Shopify Payment Processing – The Ultimate Guide

payment processor shopify

Do you have an online business? If so, it’s important to be aware of all the Shopify payment processing options you have. Payment processing companies handle the payments made for goods or services by your customer, and deposit the money into your bank account. 

Payment processing is also important for bookkeeping purposes as well as for tax preparation. To maintain accurate books, you must correctly record and track the net amount of money received and account for the fees assessed. 

If you do not accurately record these fees, you might overpay in taxes as you have overstated your business income. In addition, this can also help you manage your cash flow and maximize your investments to make sure you’re getting the best negotiated rates with your payment merchants.

If you’re not sure how to handle your Shopify payment processing, or if you’re using more than one payment processing service for your online business, don’t worry! In this blog post, we’ll discuss how to keep track of all the payment processors you’re using, as well as the benefits of each.

What are payment processors?

Before we jump into how to keep track of all the payment processing companies used in your Shopify business, let’s first define what they are.

Payment processors are third-party companies that provide online businesses with the ability to accept payments from customers. 

These payment processing vendors manage the complex infrastructure and security necessary to process these payments, which include credit and debit card transactions, as well as digital payments like Apple Pay, Google Pay, and PayPal.

Some popular payment processors used by Shopify businesses include Stripe, Square, and shopPay. While these companies all offer similar services, they each have their unique features and benefits that may make them a better fit for your business.

Since Shopify is booming with entrepreneurs, there has been an increase in demand for quality payment processing services. In turn, this has led to a competitive market with new players emerging at an unprecedented rate vying for Shopify business.

how do payment processors work

How do payment processors work?

When a customer goes to purchase an item at your Shopify store, they’ll be redirected to the payment processing vendor’s site to complete the transaction. 

In exchange for processing the payment, the processing service will take a small fee for facilitating the payment on your behalf. The balance of the funds will be deposited directly into your bank account that you have linked with your payment processor.

It’s important to note that you, the Shopify Business Owner, will need to set up a merchant account with the payment processing service and link your business bank account before you can start using their service. 

The (3) main parts of an e-commerce chain for payments that a Shopify store owner should have clarity on are: Merchant Account, Payment Gateway and Payment Processor. 

Merchant account is a holding account where those payments first land before being deposited into your regular bank account.

A payment gateway is a place on a Shopify store owner’s website where customers securely enter credit card information. The payment gateway facilitates online transactions and allows you to process them

A payment processor also known as a payment service provider, transmits card data from a merchant’s point-of-sale system to card networks and banks involved in the transaction. Another key factor about payment processing is that some of the payment processing vendors double up and play the role of a payment gateway. This further adds efficiency to this complex process.

Another way to look at a payment processing servicer, is to view them as a middleman that connects your bank account to the customer’s credit or debit card so that money can be exchanged electronically. 

The diagram below further illustrates the interplay of the elements in an e-commerce chain.

Payment Processsing - Blog Image

Can you use multiple payment processors for your Shopify business?

The answer is, yes. As a Shopify business owner you have over one hundred payment processing vendors to choose from, including shopPay, Google Pay, Apple Pay, Klarna, etc. Many Shopify businesses use multiple payment processing vendors to give their customers more options when it comes to paying for their purchases.

Shopify Payments wheel

For example, you might use Stripe for credit and debit card transactions and PayPal for digital payments. Or, you could use Square for in-person sales at your brick and mortar store.

The important thing to remember is that each payment service provider will charge you a different fee for their services. So, you’ll need to do some research to figure out which company offers the best rates for your business. 

A point to keep in mind: Payment processors usually take a small fee, called a discount fee for each transaction that goes through their system, which may include a percentage of the sales price of an item and a small flat fee. 

For example, Google Pay charges a 1.5% fee (a minimum of 31 cents) for all debit card transfers (into or out of the Google Pay balance). Stripe charges 2.9% + 30¢ per successful card charge +0.5% for manually.

bank fees

Important points to keep in mind

When you have a payment processor integrated with your Shopify store and your business bank account, is that that the amount deposited from each sale will be a net amount after their fees have been deducted. Therefore, the payment processor fees need to be properly recorded and the true sale amount (before the deduction of fees) have to have separately recorded so that sales tax can be accurately calculated and remitted. 

As it can become quite confusing and time-consuming to keep track of all the different payment systems used in your Shopify business, it is vital that you have good and accurate bookkeeping process set-up such as using QuickBooks Online. 

At Financial Solutions, Inc., we use QuickBooks Online and as a QuickBooks Online Pro Advisor, we are able to obtain wholesale pricing at a reduced rate and can in turn pass along those savings to our clients. 

It is important to develop an effective system for tracking your payment processing vendors, and with the assistance of a knowledgeable e-commerce bookkeeper that has an expertise in the many nuances of Shopify, you’ll be able to run your Shopify business smoothly and efficiently.

What payment processors does Shopify use?

There are over one hundred payment processing sytems that work with Shopify, but it’s always a good idea to do your research and find some give the maximum options to your customers.

Here are some of the key things you should keep in mind before you choose a payment processor for your Shopify business:

1. Customer experience

The most important thing to consider when choosing a payment processor is the customer experience. 

After all, you want your customers to have a positive experience when they make a purchase at your Shopify store. Make sure to choose a payment processing service that’s easy to use, secure, and has a smooth checkout process.

2. Geographical limitations

If you are running an international Shopify business, then you’ll need to find a payment processing vendors that can handle transactions in multiple currencies. 

Not all processors can do this, so it’s important to assess your Shopify business needs before you sign up. PayPal for example, is a great choice for an international Shopify business because they accept payment in the form of multiple currencies and is a trusted payment vendor with customers worldwide. 

3. Fees

In the case of inventory flow, FIFO is a more practical technique. Normally, the first goods are sold off first to limit wastage and obsolescence. Many businesses adopt this inventory valuation method for this purpose.

However, oil-producing companies, for example, may find LIFO more suitable since they distribute more recent products for sale first.

So, if a business seeks an inventory valuation model that offers tax advantage, the former will be the best fit.

4. Credit and debit card options

Credit and debit cards are vastly used payment methods when it comes to online purchases. Therefore, you’ll need to make sure that the payment vendor you choose can accept all of the  types of credit cards, such as VISA, Mastercard, Discover, American Express, etc. as a form of payment.

5. Alternate payment methods

In addition to credit and debit cards, there are other popular payment methods that your customers might want to use, such as PayPal, Apple Pay, or Google Pay. Make sure that the servicer you choose can accept these types of payments as well.

Top payment processors, you can use for your Shopify business:

These are some of the most popular payment processors that work with Shopify. Each one has its own set of features and fees, so make sure to do your research before you decide which one is the best fit for your business.

track shopify payments

How do I track the payment processors for my Shopify business?

So now that we know one or two things about payment processing vendors, let’s move on and see how we can track them.

It’s somewhat similar to an inventory control system, where you track the number of products in your store and make sure that you have enough stock to meet customer demand.

Similarly, you need to track your payment processors and make sure that you’re using the right ones for your business.

1. Open your Shopify account

Use your login credentials to open your Shopify account. Simply put your username and password in the appropriate fields and click on the “Log in” button.

2. Navigate to the 'Analytics' tab

Once you are inside your Shopify account, navigate to the ‘Analytics’ tab. This is where you’ll be able to track all the important data for your business, including your payment processors.

Shopify Analytics Screenshot

3. Analytics > Reports

Inside the ‘Analytics’ tab, click on the ‘Reports’ option. This is where you’ll find all the information you need about your Finances.

4. Navigate to the 'Finances' option

Once you click on the Reports option, you have to navigate to the ‘Finances’ section. Under the Finances option, you will find an option named ‘Finances Summary’.

5. Click on 'Finances Summary'

Once you click on the ‘Finances Summary’ option, you will be redirected to a new page. You will then find a Payment tab on the right-hand side of the page where you will find all the details about your payment processors.

6. Check the details about your payment processors

This is where you can track all the important information about your payment systems, such as the name of the processor, the total number of transactions, the total transaction amount, and the fees charged. 

You can also see a list of all the credit and debit cards that are accepted by each processing vendor.

tips to manage payment processor

Top tips to manage your payment processors

Now that you know how to track your payment processors, let’s take a look at some top tips that will help you manage them more effectively.

  • Use the right number of processors
  • Choose the right processing vendor for your Shopify business
  • Hire a professional, such as Financial Solutions, Inc. to help you manage your your payment systems
  • Keep track of the payment processing servicer’s performance
  • Monitor their fees
shopify payment system

Key takeaways

Payment processors play a major role in any online business, and it’s important to choose and integrate the right ones for your business.

It is important to remember that every business is unique and has different needs and requirements, so you need to find the processor(s) that work best for your business. There is no one-size-fits-all solution when it comes to payment processor(s).

Tracking your payment processing system is extremely important and has many benefits, including:

  • Bookkeeping becomes easier 
  • Taxes can be planned and prepared more effectively
  • Great for cash flow and financial planning
  •  Allows you to monitor your investments
  •  Helps you make sound financial decisions

This article is aimed at helping you, the Shopify retail store owner to give you a better understanding of how to track your payment processing vendors. 

If you have any questions, feel free to contact us and let Financial Solutions Inc., a Shopify specialist bookkeeping firm, help you with your payment systems and Shopify business needs. 

You Shopify we Bookify!! ®

Tags :
bookkeeping,ecommerce,Investment Management,payment processors,shopify,Tax Planning & Tax Preparation
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