Running an independent photography business isn’t just about producing great work; it requires establishing payment processes and systems that allow you to professionally serve your customers while managing your financial success. Here’s a guide to formalizing your photography payments and an explanation of why it’s so important.
Simplify your business accounting
When you own a business you’re required to pay estimated quarterly taxes on the income you make (in addition to annual tax filing), but you can also deduct many business-related costs for things like studio space, supplies and equipment, and some business-related mileage, meals and travel expenses. That said, manually keeping track of such costs can prove cumbersome. With a formalized payment system you can easily and automatically track what you sell and to whom, when you receive payment, and the costs you incur for each project. If you use some type of bookkeeping or online accounting software, many payment processors integrate with other popular systems to reduce the amount of manual information you must input and help to catch and eliminate accounting errors.
Limit your liability
In just a few minutes, you can apply for and secure a federal Employer Identification Number (EIN) that’s associated with your business, and with it, open a business checking account. Although there are many banks and credit unions that offer products designed to support the needs of a small business, try to establish a banking relationship with a financial institution that charges few or no fees for things like ATMs and online banking use, and doesn’t require that you carry a minimum balance in your account. As you shop various financial institutions, inquire whether they issue major credit cards to small business owners (not all do).
The Small Business Administration (SBA) estimates that more than 65% of all small businesses use credit cards on a regular basis, but less than 50% of them are in the businesses’ name. Not only does using a personal credit card for business expenses mean missing the opportunity to build business credit history (which most traditional lenders require you to have in order to secure additional loans or lines of credit), you could sacrifice your personal credit history in the process. When you exceed your ideal debt utilization ratio, for example, which typically occurs when you carry a balance that is more than 30 percent of your available credit, you could actually lose access to the lowest rates available for the credit and mortgage products you need for personal use. Keeping your business finances separate from your personal accounts also helps you determine the amount you are able to contribute to a self-employed retirement account, and provides an accurate depiction of business income to show your accountant, financial advisor, vendors and the IRS, in the event you are audited.
Give customers a seamless and secure purchase option
When you give customers the option to pay for your product or service by their preferred means, you can expand your potential customer base — physically and virtually. In fact, about 90 percent of all transactions carried out online are paid for using credit cards. Though most website providers and even blogs make it simple to include a shopping cart icon on your website, that doesn’t mean you’re equipped to accept and process customer payments in a way that is secure, or PCI compliant.
As you research payment processing options, make sure you understand whether the processor functions as a payment gateway, which securely authorizes and processes payments for e-commerce websites in tandem with the online shopping cart, or requires that you complete the integration between the two systems, which typically requires copying and pasting a bit of provided HTML code into your website. Many payment processors provide technical support to help customers complete this process.
Though the payment processor you choose will have specific instructions and criteria to establish a merchant account, most require you to provide basic information, including your business name, contact information associated with the business, your address and phone number, your EIN number and your business’ bank account. In some cases, you may need to wait a few business days for the payment processor to investigate your business and ensure that it is a legitimate operation.
Once you are “approved” as a merchant by the payment processor, you’ll likely need to verify that the bank account information you’ve provided is accurate, by completing a couple of test transfers, before you can receive payment for credit card sales you make.
Select tools that can grow your business
In addition to equipping you to formalize payments, many payment processors offer small business tools that can enhance and simplify operations. As you research the products and service plans of various payment processors, consider the additional tools that may be available, including a point of sale system that can help you execute cost-efficient and highly targeted marketing strategies based on a customer’s past purchases and customer loyalty programs.
As you evaluate the options, think about how different means of accepting formal payments can make it possible to sell to audiences you don’t currently reach. If you sell work or offer your services at events like festivals, trade shows or concerts, use a payment processor that offers the ability to accept mobile payments by plugging a small “dongle” device (often provided by the payment processor free of charge) into the jack of your smartphone or tablet. With it, you can swipe and process customer credit card purchases anywhere — without requiring that you even have a printer. Many processors also allow merchants to download the mobile payment processor functionality by way of an app, so that you and multiple staffers can quickly and efficiently process customer payments, eliminating wait times. Assuming the customer’s credit card information is verified at the time of sale, he or she can “sign” by writing a signature on your smartphone screen. To complete the purchase, you can text or email a copy of the receipt of the customer.
Minimize your costs
Because different types of payment processors are intended to suit different types of businesses, research the options appropriate for a business of your size based on the number of transactions you expect to make in a month, the average value of the transactions, and where you expect to make a large portion of the transactions (either in person or online), as this can significantly impact the best choice of what you pay to use the service. As you compare various payment processors, make sure you understand the fee structures associated with their services, including the difference between the advertised rate and actual rate you’ll pay for credit card transactions.
How much you pay for credit card payments
Because payment processors absorb risk, they base their rates accordingly. The actual rate you’ll pay varies by processor, and can range significantly, from about 0.95 percent to as much as 5.5 percent of a transaction. Additionally, some payment processors will charge more or less based on if the transaction is “keyed” versus swiped, or based on bundled pricing. Additionally, the amount of risk a transaction presents determines the fees involved. Typically, face-to-face transactions, with the customer presenting their card to the merchant at a point of sale (called a “qualified transaction”) present the lowest amount of risk; fees for such transactions are typically low as well. On the contrary, when customers use a credit card that offers a rewards program, the risk of fraud increases (because some customers try to “game” the rewards program to earn cash back or rewards credit), and the subsequent fees you’ll pay are higher. Because there is no “live” human being involved to determine the validity of online transactions, those generally present the highest risk and carry the highest fees for merchants.
What are chargebacks?
In addition to fees, both you and the payment processor carry the risk of chargeback, which occurs when a customer disputes a transaction on their credit card statement and the creditor determines they are owed a refund. When this occurs, the funds in question are debited from your account and may include an additional fee. Formalizing your processes is one of the most effective ways to minimize chargebacks. Provide customers with easy-to-understand written information about your service, exchange and return policies at the point of sale, and ensure the customer’s online checkout experience includes details about shopping cart contents and price, taxes, fees and shipping costs. When you establish your merchant account with the payment processor, ensure that your business name is reflected on customer receipts and credit card statements in a manner the customer will recognize as a valid transaction.
In addition to fees, consider the service levels a payment processor offers, including the ability to reach the company’s customer service department during the hours you serve customers, and the level of technical support that is available.
Get paid faster
Formalizing your payment system and policies can ensure your work is not performed in vain. In addition to making your policies clear (regarding when payment is due) at your initial meeting with a client, author Erika Napoletano suggests that accepting mobile credit card payments can equip you to require that clients pay a deposit on the spot (often, for at least half of the total price) before work commences. Additionally, she points out that formalizing payment processes can help you to “enforce” deadlines to keep a project moving, such as when a customer must provide final image selection. At the time your client formally secures your services, you should also provide them with your policies in writing, including the fact that you can refuse to hand over final images and/or materials associated with the job until the final invoice is paid in full. Have clients initial that they understand and agree to your terms. Keep copies of all such signed records so that you have documentation if the policy must be enforced.
How to invoice clients
When you do send invoices to clients, email a PDF of the invoice instead of placing it in the mail, and send it with an email tracking software so you can see that the client received and opened the email (they won’t know it’s been sent with the “track”). On your invoice, clearly state that the amount reflected is due in full upon receipt, along with an overt due date. Include your website on the invoice instructing that a client can pay their bill with a credit card from your website if they choose, or can call you to process the payment by phone. As soon as a client invoice is one day overdue, send an email with a friendly reminder. If that fails to produce payment, follow up with a phone call within 48 hours. If a client refuses to pay after you’ve attempted to collect several times, formalized payment records can also support your case in small claims court, which is appropriate for claims of up to about $7,500, and typically, doesn’t require hiring a lawyer.
Wait periods
In addition to getting clients to pay in a timely manner, research when the payment processors you are evaluating pay their merchants, and how. Though it’s typical for a payment processor to deposit funds from credit card payments directly into your business account (less fees) within two to five business days, some require that you initiate a request transaction to receive the funds. Others may require that you wait longer to receive payments in the first few months that you begin using the service, until a “trial period” ends. If you tend to keep a low balance in your business checking accounts, or know that some vendors take considerable time to pay, make certain that the payment processor you select offers a timeline that supports your cash flow needs.
Formalizing payments when you own a photography business requires some effort on your part initially, but transitioning your business to function with such financial structure will simplify the amount of time, energy and risk you’ll incur in building and maintaining your business operations.
Photo Credit: LD Productions