Methods of Payment

There are many different ways that you can receive money from your customers. Each has its advantages and disadvantages:

Credit Card – The most popular payment method. We've discussed what is necessary to accept credit cards in The Setup. The advantages are the ease for the customer to pay; credit cards are very wide spread and most shoppers have at least one. Another advantage is that it's instant. Once the transaction is complete, you can ship the order. The money takes a couple of days for it to appear in your bank account, but it is considered instant payment. Fees are a percentage of each sale, which you lose, even if you refund customer.

The disadvantages are that because of their wide spread usage, credit cards are one of the most popular payment methods for fraudulent orders. Another disadvantage is while the payment is instant, it could be reversed by the customer if they complain to the credit card company. This is called a chargeback and will be discussed in detail later in this section.

Payment Websites – Websites like PayPal and Google Checkout offer a means of instant payment if both parties have an account with them. The advantages are you have access to the payment immediately, and offer merchants protection from the customer reversing the payment if certain requirements are met. The fees are usually reasonable, and you get the fees back if you refund the customer.

Disadvantages are you may not receive the same information you would by dealing with the customer directly because you are going through a third party. This makes checking for fraud a little more difficult. Your accounts can also be frozen if a customer makes a complaint. There's very little recourse for you if they freeze some or all of your money while they look into it.

Checks and Money Orders – Customers who don't have credit cards, or are paying from a company or municipality may want to pay by check or money order. The advantage to these methods of payment is there are no fees. The amount on the check or money order is what you receive.

The disadvantages are the 10-day delay while waiting for the funds to clear, and the extra work involved to deposit them. Fake or stolen checks and money orders are also popular for fraud orders. Another disadvantage is that you are also responsible for fees should the check bounce.

Wire Transfer – A wire transfer is a bank account to bank account transfer of money. The advantage is that wire transfers are very difficult to reverse. Once the money is in your account, it can't be taken back unless the owner of the account can prove it was done illegally. This is the safest means to collect money for international orders that you can not verify whether or not they are legitimate.

The disadvantage is the cost for a wire transfer which is $10-20 per transaction, making it impractical for small orders. It is also a bit complicated to do and requires you to provide a lot of banking information.

Another means of wire transfer is money transfer or money grams. This usually occurs at a location like Western Union. The customer either goes to their local branch, or online, and you go to your local branch and pick up the money. While there is an advantage in that once you have the cash in your hands it's yours, it is a very impractical means of doing business, and time consuming.

Purchase Order – A purchase order, or P.O., is a request or agreement to be paid at a later date for an order placed. They most often come from schools and government municipalities, and occasionally from bigger companies. The advantage of them is the likeliness of repeat business and the larger than typical size of the orders.