How Are You Going To Get Paid?

Getting paid used to be pretty simple. You'd send your client an invoice, and they'd eventually send you back a cheque (sorry...check). Once in a while they'd forget, so you wouldn't get paid for months. Other times the cheque would bounce. Look, I didn't say it was better...just simple.

So you want to start an online business? How are you going to get paid? Let's go through some of the options available to you.

The Worst: Cash or cheque

Not that long ago these were the only two options available. Now they're usually the least desirable.

Pros: No merchant fees for either, and cash is immediately available.
Cons: No paper trail with cash. Cheques can bounce and most banks will hold the funds for a few days until the cheque clears.
Summary: Cheques are a pain in the butt. If it's a remote client you have to wait for snail mail. Then you have to wait while the bank places a hold on the funds. At least where I'm at it's usually a 2 week delay from "the cheque's in the mail" until I can use the funds. Cash is great. Who doesn't love cash? But unless you're breaking bad, no self-respecting business owner uses cash as their primary payment method. You look super-sketchy when you only accept cash. Plus, imagine if a delinquent client claims to have paid you in cash. Good luck proving them wrong.

Middle of the Road: Merchant accounts

This can range from a PayPal account to a merchant account issued by your bank.

Once you start taking payments from people online, it really helps to have a method that doesn't require a face-to-face transaction or the post office.
Pros: Easy for clients (remote and local) to pay you. Wide range of types of accounts to choose from. Faster than snail mail.
Cons: Merchant fees. Most transactions will incur a fee. There's a big range, depending on the type of account, but the standard rate will usually fall between 2-3%.
Summary: People getting started with an online business often begin by setting up a PayPal account. It's easy to setup, doesn't require good credit, and lets your clients pay you by credit card, their PayPal balance, or even an electronic cheque. However, fees are usually 2.75% plus $0.30 per transaction. You can then spend the money directly from the PayPal account, withdraw the money to your bank account, or in some countries (not mine) you can use a PayPal debit card. I've personally never had any problems with PayPal (other than hating the fees), but I've heard a lot of horror stories about frozen funds. If you want an alternative, there are plenty of other options. Stripe and Square are two of the big names. They both have similar rates so you're not saving any money at this point. I know Square offers a free device that connects to your phone that lets you swipe cards. This is great for taking payments in person. The (potentially) big jump comes when you get a merchant account at your bank. In Canada you'll be dealing with companies like Moneris or Chase Paymentech. I'm not sure the big names elsewhere. Getting these accounts requires more paperwork and a credit check.
There are benefits to getting the extra scrutiny. If you are taking a lot of in-person payments each month you could be getting much better rates. When I ran a small retail shop we were getting 1.75% on all credit cards. If you're doing $10,000/month on credit cards that's an extra $1,200 in your pocket each year. I'm not sure the rates you'd get for over the phone or online payments but they're usually going to be less than PayPal's. Unfortunately companies like Moneris are very private about their rates until you're actually signed up. You can also accept debit cards, which is the main form of in-person payment in Canada. Finally, the turn around time for deposits is much quicker. If the merchant account is tied to your business bank account you will often received the funds the next day. In my experience, cash flow will make or break your new business. Having the money a day or two sooner makes a big difference. If you don't believe me, ask your employees if they mind getting paid on Monday next time.

The best: Direct deposit

This includes ACH, wires, email money transfers, etc.

Pros: No fees (usually...see the summary). Faster than snail mail, and often faster than merchant accounts too.
Cons: You have to exchange sensitive info with your client. They have more work on their end getting you paid.
Summary: Direct payments represent the best of both worlds. You're getting paid quickly but usually not paying any fees. Domestic wires and email transfers can actually show up the same day; ACH payments only take about 2 business days. International wires are quite fast too. I have US clients, and wires usually show up in 1-2 business days. The real trouble is actually on your client's side, which might deter them from wanting to pay you this way. I mean, it's not a lot of work, but enough that if they aren't already paying their contractors this way, they might resist. It's also pricey for them if you need a wire. Domestic wires are about $30, and international ones are about $40. In some cases they split the cost with the contractor. So, if you are an international contractor, and your client asks you to cover $20 of the wire fees, it's worth comparing the rates. Small invoices are better off being paid by PayPal, but once your invoice hits 4-digits it's cheaper to chip in for the wire.

Yes, I know there are other options.

There's also bitcoin. I know almost nothing about it so I'm in no position to give you any info on the subject. Thankfully, the folks at The Sleeter Group did a "Bitcoin for Small Business" video series about it.

I suppose you could also get paid with a money order or Western Union. Heck, you could barter or take gift cards too if you want. These are all possibilities, and the point is that you receive something of value for your services. If you are happy to reconcile a few bank statements in exchange for a tire rotation and a couple loaves of banana bread who am I to judge?

It's just important to be aware of your options, and make a plan before you get started.