The hidden cost of online payment transactions

Cannot live without it, but cannot deal with it as the volume of transactions and success of the business overwhelms your bookkeeping and accounting systems.

It is great when the sales online are working, having all those online payments hit the account.

Have you ever stopped and wondered what the true cost of those transactions are in time, fees and administration?

There are several online payment providers that have done a great job of helping to provide access to world markets, a broad range of buyers and sellers, good security and easy money with no need to trace bad debts, plus a guarantee on quality, as well as delivery.

What is the true cost of these transactions?  We quite often know what the cost of a bank transaction is and what the fees are, this is what puts us off using their facilities, in totality.

On the face of it online transactions look cheap, but dig a little deeper and think about the following:

1. A minimum additional fee per sale which is typically 30 cents per transaction plus the normal transaction fee of around 2.6%.
2. The typical 30-cent fee is charged irrespective of the transaction size.
3. The short payment – fees taken out of the sales transaction so your business does not receive the full sale value.

The short payment is not transparent at first, but when the sales start rolling in it becomes apparent there is a problem when you start receipting sales into your financial system.

Fortunately, most modern financial systems for small business like Xero, MYOB and QuickBooks can split the sales transaction and add the underlying fees for online payment transactions.

When you make $100 sale through a bank you receive $100 and the bank later charges your business bank fees and charges at the agreed rates. Easy right.

With online payment transactions, your business receives somewhere shy of $100 like $97.10, which leaves a problem if receipted into the books like this since the debtor will not clear and the sale receipt will be short by $2.90.

There is a way around this problem by spliting the sale receipt for the sale into $100 for the sale to clear the sale receipt and the debtor by adding a line item for costs against the sale of $2.90 and allocate this cost to fees and charges.

Problem is this is time consuming and takes allot of administration, so your $100 sale now is costing you in hidden fees and charges depending on how much you are paying your administration staff or bookkeepers anywhere between 40 cents and up to $2 per transaction in additional processing and reconciliation time.

Online payment providers have created great business models and minimised the administration costs to their business and got major consumer buy in.

If your business needs help to receipt online sales and clear debtor payments please contact us at TaxAssist Accountants. We can organise assistance for you to put a process in place going forward and fix your current short payment issue in your books.

Date published 1 Aug 2017

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.