Business Information for Entrepreneurs by an Entrepreneur

Payment Costs - The Cost of Doing Business

Every small business has to think about how they are going to receive payment for the goods or services they provide their clients and customers.

If you have been in business for a while, you know that almost every payment means some kind of deduction taken off.

The cold hard truth about business today is that banks and other card issuing companies have almost killed off cash exchanges, and in the process have managed to bilk businesses out of some of their hard earned money.

Here are some of the costs that you can expect when you set up the equipment necessary for taking payments in the age of plastic.

Processing Fees

Credit and debit cards have to be processed somehow, and that means money spent by you.

You can do the transactions for a credit card manually, but this type of transaction tends to cost more.

Electronically, you can expect to bear the cost of the machine (either rented or purchased) as well as fees taken by the card and by your bank on every sale.

Middleman Fees

Internet payments can mean that your costs are mitigated somewhat, but you will still have to figure in several deductions.

Sites such as PayPal mean that both the client and the provider are credit card "customers", that is, neither are charged for the transaction itself.

But you can bet that the charges borne by the site are passed on to you, in the form of deductions from the total pay amount.

Still, it makes payments easy to obtain.

Service Fees

On top of the money charged for the machine, credit and debit companies will charge businesses monthly service fees for reporting account activity.

Just another piece out of the pie.

Be prepared to deal with some or all of these extra charges when you take payment by plastic. Unfortunately, the convenience of the card has meant that the simple days of cash are almost over, and it's the processing companies who win.

We stopped charging consulting fees for my time about 10 years ago, phasing out and selling our consulting business that built web sites and helped firms with online strategies and marketing. My current company generates revenue from product sales (well, SaaS, software as a service) and advertising so we are not dependent on consulting revenue for generating income - if we were, we certainly would be charging every billable hour. I've been asked many times by clients and others to get back into consulting, but I've declined each request.

Why we give away sound advice

If you have ever been in a meeting with me, you know that if I can contribute an idea, a technique or a strategy to help someone, I do it. I don't hold back, nor do I try to drop morsels of input sparingly in the hopes of navigating my way into a politically strategic position. I just lay it all out there, whether it is during meetings with prospective clients, people I've met at networking events, or others.

Usually, if you are pitching consulting services, you need to be a little guarded with the amount of information you give away for free; otherwise, the prospect might get all they needed and have no reason to hire you. Not charging for business advice allows my team and I to be free and open with information without the agenda of trying to land a consulting deal. Sharing information also encourages those we speak with to share their knowledge.

Granted, the time I spend on "free consulting" is limited to a few hours at a stretch. If someone requires a longer-term consultant to implement a project, I refer them to qualified people I know. Had my company opened up a consulting division, it would have taken our eyes off of our core focus: building a robust, affordable email marketing tool, mailermailer.com, and our very fun-to-run small business portal, morebusiness.com.

So, by giving away sound business advice at no charge, we are able to keep our head to the ground and work on our core offerings. It makes good business sense.

Irrevocable Letters of Credit

The advent of the Internet Age has not only meant that people have the chance to open their own business, it has opened markets for that business all over the world.

Just think; halfway across the world, there are two countries that contain a third of the human population of the Earth.

We're talking India and China, and the fact that most people in those countries can now connect to the Internet means big business potential for any company.

The Problem

The problem with conducting international business, particularly over the Internet, is ensuring that you are paid for the products or services you provide. You could make it clear to international customers that you won't be providing or shipping until payment has been made, but this might lose you potential clients.

A better way to go is an irrevocable letter of credit (also known as L/C). Here is how it works.

You have a client or customer from another country, and both of you have agreed on the terms of a sale (this can take place by phone, fax, or email). Once established and documented, the client will go to a bank in her own country to establish an L/C.

The bank then opens the L/C in the name of the customer, naming your company as the recipient. The L/C is then sent to your bank and you need to confirm that it has been received (remember to include all terms and conditions on both sides).

Your bank sends you a copy of the L/C with the letter they sent confirming its receipt.

Shipping

Review the letter and make sure you can meet the specified dates of shipment and so on. If you are shipping goods, then you need to get your freighter forwarder to prepare a statement of all goods on the shipment as well as the date they were shipped, and then take it into your bank.

The records indicate that the shipment is on the way to the bank, which will then send the documents to your customer's bank, which will review it and then pass it along to the customer.

Once the goods arrive, the customer claims them with the paperwork, and your bank then places the money into your account.

Remember that letters of credit are only one way to receive international payments. They may sound like a lot of involved work but really there aren't many more steps than with any other type of transaction.

The most important detail of this type of transaction is that it prevents messy hold ups when it comes to payments and different credit laws of different countries by sticking to bank transactions.