“Bear with me, I’m not sure why it’s taking so long…”

Do you constantly have to say this to customers as they wait for their card payment to go through? And once you accept payment, does your cash flow suffer while you’re waiting for payments to process?

Likewise, is your online store suffering because customers can’t check out? It’s even worse online, because customers will simply leave your store and try somewhere else, often without complaining.

You’re not alone. Many small business owners contend with payment processing issues and delays in getting money from credit card sales. However! The right payment processor can streamline your business, provide intuitive and secure payment portals, and optimize the customer experience.

This guide explores the functions, benefits, and disadvantages of third-party payment processors, helping you choose the right one for your business.

Third-Party Payment Processors: What You Need to Know

First: what is a third-party payment processor? It’s a company that handles payment transactions between you and your customers. Instead of your customer’s payment going directly to you, the processor acts as an intermediary to facilitate the exchange.

You might be asking, “Why do I need a go-between?” Good question! Third-party payment processors enable you to accept various forms of payment without setting up and maintaining a merchant account with a bank. It’s an accessible way to begin accepting payments online.

You could still go the traditional way — setting up a merchant account — but these accounts often come with requirements and fees. For a small business, saving on setup, monthly, and transaction fees is a significant benefit!

A third-party payment processor:

• Accepts payments from customers through various methods such as credit cards, debit cards, ACH bank transfers, mobile wallets like Apple Pay, and online platforms such as PayPal.
• Make timely deposits into your bank account after receiving funds from customers. Consolidated deposits take the hassle out of aggregating multiple payments. 
• Provides tools and services that go beyond just money transfers, including recurring and subscription billing, payment gateways, and invoicing.

Let’s look at why outsourcing the complexities of getting paid is a good idea for your small business.

Related: Payroll Guide: How to Outsource to a Payroll Service

Pros of Using a Payment Processor

Handling payments yourself comes with costs and hassles. Processors provide advantages that help lessen the burden.

Convenience

Using a payment processor makes accepting payments like plug-and-play. They have the relationships and existing infrastructure to make payments easy to manage, instead of having to establish separate merchant services accounts with all the credit card companies and banks.

You won’t need to build your own payment forms. You won’t even need to worry about data security and compliance regulations — it’s part of the service payment processors provide.

It’s also easy to set up and accept omnichannel payments. From card payments in your retail storefront to online or over the phone, you have the flexibility small business owners need.

Related: Why Outsourcing Payroll Keeps Clients' Data Safe

Cost Savings

Payment processors typically charge a flat fee per transaction, while merchant accounts may charge monthly fees and variable transaction fees. Look for a payment processor with transparent flat pricing for best results.

Outsourcing payments can also reduce labor costs. You won’t need dedicated staff for payment acceptance, accounting, IT management, or security, freeing up capital for other areas of business growth.

Increased Visibility

The top payment processors provide intuitive dashboards and reporting tools for all the transactions handled, fees deducted, deposits made, refunds issued, and any other payment activity. It’s essential for your small business to track sales and cash flow.

Cons of Using a Payment Processor

While there are various benefits to trusting a third-party processor to handle transactions, you also need to be aware of the drawbacks.

• Some processors charge higher per-transaction fees, especially for card-not-present transactions. This can cut into profit margins.
• Processors may freeze accounts if their fraud detection systems flag suspicious activity, causing disruption to your service.
• With high client columns, personalized support isn’t always available. This poor support can be frustrating for small business owners.
• If your processor can’t scale with you as your business grows, switching providers can be disruptive.

You can overcome many of these drawbacks with thorough research and by putting contingencies in place should you have any issues with your processor.

Choosing the Right Payment Processor

There are various third-party processors to choose from, including major players like PayPal, Stripe, and Square. Assess your specific requirements to narrow down your options and find a match.

Your business needs: If you have high sales transaction volumes, for example, you might seek out pricing models that offer interchange-plus rates. Per-transaction fees are charged along with a small percentage of the total transaction. Or, if your business tends to have larger ticket item sizes, consider a processor that offers lower percentage-based fees. The percentage will be applied against higher amounts, so a lower rate will reduce costs.

Payment methods: If you sell largely in person, you need to ensure the processor integrates with your point of sale (POS) system and other equipment. On the other hand, e-commerce businesses will need to assess online payment gateways.

Security and reputation: Any processor you choose should comply with relevant security standards, such as PCI DD (the Payment Card Industry Data Security Standard). Remember, they deal with your customers’ personal and financial information, so you want to make sure they thoroughly protect it.

Tools and future needs: Finally, think about the tools you need and those you can do without. Beyond payment processing, would you benefit from recurring billing for subscriptions, robust reporting, and invoicing? As you grow, can your processor scale with you?

Carefully analyze your needs and potential providers, so you can find the best fit for your business.

A Quick Overview of the Top Payment Processors for Small Businesses

To help you choose a third-party payment processor for your business, here are three that deserve a look.

Stripe: Specifically tailored for internet businesses and e-commerce. With simple and transparent pricing, developer-friendly APIs, and robust tools for accepting online payments, Stripe is a solid choice. Stripe charges a flat per-transaction fee plus a low percentage, with no hidden fees. It supports numerous payment methods as well.

Paypal: As one of the longest-standing online payment companies, PayPal is a well-known brand with an extensive global reach. PayPal facilitates payments between consumers and businesses with consumer PayPal accounts. Additionally, PayPal offers a customizable checkout solution for accepting payments directly on websites. Small e-commerce businesses can benefit from PayPal's competitive fees and strong brand recognition.

Square: Square is a leader in integrated hardware and software solutions for in-person point-of-sale payments. Its products include POS terminals, debit/credit card readers, inventory management, invoicing, and more. Square provides a seamless payment experience for retail, restaurant, and service businesses. It also offers e-commerce and invoice payment capabilities. Square offers small businesses affordable, transparent pricing.

Third-Party Payment Processors: Part of Your Small Business Toolkit

As a small business owner, finding ways to streamline complex processes makes your life easier. The world of payments and processors can be tricky to navigate — yet getting paid quickly and efficiently is essential.

The right payment partner provides relief by removing the burdens of accepting transactions, transferring funds, staying compliant, and managing the array of financial operations. Get back to growing your business!

By using third-party software to record transactions, the data is clean and easy to review. You can use accounting software to review this data or work with a payroll provider like ConnectPay to build this data into your dashboard and make sound decisions with a full scope of information.