An online payment system is one of the key requirements for a small business to thrive in today’s digital age. This software helps the business verify if a given electronic payment is legitimate or not. Besides enabling secure transactions, such tools improve customer satisfaction while steadying the cash flow for the business. When choosing the right online payment system for small businesses, it is important to understand the key components involved.
For instance, when it comes to in-person sales, the payment gateway is the point-of-sale (POS) system’s card reader. To enable support for online transactions, e-commerce platforms usually rely on payment gateways, which either come inbuilt or integrated with third-party solutions. A business must pick the type of payment system they require based on their products and services.
Key components of small business payment processing
1. Payment gateway
This is a service that authorizes and processes online transactions by serving as a bridge between a business’ website and the payment processor. When a client purchases from the business, the gateway securely transmits the payment information to the processor to complete the authorization. Many payment gateways offer features like encryption, fraud protection, and tokenization.
2. Merchant account
This is a specialized bank account that lets businesses accept and process digital transactions. After a payment is authorized, funds are held in a merchant account before they are transferred to a business’s regular bank account. Merchant accounts may involve various fees — including transaction-based monthly fees and sometimes penalty costs.
3. Payment processor
This is a company that manages the process of credit card transactions by acting as an intermediary between the business, the bank, and the card issuer. They monitor the data transfer process between relevant card networks and banks, employ security measures to prevent fraudulent transactions, ensure compliance with industry standards, and ensure the business receives payment for transactions after deducting the associated fees.
Advantages of online payment systems for small businesses
- Faster payments: Payments happen faster online when compared to traditional checks or bank transfers. Faster access to payments could help a small business improve cash flow, which is crucial to their initial success.
- More payment options for clients: Providing online payment options offers clients flexibility and convenience, allowing them to pay through various channels like credit cards, digital wallets, or bank transfers. This helps attract new customers and improve retention.
- Better security: Various online payment systems feature advanced security attributes like encryption, which help protect clients’ sensitive customer data and offer them peace of mind.
- Time saver: Since an online payment service provider handles most transactional tasks, including sending payment confirmations to both parties, monitoring money transfers from the client’s bank account to the business’s bank account, and eliminating the need for bank visits to deposit checks, this allows the business to invest their time and resources on other aspects of growth.
- Provides real-time, detailed reports: Most online payment systems offer detailed reports that share insights into a given business’s financial standing and create accurate forecasts that help them plan for their future. Such reports may include the time it takes to receive a payment for invoices, preferred online payment methods, and the most popular service. These insights will help the business make informed decisions that aid its success.
Tips to select the right online payment system for small businesses
1. Evaluate needs
The first step is determining the specific needs of one’s business. It is important to pick a provider compatible with the company’s current and future growth plans. When choosing an online payment system, consider key factors like transaction volumes and patterns, the type of payments customers prefer, and industry-specific requirements. The ability to upgrade the software in the future will also help save costs associated with replacing it with a new one.
2. Understand the fees and costs
Online payment systems often come with various fees, including transaction costs, monthly fees, and setup fees. Small businesses must carefully evaluate how such costs would impact their budget. They should also watch out for other associated expenses, including PCI compliance fees, chargeback costs, and cancellation fees.
3. Go through contract terms thoroughly
Understanding every detail of the contract is essential to getting an online payment system that best suits the business’s needs. One should focus on the length of the contract and determine if the provider’s options include month-to-month services or if they require a year-long commitment. Other things to pay attention to include termination policies and the flexibility and scalability of services.
4. Read reviews
Most online payment processing software that has been in the market for a few years or months will have some level of ratings and reviews. Those running the small business can read these reviews to see what worked for other businesses and what did not. Check how the provider has handled any reported issues, as this can indicate their commitment to customer satisfaction.
5. Ask about after-sales support
A payment processing software may endure problems at some point during use. So, one must check if the provider offers reliable after-sales support. Enquire if the provider offers round-the-clock support and also check their response time. Certain providers offer trial periods, which allow small businesses to test the software’s functionality and determine if it is ideal for their venture before investing in it.