-
-
-
-
Home > > IT and e-business > How to handle payments online
How to handle payments online
Increasing numbers of businesses are choosing to sell their goods and services online, not least because customers expect the convenience that internet retailing offers.
It is, of course, possible to accept payment for online sales through conventional means: a cheque sent in the post. But given that the main virtue of online shopping is its speed and efficiency, most customers prefer to pay with debit or credit cards.
In order to process online card payments, businesses must set up a system in addition to that which is used to handle in-store card transactions.
Types of online payment system
There are various types of online payment system available to businesses. Choosing a particular method will depend on the nature of an individual firm and the scale of its online business.
Internet merchant accounts
An internet merchant account is a payment system which is managed through a bank. It tends to suit businesses that anticipate a high level of online sales, that require a consistent and immediate cashflow, and that already have the ability to handle face-to-face card transactions.
A business will need to contact its high street bank in order to set up an internet merchant account. Most major banks offer this service but not all.
Under the system, the bank will receive the payment from the online customer, process the transaction and then credit the firm's account with the money. The business will require a payment service provider (PSP). A PSP - which must be compatible with the firm's e-commerce software - takes the customer's card details online and sends them to the bank. So that the card details can be sent to the bank safely, an internet merchant account must use secure socket layer (SSL) technology to encrypt the information.
Banks will charge a fee for managing an internet merchant account. The fee will either be fixed or will be calculated as a percentage of the individual transactions.
There may be other fees connected with purchases by credit or debit card.
Should a purchase turn out to be fraudulent, the money will be retrieved from the business's merchant account. Since there is a potentially higher risk of fraud affecting 'cardholder-not-present' transactions, banks will expect a business to supply certain information before agreeing to set up an internet merchant account. The information may include online cashflow projections, online trading terms and conditions, the method of delivering the product or service, the predicted value of online transactions, online turnover and details of the server that is to be used.
There are, however, alternative methods of dealing with online payments.
Outsourcing payment processing
A payment processing company receives the card payments from a firm's online customers and then passes the money on to the firm.
Using a payment processing company may suit businesses that do not anticipate a large number of online transactions and do not depend on prompt or immediate payment.
The benefit of using a payment processing company is that the business is saved much of the work involved in running an internet merchant account.
There are, though, downsides. It can take much longer for the payment to reach the firm's account. Fees and charges tend to be higher than for internet merchant accounts too.
Fraudulent payments can be reclaimed from the business, although there are insurance policies that cover this eventuality.
Online shopping malls
Using an online shopping mall may suit small businesses that have fewer IT resources and a simple web presence, that sell straightforward products or services, and that do not already handle credit card transactions.
An online shopping mall is especially helpful for businesses that only wish to use the internet as a supplement to their traditional, bricks-and-mortar high street sales.
A mall works by offering several businesses a place on the same website. The websites are often dedicated to firms from the same or similar business areas.
The hosting and payment processing is dealt with by the mall itself. It usually supplies the software needed to establish an online shop too. The only responsibility that falls to the business is that of keeping the online shop updated and relevant to its customers.
Opting to join an online shopping mall means that a business will not have to concern itself with the complete process of establishing a customer-friendly website. Often malls will provide guidance and advice on the practicalities of managing an online shop.
The drawback is that it invariably costs more to sell online through a shopping mall than it does using other methods of trading via the internet. A business choosing an online shopping mall must be prepared to pay a membership fee and a percentage of each transaction and perhaps a monthly fee as well.
IT and e-business
- An internet use policy
- B2B - the real e-business
- Ensuring proper virus protection
- Handling e-mails - reduce the stress levels
- How to maximise the effectiveness of your website
- Assess your competitors
- Key features to consider using on your website
- Overcoming the problems of e-commerce
- Why you may need to upgrade your computer systems
- Writing for your website
- How to shape an e-marketing strategy
- Online marketing
- How to handle payments online
- Marketing and data protection: compliance
- E-commerce - legal obligations
Related links
Our Latest News
- Increase in risk of a second recession, says think-tank
The chances of the UK economy entering a second recession next year have risen, according to the National Institute for Economic and Social Research (NIESR).
- more
- UK skills training needs radical overhaul
The British economy could find itself facing a period of decline if the skill levels of the workforce do not show marked improvement, it has been claimed.
- more
- Compulsory retirement age to be retired
The government is proposing to scrap the default retirement age of 65 by October 2011.
- more
- Savers not being told about interest rate changes
Many banks and building societies are failing to keep savers properly informed about changes to the interest rates on their accounts, comsumer group Which? has claimed.
- more
- Self-employment declarations should be respected
With thousands of people predicted to start up their own micro-businesses as unemployment rises, a business group has called on the tax authorities to respect their employment status.
- more
- Government publishes a raft of tax consultations
The Treasury has issued nine consultation papers on various aspects of the personal and business tax system in what amounts to a far-reaching overhaul of the entire regime.
- more
- Prospect of rise in energy costs for business
Businesses have been warned that they could see a steep rise in energy costs over the coming years.
- more
- Banks under pressure to increase small business lending
Banks could face possible tax sanctions if they fail to boost lending to smaller businesses.
- more
Harrison Young,
First Floor,
1 Gatton Road,
London
SW17 0EX
TEL: 0208 767 0151
FAX: 020 8767 5359
Click to email us
Harrison Young is a trading style of Ashley Ross Limited, Registered in England no. 05717229 and whose registered office is at 1 Gatton Road, London SW17 0EX.and is registered as Auditors by The Association of Chartered Certified Accountants. Read our Disclaimer.