Mastering e-commerce finance: best practices in payment processing and accounting
As your e-commerce operation grows, your finances will get more complicated - it's simply a fact of life. In this brief guide, we'll highlight some of the best practices when it comes to e-commerce accounting and payment processing and give you a heads-up about some of the compliance and data protection laws you'll need to keep on top of.
Filip Nikoloski is a partnerships specialist at Printify. With a passion for e-commerce and print-on-demand, he has crafted numerous articles throughout the years. With a keen eye for detail and a commitment to excellence, Filip’s writing captivates and resonates with audiences worldwide.
Understanding e-commerce finance
Ask any business owner to list their least favorite or most stressful task, and most will place “accounting” pretty high up on the list. Press them to name another aspect of their business that they find frustrating or complicated, and you’ll likely hear “payment processing” time and again. Whether it’s a local business owner taking their shop online, a budding podcast influencer offering Spotify merch, or a serial entrepreneur selling custom shoes on eBay, it seems that understanding the ins and outs of e-commerce finance can be pretty stressful. From handling returns and dealing with supplier payments to understanding banking and card fees — you’ll need to be familiar with the details of how money moves so that you can not only reduce administration costs but also keep the tax authorities happy.
Before we take a look at the specifics of e-commerce finance, it’s probably a good idea to start with a couple of definitions:
- E-commerce accounting —just like in a traditional brick-and-mortar business— involves the tracking of revenue, expenses, and other financial transactions related to your online sales.
- Payment processing, on the other hand, is a broad term covering everything to do with the customer’s payment journey. Payment processing is usually taken to include all of the different functions, systems, and security checks undertaken by various parties from the moment a customer begins paying for the items in their online shopping cart.
“Understanding the ins and outs of e-commerce finance can be pretty stressful. But here’s the thing: as your e-commerce operation grows, your finances will get more complicated – it’s simply a fact of life.”
Best practices in payment processing
When it comes to payment processing and picking the right provider, there are dozens of options to choose from. Each will have definite advantages and disadvantages depending on what your e-commerce business sells, the type of functionality you require, and where the majority of your customers are located.
With that being said, you should only consider a provider who can help you stick to these basic best practices:
Offer multiple payment options
Whether you’re selling digital goods and services or using print-on-demand companies to create physical products, there’s a good chance your customers are spread across multiple countries or regions. For that reason, always choose a payment processor that allows you to offer multiple ways for your customers to pay when they reach your checkout.
- Credit and debit cards are an obvious must-have but don’t forget that digital wallets and the likes of Apple Pay are now hugely popular.
- In addition, keep in mind that residents of different countries like to pay in different ways. For example, in the UK, credit and debit cards are the most popular payment methods, whereas in Germany, PayPal is much more prevalent.
Ensure your checkout is secure
Your payment processor of choice should take security seriously. Do your research and find out whether they offer SSL encryption, and pay special attention to their policy on complying with PCI DSS standards.
Finally, in a world where online scams and identity theft are rife, pay particular attention to the fraud-prevention technologies employed by payment processors. Of particular interest should be how they handle chargebacks, or so-called “friendly fraud”. Chargeback fraud describes when a shopper makes an online purchase with their credit card and then requests a refund (chargeback) from the issuing bank despite receiving their purchased goods or services.
Provide a streamlined checkout process
The Baymard Institute recently compiled a list of statistics about the reasons shoppers put items in their digital carts but fail to checkout. Overall, the research estimated that over 70% of potential checkouts were abandoned. That’s a staggering figure, so anything you can do to increase conversion is absolutely worth the effort.
And how can you achieve better conversion? Here are a few tips:
- Make sure your checkout pages scale well on mobile devices, laptops, and tablets.
- Reduce unnecessary inputs and use tools like biometrics to allow customers to check out in a few clicks.
- Display trust signals such as positive reviews or badges from recognized payment providers.
Best practices in e-commerce accounting
Due to the global nature of e-commerce and the various nuts and bolts of payment processing, shipping, and inventory management, accounting for an online business can quickly get complicated. Here are a few best practices to keep in mind:
Use accounting software
Invest in a cloud accounting solution specifically designed for digital-first or e-commerce businesses. A decent accounting platform will enable you to streamline your financial processes and even let you automate repetitive tasks like invoicing and inventory management. Finally, many online accounting solutions also offer analytics to give you valuable insights into your business’s financial health.
Maintain accurate records
Sure, it’s tedious and time-consuming (unless you have the right tools). But keeping detailed records of all financial transactions, including sales, expenses, refunds, and taxes not only gives you a better idea of cash flow and other important metrics but also ensures you comply with tax regulations.
Reconcile regularly
While there’s no specific requirement for most e-commerce businesses to regularly reconcile their transactions with bank statements, it does help to identify discrepancies and ensure accuracy in the financial records of the business.
Track key performance indicators (KPIs)
Keeping a keen eye on important financial metrics such as gross profit margin, average order value, and customer acquisition cost can help you gauge the overall performance of your e-commerce business and identify areas that could potentially be streamlined and improved.
Integrate payment processing with accounting systems
Integrating your payment processing systems with your accounting software can streamline financial management and improve efficiency. Many accounting platforms offer integrations with popular payment gateways via an API (application programming interface) or a simple plugin, allowing you to automatically sync transaction data and reconcile payments with your financial records without switching between various platforms and software.
As you can imagine, integrations of this nature can reduce payment delays, increase cash flow and profitability, reduce the risk of fraud, and protect sensitive business and customer data and information.
“Integrations of this nature can reduce payment delays, increase cash flow and profitability, and reduce the risk of fraud.”
Legal and compliance considerations
“Compliance” doesn’t exactly sound exciting, but for e-commerce businesses, it’s a necessity when selling across international borders or jurisdictions. Taxation, local laws, and data privacy must all be properly addressed. Not doing so can put your entire e-commerce operation at risk.
This is a complex topic, but as a brief primer, here are a few things that are vital to consider:
PCI DSS compliance
Payment Card Industry (PCI) Data Security Standards (DSS) ensure that all sales involving credit cards are done with a focus on the security of a customer’s data. This is something that you should take extremely seriously and is an especially important thing to quiz your payment processor about.
GDPR and other privacy laws
The European Union General Data Protection Regulation (GDPR) regulates data processing and private information in EU member states. Even if you aren’t based in the EU, you’ll still need to be compliant with GDPR if you do business there. In addition, U.S. states such as California have recently begun passing similar privacy acts that share similarities with GDPR.
Sales taxes and VAT
Within the United States, for example, sales taxes differ from state to state and must be included in the final price. If you sell internationally, taxes such as VAT can be extremely challenging to navigate, especially when distance selling between the EU, the United Kingdom, or the United States.
In conclusion
Effective, streamlined e-commerce payment processing and accounting isn’t something that’s nice to have. It’s an absolute necessity for doing business efficiently, credibly, and, perhaps most importantly, profitably.
By implementing some of the best practices we’ve touched upon here, e-commerce business owners can reduce costs, enhance security, and even boost checkout conversion. Surely those are good enough reasons to take accounting and payment processing seriously in today’s hyper-competitive consumer landscape.
*The purpose of this page is solely to provide information and should not be considered as financial advice.
**Melio does not provide legal, tax or accounting advice; you should consult a professional advisor before making any financial decisions.
