Why Your Books May Look Different After Switching Payment Processors
A business owner doesn’t consider switching payment processors just to save on processing fees.
The way you collect payments may change as your business grows. Different payment processing companies offer different services. Reasons a company may need to change include needing a stronger point-of-sale system, invoicing capabilities, ACH payment features, recurring billing, and scheduling. Your original payment processor worked when you started, but you may need different solutions as your business grows.
When you change a payment processor, the way transactions flow into your books can change too.
The Amount Deposited May Not Show The True Picture
Understanding the difference between your gross payment and your net deposit is important.
For example, your customer pays a $1,000 invoice, and your payment processor charges a $30 fee. Your business still earned $1,000 in revenue. But if the processor deducts the fee before sending the money to your bank, only $970 will appear in your bank account.
For bookkeeping purposes, those numbers should be separated:
- Income: $1,000
- Expense: $30
- Assets: $970
If you record the $970 deposit as income, you will understate both your income and your expenses.
Payment Processors May Handle Fees Differently
Your previous processor may have deducted a fee from every transaction before depositing the money.
Your new provider may collect fees separately.
Another processor might combine several customer payments into one deposit and remove the total processing fees from that batch.
Some providers charge processing fees immediately, while others withdraw accumulated fees at the end of a day, week, or month.
None of these methods are necessarily good or bad from a bookkeeping standpoint. The important part is understanding how your processor handles the money so your bookkeeping system reflects what is actually happening.
Bank Deposits May Not Match Individual Payments
You may have received a deposit that closely matched each customer payment with your old provider. After switching payment providers, several transactions may be grouped into a single deposit.
The amount deposited to your bank account is a lump sum. You’ll need to figure out which invoices, fees, refunds, or adjustments make up that number. That is why relying only on the amount that appears in your bank deposit can create problems.
Processor reports and transaction details can help connect the dots between what the customer paid and what eventually reached your bank account.
Your Existing Automations May Need to Be Updated
Integrations between your processor, accounting software, invoicing system, or bank account may be affected when switching payment processors.
An automation that worked perfectly with your old payment processor may need adjustment for the new provider.
Verify that your automation is accounting for income and fees correctly.
Also, review your bookkeeping workflow when switching payment providers, rather than simply connecting the new account to your automation.
Don’t Close the Old Payment Processor Prematurely
When switching payment processors, it can be tempting to disconnect the old system as soon as customers begin using the new one. There may still be activity associated with the previous account.
Before completely closing it out, look for:
- Pending deposits
- Outstanding transactions
- Final processing fees
- Customer refunds
- Chargebacks
- Remaining processor balances
It is also a good idea to download any statements or transaction reports you may need for your records.
Otherwise, an old processor can leave behind small balances or unresolved transactions that become much harder to understand several months later.
A Payment Processor Change Is Also A Bookkeeping Change
Switching payment processors is more than changing the way your customers pay you. It can also change how revenue, processing fees, deposits, refunds, and other transactions flow through your books.
Before making the switch, talk with your bookkeeper about how the new provider handles payments and fees. Make sure any accounting integrations or automations are set up correctly, and reconcile the old processor before closing it.
If you are struggling with a new payment processor, SAP Virtual Resources can help you clean up the books. Contact Sarah at SAP Virtual Resources.