Your website must do a lot of jobs. First it tells the online world that you are there and what your business is. Don’t underestimate the information aspect of your site. People want to get some idea of who they are dealing with before they will trust you enough to buy something from you. In addition to splashing your name and product(s) all over your site, you need to let them know who you are and how they can contact you. Be sure to check your business email very regularly. Customers who send email expect quick replies. In today’s world, believe it or not, email is probably a more important customer service tool than the phone.
Let’s assume that a potential customer has come to your site/store and decided to buy. Assuming you have a site set up with products, prices and some type of shopping cart, your customer can browse through your store and put their choices into their shopping cart. Ultimately, there will come a time when they need to check out and pay for their purchases. That’s where things can get a bit more complicated.
You typically have two mechanisms for accepting payment. I’m going to be cavalier and assume that you will only be accepting online payments. The simplest mechanism for accepting payments is PayPal. You can set up an account with PayPal for free and most hosted sites will give you a mechanism that will let you link to PayPal payments. The down side to this arrangement include:
- You have no control over the look and feel of the PayPal payments site
- Your customer actually goes away from your site into PayPal’s site to make their payment
- PayPal will also post ads etc. to your customer
The other payment mechanism is for you to accept payment directly. Again, it sounds simple. In actuality, the mechanisms really are. The “gotcha” has to do with how the process works. Accepting payment by credit card directly involves three components: a front end (in this case your website), an interface or gateway and finally a merchant bank that will actually handle the credit card transactions. Most hosting services have existing arrangements with gateways and merchant banks. The benefit to that is that all connections have been built and tested.
Getting set up with the gateway and merchant bank take time. You have to go through an application process that includes credit checks and identity verification. The other gotcha is that the banking industry has set up security standards for websites that accept credit card payments (PCI). The standards are all documented, long and detailed. One of the requirements for PCI compliance is for your merchant bank to go to your website and validate that you are in compliance. Again, why go through all the trouble of building your own,which can take a lot of time, when your service provider should already be compliant. Once you are approved, you need to do some simple setup so that the gateway knows your account information.
Either way, you need to get an approval for any transaction with a credit card. The merchant bank or PayPal will handle that. If you are using a service provider website, it should handle both accepted and rejected transactions. At the end of the business day (as defined by the service provider), all of the transactions are gathered (batched) and processed. Once they are processed, you get paid, normally within a day or two.
The bottom line is that you need to have a payment received and approved. Once you have that, you can give your customer their goods or services. It’s no different than swiping a card at a brick and mortar retail establishment.
I opted for the gateway and merchant bank. My hosting company had a relationship with several gateway providers who in turn hooked me up with the merchant bank. The process was not difficult, it just took time.
How do you actually get your money? The merchant bank will deposit your funds directly into your bank account via ACH. (If you don’t know what ACH is, just accept that it is a direct deposit mechanism between banks). Since I wasn’t interested in the PayPal option I didn’t research it in detail. They pay to your PayPal account and then you get to transfer the funds to your bank or spend directly through PayPal.
In all cases, nothing comes for free. PayPal, the gateway and merchant bank will all take something from your transactions for payment. Most will also have monthly minimums, batch fees etc. Payment is either taken before funds are delivered or directly from your bank or PayPal account if the fee is not transaction based.
Do your homework! Get the full picture on what all the costs will be. Do your best to come up with realistic estimates of what your business volume will be, both in terms of number of transactions and amount of money. Once you have them, set up best, worst and most likely scenarios and see what you can expect, both gross and net. Remember, you will need to track both as the charges you pay to the providers are normally deductible business expenses. Check with your tax adviser to be sure.
And speaking of tax advisers… Most states charge sales tax. The rules around if you need to charge sales tax on what and to whom can get complicated. Talk to your tax adviser to understand if you have to pay sales tax, if so on what and what the tax amount is. The distributed nature of this business can also confuse some of these questions especially when your fulfillment or distribution is in a different tax jurisdiction than you are.
I’ll talk more about these aspects in the next post, when I look at fulfillment.