fees. You may, for example, have a booth at a trade show where you’ll sell select items from your store. What will it cost you to use your payment gateway when someone swipes a card?

Does your payment gateway of choice have minimum monthly processing requirements? If you don’t meet them, is there an additional fee? Through your exploration of options, have you uncovered any hidden fees? How does that affect your decision?

Refunds, Chargebacks, and Billbacks

These three terms may sound similar but they aren’t, really.

Refunds

First, a refund. Sometimes, a customer may directly contact your business and ask for a refund on an item purchased from you. Maybe the size was wrong—or the color. Or, perhaps, once the customer saw the item, he or she realized it wasn’t what was needed, after all. As the business owner, you may decide to refund the customer’s money, perhaps also refunding shipping fees.

Sometimes, this item can be repackaged and sold again on your site, either at full value or as a special deal. And, although you may prefer that customers not return merchandise, you can actually leverage a customer-friendly refund policy to grow your business.

Chargebacks

With a chargeback, the customer doesn’t contact you directly for a refund. Instead, they dispute a charge on their account through their credit card company, and then the credit card provider would then contact you to address the disputed transaction. This process is regulated under Regulation Z of the Truth in Lending Act of March 1, 2020.

Chargebacks can cost you (although, if the bank rules in your favor, the money would be refunded to you). By looking at four of the five online payment systems described in this post, you can see that each chargeback can cost your business $15-25.

Billbacks

Next up is the billback charge. This is an extra processing charge that a merchant may charge an account holder under certain circumstances that are listed in the merchant agreement. This could happen, for example, if a purchase was made with a rewards card or with a business, rather than personal, credit card.

What can make the billback especially confusing is that it appears on the statement that follows the charge, so you would need to look at two consecutive statements to see if you’ve had this surcharge applied. Other terms used for billback pricing include a blended rate or a mixed rate—and, no matter what they’re called, they can hurt your business’s bottom line and reduce the amount of money shown to you by your customers. So, check to see if billbacks are included in any merchant agreement you’re considering.

How Your Payment Provider Handles Disputes

As with just about every component of the payment system, different processors have different procedures.

Stripe, for example, provides the following information about disputes. When a payment is disputed, the dollar amount and the chargeback fee are immediately deducted from your business account’s balance. You can submit evidence to have it reversed and, if you’re successful, both the disputed amount and the fee are returned to your account.

With PayPal, the relevant transaction funds are frozen while the claim is being investigated. Here’s more about their process in which they can act as facilitator, as well as how Braintree addresses claims. Authorize.net notes that you will simply be referred to your merchant service provider to work with them to resolve the dispute.

Square takes an entirely different approach, managing disputes for you without charging a fee. In fact, their page about dispute management shares how they’ve saved sellers $330 million in disputes since 2011 by handling the process and winning claims for them. Square will let you know what information to provide them and then they’ll deal with the bank and submit documentation for you. Any active disputes will appear on your Disputes Dashboard.

Secure Socket Layer: What it is—and Why it’s Important

You can quickly and easily identify websites that have a Secure Socket Layer (SSL) certificate because they have domain names that begin with https, rather than http—and having an SSL is crucial for your e-commerce site and its web security for numerous reasons. In fact, you need to have it to accept online payments because only PCI compliant sites can receive online payments—and a requirement of becoming PCI compliant is to have SSL certification.

Once you install SSL on your site, all of the transactional information is encrypted, which helps to protect you and your customers from hackers. Numerical and alpha-numerical information—such as credit card numbers, passwords, and more—is transformed into a format that is virtually indecipherable by people who want to access the data with ill intentions.

The SSL certificate also verifies your site as an authentic one. After you purchase a certificate, part of the installation process includes a Certificate Authority (CA) validation procedure. CA is an independent organization that verifies your identity. This allows customers to see that your site is the genuine one, rather than a fake website set up by phishers to look like yours. In other words, it plays a key role in building customer trust while creating a safe experience for them.

And, here’s one more reason why an SSL certificate is important. In 2014, Google started to give https sites a boost in the rankings, which could give businesses with SSL certificates more online visibility. That’s a big plus in today’s competitive online world—and then, in 2018, Google went a step further. Sites that don’t have SSL certification began to be flagged as “not secure” in the search engine results pages—and this designation will cause many security-conscious customers to not click on the website, shopping instead at a competitor’s site.

Step 2: Integrate With Your Online Payment Provider

Once you’ve made your choice, then what? How do you integrate your online payment method into your website?

Stripe offers a few integration options.

• If you’re using an e-commerce platform, you can get started without any code. See what prebuilt integrations already exist in Stripe’s partner directory.
• Alternatively, if you or your engineering team are building a custom integration for your business, head to Stripe’s API docs to find step-by-step guides, samples, and tutorials.

If you’re going to use PayPal Standard, there are three options. You can:

• Customize a PayPal button for your site.
• Or, you can make sure that your shopping cart is set up to work with PayPal Standard and choose that as your payment solution.
• Use a developer to customize an HTML or API integration.

Here is information about integrating PayPal Pro.

When integrating Braintree, you can follow this developer documentation. At a high level, there are four steps to integrate a payment method:

• Enable an online payment method of choice and register it according to instructions.
• Add a corresponding client-side option to collect payment information.
• Update server integration, if needed, and make sure the payment info is processed appropriately.
• Test before going live.

Here are developer guides for Authorize.net, with a variety of options, depending upon what payment types you’ll accept. Square, meanwhile, shares integration information based upon the e-commerce platform chosen.

Step 3: Create a Business Bank Account

As people purchase your products, where does the money go?

It’s generally recommended that you open up a business bank account that’s separate from your personal one and have the money deposited there. The Small Business Association (SBA) provides guidance on opening that account, including that you can typically open one after you’ve gotten your federal EIN. You can also find more information on this subject in Chapter 3.

From a practical standpoint, you’ll want to keep your business and personal accounts separate so you can maintain clear business records—rather than getting them all jumbled up when you use, say, a checking account for business and personal deposits and expenses. That would be especially confusing at income tax time.

Additional reasons to open a business bank account, according to the SBA, include:

• Professionalism: Although customers of your e-commerce site won’t know whether your account is a personal one or a business one, you’ll almost certainly use your account for additional reasons, such as to pay your company’s bills and taxes. And, a business bank account just looks more professional.
• Protection: You can help to limit personal liability by clearly keeping your business and personal funds separate from one another.
• Preparedness: If you decide to apply for a loan or to get a business credit card, having a business banking account can help make that easier when presenting information to a lender.

When opening up your business account, it can make sense to compare options. Questions to ask include:

• What interest rate will you receive? (Yes, this can change, but it still makes sense to compare.)
• Is this just an introductory offer?
• What fees will be charged?
• What minimum balances do you need to maintain?
• What perks can you receive?

Once you decide where to open your business account, and you have your federal EIN, what else might you need to show the bank? The SBA says the most commonly-required items include:

• Your business formation documents
• Ownership agreements
• Business license

It can make sense to find out, ahead of time, what the bank of choice will require so you don’t need to make more than one trip to open an account.

Step 4: Leverage Accounting Software

Accounting software allows you to enter and manage the financial transactions of your business in a streamlined way. This software gives you the ability to get snapshots of your company’s financial health and can be invaluable when tax time comes. There are a wide variety of choices available for you to consider, from fairly simple ones for bookkeeping purposes to ones that are in-depth enough to work for large companies, as well.

In general, accounting software programs allow you to:

• Have more accurate financial records (given that data is correctly entered)
• Perform calculations, perhaps of sales tax, more quickly
• More cost-effectively manage your financial operations
• Create more accurate financial reporting
• File taxes in a way that’s more accurate in less time

When comparing and contrasting packages, keep in mind what you need now as well as what you’ll likely need in the next few years. Buy for that scenario, rather than underbuying or overbuying, within the budget you’ve set for the accounting software. Make sure that the package:

• Doesn’t have hidden fees
• Provides the levels of security you need
• Offers quality customer support

Accounting packages that many small businesses use include:

• Intuit QuickBooks Online
• FreshBooks
• GoDaddy Bookkeeping

You can find more recommendations here.

Step 5: Understand Federal and State Taxes

Just as an individual does, businesses pay income tax. People pay it on their earnings, while businesses pay taxes on their profits (in general, your revenue minus deductible expenses). Depending upon where your business is located, you may also need to pay state and local income tax. Check to make sure you’re clear about those requirements.

Although federal Tax Day is generally April 15 each year, your small business will probably need to make estimated quarterly tax payments. This is true for sole proprietors, partnerships, and S corporation shareholders who are expected to need to pay at least $1,000 when they file their tax returns. C corps typically must make estimated tax payments if they expect to owe at least $500 when filing a return.

Estimated tax payments are typically owed on these dates:

• Q1: April 15th of the calendar year
• Q2: June 15th of the calendar year
• Q3: September 15th of the calendar year
• Q4: January 15th of the following year

As part of tax filing, sole proprietors include a Schedule C with their personal tax return, while other business structures have special forms to use. You can find more information about business structures and links to relevant IRS information in Chapter 3.

In most states, you must also collect sales tax, based on the appropriate rate, on items you sell. You then forward that to the relevant agency on regularly scheduled dates. You can look up your state requirements for guidance, including about how to handle online sales.

Additional taxes you may need to pay include:

• Property taxes on real estate owned
• Self-employment taxes for Social Security and Medicare
• Payroll taxes based upon earnings of your employees

This is not a complete list of possible taxes owed and what you might need to pay depends, in part, upon how you’ve structured your business. And, as your business grows and becomes more successful, with more customers showing you the money, you may need to upgrade your accounting software and otherwise adjust your technology to meet your expanding needs.

We know you want to get paid by your customers. Consider the above options to get you set up and selling in no time, so your business can start making cents.

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