How to accept online payments for you small business using Xero

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February 14, 2024

Customers that are offered convenient online payment methods pay invoices on average, two to three weeks earlier than usual. Here's how small businesses can cash in on the trend.

Popular online payment methods

If you’ve bought something online, then you’ve probably used an online payment method. The most common are credit cards, debit cards, automated clearing houses (ACH) like PayPal, and direct debit. These methods are generally instant and allow the customer to pay without visiting their banking website. In the case of direct debit, the customer can authorize ongoing payments. This allows you to take money directly from their bank account whenever a bill is due. Note that direct debits are not always available for all countries.

Benefits of online payment

One in five businesses that use Xero to send invoices offers an online payment service. They get paid 50% faster which works out to be about 20 days sooner. In some cases, they get paid instantly. Customers love online payment too because it’s quick and easy. Plus they have the option to pay by credit card, which gives them extra financial flexibility.

How does online payment work?

Businesses can accept online payments through a merchant service provider. There are many respected providers out there, and they shouldn’t charge you anything to get set up (although there will be transaction fees). Choose a merchant service provider that can integrate with Xero such as Square or Paypal. Once the service is switched on, a “pay now” button will appear on your invoices. When you email the invoice to a customer, they can click the button to pay you instantly.

What is a merchant service?

Merchant service providers are specialist companies that handle online payments for you. Generally speaking, some of them focus on debit and credit card processing, others focus on ACH processing, and a third category looks after direct debit. It’s unlikely you’d need to offer all of these payment options. You’ll need online invoicing software to make it work. Just find the section for add-on apps and pick your preferred provider. There’s generally a wizard to guide installation. Or if you have a tech-savvy accountant or bookkeeper, ask them to do it.

What are merchant service fees?

While it should cost you nothing to set up a merchant service provider and accept online payment, there will be transaction fees. For debit and credit cards, the fee works out to between 2% and 4% of the invoice value. For direct debit, the fee will depend on the size of the transaction but should never get any higher than about $2.Just because you know how to accept payments online, doesn't mean you have to do it every time. You can switch it on and off. To help keep costs down, businesses tend not to offer online payment on invoices of more than $5,000.

How do I account for the transaction fee?

When doing your business accounts, you’ll need to treat the transaction fee as an expense. You’ll want to match it with the payment so you can correctly calculate your profit on the order. Smart accounting software can do that for you, automatically.

Will everyone pay faster?

Not all customers will pay faster when you offer these “pay now” options. But other customers could pay you straight away. That’s the thing about using online payment services. You should find that you get paid faster overall, which is great. And you may just transform a consistently late payer into an always on-time payer. It’s all about making it easy for them.

Jump in and learn how to accept payments online

If you use Xero to send invoices, it’s easy to offer convenient payment options. It’s a bonus for your customers, and it will get you paid faster. That could be handy if, like many small businesses, you experience cash flow issues due to late payment. If you would like to know more about Xero or would like to take up our discounted implementation offer, submit your contact details here and one of our consultants will be in touch.


This article is an extract from the Xero website and is written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of its contents.

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