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An Easy-To-Understand Guide to Online Payments

How to Accept Online Payments

In the modern world, if you want to stay current and up-to-date (and able to do business!), accepting online payments from your customers is a must.

More quickly than ever before now, the buying and selling of goods in services is happening online. According to the recent data, 14.3% of retail sales are now made online and the projection shows online payments will surge up to 22% by 2023.

If you offer personal services or do freelance work, it can be even more important to accept payments online, as you and your customer may not be physically present with each other for the transaction.

If you’ve traditionally done business in-person, or if you’re completely new to business, then you may be wondering exactly how to accept payments online. And then, what’s the best way to collect payments online?

Well, those are understandable questions. And we’re going to answer them today by first looking at the steps in the process required to accept payments online, and then at some of the many actual ways to accept payments online you might consider using to do so.

Online Payments – Two Things You Should Understand

Payment gateway for online payments

First things first – there’s a little bit of groundwork we should lay before getting into the methods for how to accept payments online.

There are two major concepts you should understood when thinking about online payment options. 

  1. Payment Gateway
  2. Merchant Account

What is a Payment Gateway?

A payment gateway is a software application that handles the technical side of your online transactions. It authorizes online payments and acts in much the same way as the credit-card-readers you might use at shops, restaurants, and other physical stores.

Basically, the payment gateway checks the card details and authorizes payment, if allowed.

Different types of payment gateways include shopping carts, hosted payment pages, and third-party integrations, each of which has its advantages and disadvantages.

What is a Merchant Account?

The merchant account is what handles the money after authorization. Essentially, it’s a separate online bank account that allows you to accept payments that customers make. The merchant account only holds your money temporarily, and after settling, the money in the merchant account transfers to your main business bank account.

If you intend to process your own payments, you will most likely need to have a merchant account. You can also choose to use an all-in-one payment processor, such as PayPal, Stripe, or another similar company that uses a single aggregated merchant account to provide credit card processing to an entire portfolio of companies.

How Payment Gateways and Merchants Fit Together

Online payment point of sale system

Here’s what happens:

When your customer is ready to pay, they will provide their payment information via a secure form, usually on a website, mobile app, or another online platform.

Next, the payment gateway submits their payment information, to the payment processor used by the bank you have your merchant account with.

The payment processor will then contact the issuing bank of the card and makes sure the transaction is valid (i.e. that there are funds available, that the card is legitimate, etc.) The processor also connects with your merchant account to deposit the funds when they’re available.

When the purchase is either declined or approved by the card’s issuing bank, the gateway notifies the customer and the merchant (you) that the transaction was either accepted or rejected, and finally routes the funds into your merchant account before they are eventually settled into your main business bank account.

How Does All This Work For You?

Yes, that’s a lot to take in. And now that you understand how online payments work, you may be asking yourself how this works in real life. What do you need to do now to be able to accept payments online?

Well, you’ve got options. What you’ll need will tend to be very specific to your individual business. A lot of people wonder how to accept online payments without PayPal, since that may possibly be the most common solution available today. Below, you’ll see that you can start accepting payments online in quite a number of different ways. 

Here are some easy online payment options that are the most popular.

Accept Direct Debit Payments Online (Credit & Debit Cards)

Direct debit is probably the most basic way how to accept payments online. If you have a website or app, this may be the best way to accept payments online yourself right away, without using a third party. 

If you decide to go this route, you’ll need to set up a merchant account and payment gateway. This of course means you will have to decide what kind of merchant account you need.

There are two basic types of merchant accounts: Dedicated accounts, which are created to serve your specific business only, and aggregated accounts, which use a single merchant account to provide credit and debit processing for multiple companies at once.

Business processes and funding times can vary drastically depending on which you choose, so take your time to research your options thoroughly.

It’s a good idea to ensure you can accept most card types, such as Visa, MasterCard, and American Express.

Merchant Account Options: Chase, Stripe, PayPal

Payment Gateway Options: Braintree, Authorize.Net

New to accepting online payments? Check out our complete guide for how to accept payments online.

Accept eChecks with ACH Processing

An eCheck (also known as an ACH transfer, ACH Payment, or Direct Debit) is an electronic bank-to-bank payment that transfers funds through the ACH network, rather than through the card networks such as Visa or MasterCard.

After credit and debit cards, this is the most popular and possibly the easiest way to accept payments online. Electronic checks allow for the direct debit of a bank account, combining the security, speed, and processing efficiency of all electronic transactions with the infrastructure and processes associated with paper checks.  

Your customers simply input the information from their paper check (such as routing number and account number, etc.) in an online payment or software interface, and the payment processes like a check – but with no need for the physical check.

Typically, there are lower fees associated with eChecks than with credit cards, and it is definitely more secure and predictable than waiting for a check to come through the mail.

Software that Will Help You with ACH processing: HoneyBook, QuickBooks

Use an Outside Payment Service Provider to Accept Customer Payments Online

If you’re a small business looking for an easy and tested way to accept payments online, using an outside an outside payment processor is probably your best bet.

Companies like these are basically middlemen between you and the banks. Typically, this payment processor will act as both the merchant account and the payment gateway for you. So, if you’re wondering how to accept payments online without a merchant account of your own, this is your ticket!

Allowing customers to pay directly on your website can increase sales due to convenience alone. And, if you allow customers to create accounts, they can save their payment information for easy repeat payments. You can find many of these features in online payment software, including hosting the payment form, providing the secure payment processing, and secure customer account storage. Depending on the platform, you may even be able to customize the form to match your branding (like with HoneyBook).

Using a Payment Service Provider can be a painless way to accept payments by credit card, debit card, or eCheck.

Some Payment Service Providers: HoneyBook, Stripe, Braintree, PayPal, Adyen

Try Email Invoicing to Accept Invoice Payments Online

Using an online invoice enables your customers to pay their bills and receive a receipt in seconds. You can share an online invoice with your customers through email. They securely pay from any device. And cha-ching, payment complete.

Once you feel how easy it is for a client to pay you online, trust me, you’ll never go back. Some platforms let you to incorporate your branding into the payment flow, so your clients always feel like they’re interacting with you.

Sending an invoice online also makes tracking payments easier. No more updating a random spreadsheet or outdated notebook. With HoneyBook, for example, when your customer pays an invoice, the invoice amount is automatically marked as paid in your HoneyBook account. HoneyBook also allows you to send an automatic payment reminder. Then, from within your HoneyBook account you can clearly see all your payments’ status in an organized dashboard. It’s a super simple and easy way to track your income and outstanding payments.

Some Email Invoicing Options: HoneyBook, Square, PayPal

Schedule Automatic Billing to Accept Recurring Payments Online

This is a fantastic way for customers to pay for monthly/subscription services. Not only is it more convenient for your customers, but it almost guarantees that you will be paid on time.

A subscription management service allows you to easily manage recurring payments. Typically, with companies offering these services, you can automate billing and billing-related emails to take the manual work off your plate.

Billing your customers on a recurring basis can make everyone’s life easier if done correctly. With platforms like HoneyBook, your clients can securely save their payment information and choose to pay monthly, automatically. They won’t have to remember to pay another bill, and you won’t have to remind them to!

Some Recurring Billing Options: Zuora, Recurly, Vindicia, HoneyBook

Further Reading: Billing Software for Small Business

Looking for the right Online Payment Platform for your Small Business?

HoneyBook helps small business owners manage clients, organize communications, and get paid — all in one organized place. Try HoneyBook free for 7 days and start getting paid quickly, securely, and on time. 

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