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Getting started with the basics of online payments and invoices

Setting up your own business is an exciting if sometimes stressful endeavor. Along with self-employment advantages like schedule flexibility, pursuing a dream and having full control come the responsibilities of setting yourself up financially to bill clients, pay taxes and pay others.

Accept Credit Cards Online

You might have seen content around the web telling you that you need a merchant underwriter, LLC status in Delaware, LTD status in Cyprus, a payment processor gateway, a bookkeeping solution, an account with Square, three PayPal accounts, and a team of geeks to make sure it’s all running smoothly.

But it really doesn’t have to be all that complicated, and almost everything relating to your business’s payments only needs to be set up once – after the systems are activated and playing together nicely, you should be able to finally focus on actually getting work done. Sure, the idea of getting all this infrastructure going can be daunting to say the least, so we’ve decided to break it all down for you and explain the basic principles at play.

Tax filing / business entity status

One of the first decisions business owners have to make is to define their official business entity status. Considering your long-term and short-term business goals can help you to determine what makes the most sense – a proprietorship, partnership, corporation or one of the nuanced varieties of these main choices. Consider how large your business is likely to be, how much control you want to retain and how structured it will be. Think about how exposed you’re likely to be to lawsuits and the tax implications of what you intend to profit vs. reinvest.

Once this is all mapped out, it will be easier to define the business. Most businesses start out as sole proprietorships, where the owner has full control as well as full responsibility. This type of business is easy to set up, and accounting is simple since it is attached to the owner’s personal tax returns. However, a sole proprietor is personally responsible for debts incurred by the business and may find it hard to raise funds and hire employees.

Partnerships are similar to sole proprietorships in that the owners of the business and the business itself are indistinguishable in the eyes of the law. Partnerships are also relatively easy to set up, but they do require an agreement about how the partnership can be dissolved. There are a few different types of partnerships to choose from, such as limited partnerships and joint ventures.

A corporation is a separate business entity that doesn’t dissolve if the owners disengage from it. A corporation is owned by shareholders who make all the decisions. The corporation itself can be taxed, sued and held liable for contractual obligations. A corporation is more time-consuming and expensive to set up but is often the right choice for a business that has ongoing needs for payroll, contracts, loans or seed investments.

Open a bank account to suit your needs

Opening a bank account for your business is a crucial step toward separating personal assets from business funds – even if you’re operating as a sole proprietorship. It could be a good idea to visit a few banks and find out what each one has to offer a small business and to gain a sense of the professionalism, friendliness and service orientation of the account managers at your local branch. A free checking account is ideal for a small business with only a few transactions per month. Don’t forget to ask about various fees aside from depositing checks, though – these can vary quite a bit.

Banks make most of their money from extra services like lines of credit and cash management services, so bankers are likely to pitch them to you aggressively. Consider whether these services are really necessary at this time. You can always add them later as your business grows.

Ask at the bank about connecting your accounting software to your bank account. Online banking and accounting can save you a lot of time and aggravation, especially when you can work with automated syncing of data. Compare fees for online transactions such as payroll, transferring funds between accounts and investments, both on the bank’s website and its mobile app.

Along with asking all the right questions about services, fees and loans, pay attention the customer service you get at the bank. You want to open an account with a banker who understands you, your business and your industry, and will be available and flexible when you need it. Sometimes it is worth sacrificing some financial advantages if it means having a better personal relationship with your banker.

Pick the right payment gateway

How will customers pay for your products and services? To make payment easy and quick, you’ll want to accept payments online, using a credit card gateway payment processor connected to your website and to your invoicing system.

Payment gateways collect funds from the customer and store them online. They might keep this money until you manually transfer it into your bank account, or they may offer automatic payouts every few days or every week.

You can accept payments online for products or for services. If you’re selling physical goods, keep in mind that a gateway is a must for ecommerce websites, since shoppers expect to purchase products without having to leave the merchant’s website.

But if you’re a service provider, contractor, freelancer or consultant, you are likely to benefit from working with a gateway too. Your clients, wherever they are located, will appreciate the ease and convenience of online payment. As an extra bonus, you are likely to get paid sooner online than offline. Electronic payment can be especially useful for accepting payments from clients who are located in other countries, since most currencies are accepted and converted automatically.

The most popular payment gateways are PayPal, Stripe and Authorize.Net, but there are plenty more out there, each with its own strengths and specialties. When choosing a payment gateway, look for the features that are likely to suit your business best. If you plan to make a high volume of online payments regularly, for example, you may want a gateway that allows you to do that without involving your bank account, or you may want to work with a provider that has higher monthly fees but lower transaction fees. Look at how easy the gateway is to set up and how high its transaction fees and flat monthly fees are. If you aren’t sure how much online invoicing you’re going to be doing over time, you may want to get started with a platform with higher transaction fees and lower monthly fees.

Technical support is important, too – especially if you are not familiar with these types of online tools. Look for platforms that offer email support, and, if you feel you need it, telephone support as well. Some gateways require that you have a merchant account as well (more on this below), either acquired through them or elsewhere, so this factor can also help you to select the right gateway for your business.

Know your merchant account options

Your merchant account is the place where funds are stored online in between collection from the customer or client and their withdrawal to your account. It’s like an escrow that helps the gateways, credit card companies and banks to cover their risks. The companies that offer payment gateways generally offer merchant accounts as well, although not all require that you have one.

The simplest type of merchant account is called an aggregate account. In this account, your money gets dropped in a communal pool until you withdraw it. This type of account does not require extra setup, but you can’t negotiate rates and have less control over how long it takes to get your money.

If you’re selling large amounts of merchandise, though, it may be worth getting a dedicated merchant account that allows you negotiate rates based on the volume of your sales. You may have to go through a fairly in-depth and lengthy credit check and underwriting process to get approved for a dedicated merchant account.

Most small businesses are best off starting with an aggregated account and reevaluate their needs as sales grow. But if you really like a specific gateway and they require that you have a specific type of merchant account, then it might make sense to just go with that.

Invoicing and billing tools

It may be a drag, but you’re going to have to do at least a little bit of bookkeeping if you’re going to manage your own business. Even if you’re hiring out for all of your payroll and tax reporting needs, and even if your expenses are all auto-billed and you’re only billing a handful of customers each month, you’re still going to need to wrap your head around cash flow considerations, especially the real time status of each invoice you issue.

Make this all as easy as possible on yourself by using an app. Depending on your business entity type’s tax reporting requirements and the software preferred by whoever’s in charge of keeping it all in order for you, it’s possible that a comprehensive financial management app is what you need. Or you might do just fine with a basic solution using spreadsheets, bank statements and your invoicing tool’s data.

When choosing an online accounting tool, keep in mind that many integrate various features such as invoicing, online payments, expense tracking, time-tracking and reports for tax filing or financial planning. Make a list of the features you need and test out a few tools that offer them. Pay attention to the user experience and find a tool that is simple to use. The point here, after all, is to save you time.

Some online accounting tools have both free and paid versions. Evaluate your needs to see if the free version is sufficient or if you need to upgrade to the paid version. The free versions are usually limited to a certain number of clients and transactions. Payment is generally with the subscription model, charging a monthly fee.

Your revenues are your business’s lifeblood, so no matter how you’re keeping your books, you’re going to need to invoice and bill customers. Although there are many online tools that are expensive or offer a very limited free version, there’s no reason to pay for invoicing and billing. Invoice Ninja is free, and the app offers an extremely accessible interface that produces beautiful, customizable invoices that will impress your clients. It connects easily to dozens of payment gateways, so your customers can pay you with just a few clicks. And we offer awesome email support too.

Now that you are set up legally and financially, it’s time to start earning money from your dream. As your business grows, don’t forget to reevaluate your early choices to see what is still working for you and what could use an upgrade.