Your Guide to Mobile Payments for Small Business

small business owner accepting a mobile payment

Over the last ten years, person-to-person and mobile payments have become part of our everyday lives. What started as a technology made for individuals has quickly become a tool for entrepreneurs growing a business. Mobile payments for small business can have lower fees than traditional bank transactions and can be done with easy-to-use technology.

Today, your customers are more comfortable using mobile payment tools for their purchases. These tools are making it easier to do business and lifting the economy. Even small businesses are making their own payments to vendors and suppliers through mobile payments apps.

From a financial management perspective, here are a few key things to remember about accepting mobile payments for small business so that you can keep good records and understand your business’s performance.

Bookkeeping software and mobile payments

Mobile payments for small business are convenient to use at the time of the transaction, but they present some challenges when it comes to tracking them in your business’s finances. Why is this important? Because you’ll want to know what expenses your business is spending money on, and you still need to prove the credibility of a transaction in case of an audit.

At a minimum, the information you need for any business transaction is:

  • the date
  • the amount of money
  • the account it’s being paid from
  • the payee or recipient
  • the categorization of that cost in your bookkeeping system
  • a brief description.

Tools like Venmo are easy to use, but they allow users to use aliases or abbreviated names. They’re also famous for allowing casual transaction descriptions including slang and emojis.

These features are convenient and user-friendly, but they can make bookkeeping difficult, especially if your business has fallen behind on recording its transactions. For example, a transaction from a payee named “Chris” with the description “Thanks” from a year ago is almost impossible to recognize today.

As a business owner, you have two options to make sure you’re getting the data you need:

  1. Quickly record accurate details in your bookkeeping system. If you record the information as close as possible to the date that a mobile payment was made, then you’ll have accurate and updated information. This is a good habit to start and will ensure that you can recall the intention of the transaction and all the details.
  2. Ask for more accurate transaction details from your customers. This will require you to check that the customer’s or recipient’s ID is close to their real name and that the description is relevant to what is being purchased. If the person is using an alias, it’s helpful to include their full name in the description itself. If you use a bookkeeping system that fetches transactions, you can also quickly write an additional memo for these transactions before categorizing them later.

How to categorize mobile payment balances

The balance that you carry in your mobile payment app is an asset. It’s just like cash in your bank account, the value of your fixed assets, or the cost of your inventory.

It can be easy to forget this and treat the deposits you make from your mobile balance to your bank account as sales, and vice versa as expenses. The important thing to remember about your mobile payment balance is it is just like any asset account your business has:

Sales: Money that comes into your mobile app balance from third parties is most likely sales revenue.

Expenses: Money that comes out of your mobile app balance to third parties is most likely for an expense.

Transfers: Money that you take out of your mobile app balance and deposit into your bank account, or vice versa, is a transfer. This means that the value of one asset decreases and the value of another increases. But the transaction is not a revenue or expense.

Borrowings: Money that you transfer from your credit card to your mobile app balance is borrowing. The money you pay from the credit card to your mobile balance is not an expense; instead, the credit card balance goes up and the mobile app balance goes up.

Tracking mobile payment sales

Many customers love the ability to pay you through their mobile payment app. But as a business owner, how do you integrate your mobile payment transaction data into your bookkeeping system? If it’s done incorrectly, you can wind up significantly underreporting your income.

The money you make through mobile payment apps is just as valuable as cash and card transactions. It’s important to effectively track your mobile payment data. Here are two ways to do that:

Using integrations: An integration is software that allows your mobile payment app to record transactions in your bookkeeping system.

Some mobile app providers’ integrations use the same simple and straightforward method that you used to connect your bank accounts to your bookkeeping system: they just gather transactions and queue them for you to review. Others have more advanced features that allow automated sales categorization and matching to direct costs.

Downloading CSV files: You can also download mobile payment app transactions on a regular basis (bi-weekly or monthly) and upload them into your bookkeeping system. This is more tedious as it requires some data “cleansing” to make the transactions match the information needed in your bookkeeping system. It also means that your books will not be as current as those that get these transactions on an automated, daily basis.

Keeping customer information safe

It’s important to remember that mobile payment apps have been vulnerable to data compromise and cyberattacks. If your customers’ information is sensitive, then you need to have a plan to protect it.

Set up a customer service process that guides customers in making their payments. Make sure that their transactions are only descriptive enough to meet your business accounting needs. If your business keeps more sensitive customer information, then it’s better to use other payment platforms that have better safeguards and don’t monetize customer data.

Do your research to determine if mobile payments are the right fit for your business

Mobile payment apps are gaining momentum and will likely become more common over the next several years. Many industries that were cash-only in the past are converting to mobile payments and entrepreneurs are taking note. If you’re considering using mobile payment apps for your business, take time to seriously consider how you’ll accurately track financial information that comes through the apps.

If you need more guidance, Pursuit can help. We can connect you with resources and advice to make the best decision for your business. And if you need funding to make your vision happen, we offer more than 15 different loan programs for nearly any need. Get in touch with us today.

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