The Small Business’s Guide to Payment Processing

If you’re a small business leader, you’ve likely started investing in management tools and other solutions to help aid your growing team. Depending on the type of business you run, your toolkit might consist of everything from talent management software to event registration software. In this modern world, it’s especially crucial that small businesses have the capability to facilitate online payments and bill clients accordingly. But how does this exact process work?

Online payment processing is a convenient way of automating transactions between a customer and a merchant. Accepting payments online is a key method for organizing your small business’s finances, boosting overall sales, and providing flexibility for your clients. 

For this to happen successfully and securely, however, businesses need to invest in the right tools. In order to find the best payment solution for you, it’s recommended to familiarize yourself (and the rest of your team) with the specifics of the online payment process. 

Here at Regpack, we often work with small businesses like yours to process online payments securely and efficiently. In order to ensure that you’re not missing any essential gaps in your internal processes, we wrote this small business guide to payment processing:

• Common Terms For Payment Processing
• Types Of Payment Processing Your Small Business Should Accept
• The Payment Process: What Exactly Happens?

With full understanding of the payment process for your small business, you’ll be well-equipped to invest in capable tools and make meaningful decisions that grow your organization. Ready to learn more? Let’s begin. 

Common Terms For Payment Processing

To start off this guide, let’s first review some of the common terms for payment processing, including terms that relate specifically to your small business.

In general, payment processing describes the transactions done between your business and clients or customers. This is often completed with a reliable online payment tool or service that handles the processing, verification, and acceptance of the funds to your business. 

Here are the common terms you should know:

• Consumer/customer/client. This is the individual who is buying your services or products on your website. This will likely be done through a card-based transaction, where the consumer provides their card details and inputs it into your site.
• Merchant. This describes your role in the payment process. The merchant is the one who accepts the payments from consumers and then provides a service or product in exchange. 
• Merchant account. This is the bank account in which your online revenue is held before it is released to your business’s own account. All organizations and businesses that process online payments must use a merchant account. These accounts can be provided by an acquiring bank or your payment processing solution.
• Payment processor/provider. This is the tool or service that handles your online transactions. The best payment processor should securely route the payment details and accept (or deny) the funds. 
• Payment gateway. When an online payment is made, the card or bank information needs to go through the payment processor’s payment gateway. This is a frequently-used fraud prevention method that protects your customer’s financial details until the funds reach the merchant account. 
• VPN (Virtual Private Network). This is a common security measure that ensures your internet connection is secure for payment processing. VPNs use data encryption to help prevent fraudulent payments and unauthorized users.

Becoming familiar with the above terms is necessary if you want to successfully process online payments for your small business. It’s important to invest in a dependable payment processor, especially when it comes to protecting your clients from fraud or other types of financial scams. 

Aside from using a reliable payment gateway and VPN, make sure your own payment tool is at least PCI compliant, meaning they adhere to the guidelines set by the Payment Card Industry. 

Types Of Payment Processing Your Small Business Should Accept

Being able to buy a service or product online is attractive due to its convenience and ease. People can pay from the comfort of their own homes or even on the go through their mobile devices. However, this isn’t the case if your business can only accept one type of online payment. 

Take a look at your current payment provider and the type of customers that you engage with. What are their preferred payment methods? What can or can’t your own tool process? If there are any gaps, then you should consider upgrading your solution.

Make sure your online payment provider can do the following:

• Debit card payment processing. This is a low risk and easy transaction process due to the fact that the issuing bank doesn’t need to issue any credit to the customer to cover the cost. As long as your customer has enough money, the transaction can be approved easily. Debit cards also can be processed often for a smaller fee than credit cards can. When your payment provider can allow for debit payments, it can save money on processing fees in the long run.
• Credit card payment processing. This requires a credit card company to cover the cost of the purchase made by the customer. The credit card company must approve the payment first before it can be sent to your business’ merchant account. 
• ACH Payment processing. Automated Clearing House (ACH) is a network that facilitates money transfers and other payments between bank accounts without requiring cash, wire transfers, credit cards, or checks. ACH is also often the lowest processing fee compared to debit and credit. This is a great option to keep at default in order to maintain low cost.
• Digital wallet or payment apps processing. Nowadays, many people use smart technology to pay for products from their phones or other devices. These digital wallets or apps store payment information so that customers don’t have to continuously refer to their cards when they want to buy something online. 

If you want to accept payments online for your small business, the above are common methods that you will likely have to account for. Some leaders might invest in separate processors for each type of payment, but it’s recommended to go for a more comprehensive solution that can handle them all. 

The Payment Process: What Exactly Happens?

Now that you have a general idea of what’s involved in the payment process for your small business, let’s go over what exactly happens. The exact steps depend on how the customer is paying but can be broken down into two general stages, authorization and settlement:

• Authorization – when the sale is approved
• Settlement – when the money enters your main bank account

To help you best understand these two phases, we’ll use an example. Let’s say your small business sells online courses to your audience. As each customer registers for a course, they also fill out their payment information to purchase it. Here is what this payment process might look like:

1. The customer registers for a course, filling out their personal details and filling out payment information. They choose to pay with a credit card. 
2. The payment details are sent to through the payment gateway, encrypting the sensitive data until it reaches the payment processor. 
3. The processor sends a request to the customer’s issuing bank/credit card company to approve or deny the transaction by determining if they have sufficient credit. This is the authorization stage.
4. If the payment is approved, the processor is notified and transfers the necessary funds to your merchant account. This is the settlement stage.

Becoming familiar with how the payment process works for your exact small business offerings not only keeps your internal operations more organized, but also can clue you into how to best engage with customers. For instance, if you know that the processor you use also comes with fees, it’s crucial that you’re transparent about that with clients.

It’s important to find a payment solution that also provides reporting capabilities. This way business leaders like you can manage the accounting side of things, including seeing pending payments, managing refunds, reporting on payments by service or product, understanding their revenue, and creating custom payment plans. This not only monitors your customer relationships but also helps your internal processes. The more organized and stable your incoming revenue is, the better you can compensate your hardworking employees and grow your business.

Wrapping Up

Knowing the full ins and outs of payment processing for your small business is a fundamental step that not all leaders take the time to comprehend. However, the more you understand how an online transaction is made and ends up in your bank account, the better you can choose a payment processor that meets all of your and your clients’ needs.

To summarize, your payment provider needs to:

• Protect your clients’ financial details from fraud prevention 
• Process multiple types of online payments
• Successfully submit the funds into your merchant account and compile data for reports

We recommend investing in a comprehensive payment solution that not only does the above, but also can customize the buying process for each customer with unique payment plans and even compile reports on your online sales. This strengthens the relationship between your small business and your consumers, paving the way for more valuable engagement. Good luck!

Asaf Darash, Founder and CEO of Regpack, has extensive experience as an entrepreneur and investor. Asaf has built 3 successful companies to date, all with an exit plan or that have stayed in profitability and are still functional. Asaf specializes in product development for the web, team building, and in bringing a company from concept to an actualized unit that is profitable.

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