CHAPTER 6 – Receiving Payments Online and Managing Cash Flow

Online businesses typically conduct most of their financial transactions over the internet. There are several online payment options that you can explore for your home-based business. Here is a look at the different ways in which you can accept payments from your customers over the internet.

Payment Gateway

A payment gateway is basically a service provider that authorizes payments and protects credit card information in the case of online retailers, e-businesses and even brick-and-mortar businesses. It facilitates information transfer between payment portals such as websites, and the acquiring bank.

Your payment gateway-enabled website will encrypt and send a buyer’s payments to the merchant account, which is a bank account that processes debit and credit card orders. Your online business cannot function without a merchant account. You can easily set up one, which is offered by many financial institutions and banks. Besides the merchant account, you will require a separate bank account for your business- the payments made into your merchant account will be transferred into this account.

Popular payment processing company WorldPay offers a merchant account through its Business Gateway option for small and medium-sized business. This is a good solution for your start-up, especially if you will be accepting payments in multiple currencies.

Other Online Payment Options

PayPal: One of the quickest and most popular ways of receiving payments via e-mail is by creating a PayPal account. Using this system, debit and credit card payments are easily transferred to your bank account. It acts as a trusted escrow service for the buyer and seller, holding the payments and ensuring the privacy of customer information. When you open a merchant account with PayPal, the payment is credited to your account as soon as it is processed. A valid bank account, credit card and e-mail address are the only requirements to use PayPal. More than 90% of all eBay purchases go via PayPal.

Google Checkout: An integrated global payment gateway, Google Checkout is fast becoming popular among online businesses. Both your customer and you will require a Google account to use this service. It works in a simple way – your customers add their credit card details to their Google account, which are stored securely. The customers can make payments by clicking on the Google checkout button of the merchant i.e. your checkout page, and the transaction is processed. Yet another popular online payment platform, especially among UK businesses, is Moneybookers. It facilitates the sending and accepting of payments using a bank account, debit card or credit card. The sender, i.e. your customer, need not register with the provider. Only the merchant, i.e. you, will require a Moneybookers account.

Apart from these three much-used modes of online payment, there are several others, such as AlertPay, MoneyGram, and 2Checkout. Depending on your preference, you can go for electronic fund transfer too, where the payments are transferred from the buyer to the merchant account without any middleman or intermediary. In this service, you have to provide your banking details to the customer and the payment will be wired to the account. A wire transfer will require certain details such as the routing number, the checking/savings account number, your bank’s name, phone number and address, and the name of the customer to whom future questions, if any, can be addressed.

Managing the Accounting Side of your Online Business

Manually organizing your financial information is recommended only if you are confident of keeping accurate records, good with numbers, and have a tax advisor or accountant to help you out. A better way to manage this task is by using accounting software. Recording, organizing and retrieving financial data is easy and quick when you use reliable accounting software. The accounting programs can be divided into simple ones like Owl Simple Business Accounting and fully-featured ones like QuickBooks,
MYOB and Quicken. These are user-friendly and effective ways of storing financial information, and performing the required calculations.

If you want an automated accounting solution, then popular accounting packages like QuickBooks can help you prepare reports, statements, and also provide assistance in terms of taxation. For these programs, you will have to set up a database on your computer.
If you will be recording income and expenses by hand, then make sure you do it correctly, and hand over the details to a good tax advisor for a P&L (profit and loss) statement. Such a report measures business operations over a certain time period, such as a year or a month. The profit or loss your online business has made will be the result you get when you subtract your operational expenses from your business revenue.

Breakeven Evaluation

In breakeven evaluation, you estimate if your business will be able to cover the expenses incurred on a monthly basis. If your overheads amount to $500 and your revenue for the month is $3000, then your business has turned in a gross profit of $2500. The breakeven point will be reached when your revenue equals all your business costs. For calculating your breakeven point, you will first have to identify your expenses, both fixed and variable. Fixed expenses include what you pay for regardless of your sales numbers, and variable expenses are those that fluctuate with the sales volume.

Online Tools for Invoicing, Book-Keeping and Cash Flow Management

Regular book-keeping is essential to any business. With the right book-keeping and invoicing tools, you can keep track of your finances in a convenient way. Most accounting platforms that cater to small businesses are free or inexpensive. They comprise features that help you manage your business flow, and being online, they can be accessed from any place.

Managing cash flow effectively is critical to the success of your online venture. Know at least your sixmonth cash balance, make accurate cash flow projections, and make sure that you never reach negative cash flow, which could spell doom for your business. Keep track of your finances using cash flow management tools, and undertake a cash flow analysis on a periodic basis. Here is a look at some
of the cash-flow management, accounting and invoicing tools.

Invoicera: This tool offers online billing and invoicing, supports multiple currencies, and tracks expenses. Multiple payment options via Google Checkout and PayPal are offered by Invoicera.

Pulse: An effective management tool for cash flow, Pulse is a popular choice among small businesses. It organizes and analyses cash flow, expenses and income, and generates reports.

Rhino Accounting: A free online application, Rhino Accounting performs the basics very well, integrating with Google Apps, creating invoice PDFs, and also sending them.

Zoho Invoice: With its time tracking feature, Zoho Invoice assists you in receiving payments, sending invoices, and tracking your online business’s overall health. It supports multiple languages and currencies. The payment gateways are through Google Checkout, PayPal and Authorize.Net.

There are many other accounting tools that allow you to focus on your work instead of wasting effort in adding up numbers manually. The right accounting software will depend on factors like the nature of your business, and how tech-savvy you are. For instance, if you want a very simple and basic accounting tool, then LessAccounting and Pulse are good choices. For in-depth integration, Xero is recommended while QuickBooks Online is the right choice if you are familiar with using QuickBooks in its desktop version.