Evaluating Different Payment Options

As any businessperson will tell you, not all dollars are the same. A dollar paid by one method might actually cost you more (or be more risky) than a dollar by another method. And you definitely want to minimize your costs, especially when they're taken directly from what you're paid.

Fortunately, eBay doesn't force you to use any one payment method. For example, you can limit your payments to credit cards only; there's no law that says you have to accept cash or checks. So you can pick and choose which payment methods you'll acceptjust as long as you specify this up front in your item listings.

Of course, the more payment options you offer, the more potential buyers you'll attract. Still, some methods are better than others for different types of sellers. What are the pros and cons of the various types of payment? Take a look at Table 16.1.

Table 16.1. Pros and Cons of Common Methods of Payment

Payment Method	Pros	Cons
Cash	Fast payment, no hassles	Unattractive to buyers; hard to track
C.O.D.	Cash payment	High noncompletion rate; lots of paperwork; not sanctioned by eBay
Personal check	Convenient for buyers	Slow; have to wait to clear
Money order/cashier's check	Faster than personal checks, almost like cash	Hassle for buyers
Credit cards/PayPal	Fast payment, buyers like it	Fees involved

For what it's worth, most buyers today accept money orders, cashier's checks, and credit cards (via PayPal). Some buyers also accept personal checks, just as some buyers don't accept credit cards (they don't like the fees). I find that 80% or more of all my sales are paid for via credit card (using PayPal), making this method far and away the most popular among buyers. If you don't accept credit cards, you run the risk of significantly limiting your business.

Note

What do you do when a nearby buyer wants to come by and pick up the item personally, rather than shipping via normal means? There's nothing wrong with this, as long as you get a verifiable payment. That means asking the buyer to bring cash, money order, or cashier's checkor to pay via PayPal before he or she arrives. Definitely do not let someone pick up an item and pay via personal check!

Let's look at each of these payment methods separately.

Cash

As a seller, you certainly won't object to opening up an envelope and finding a few crisp new bills inside. Unfortunately, sending cash through the mail is not one of the smartest things a buyer can do; cash is too easily ripped off and virtually untraceable. You can ask for cash payment (not that you should, of course), but unless the selling price is extremely low (under $5), don't expect buyers to comply.

One other thing: Cash is hard to keep track ofeven for extremely organized sellers. There's no paper trail, and it's tempting to take any cash you receive and just stuff it in your wallet. If you do receive a cash payment, try your best to treat it like a money order or cashier's check, at least in terms of how you track it.

The bottom line: If it's bad for your customers, it's bad for you too. You should probably discourage payment by cash.

C.O.D.

Cash on delivery (C.O.D.) sounds good on paper. You ship the item, with the stipulation that the deliveryman (or woman) collect payment when the item is delivered.

There are problems with this method, however. What happens if the buyer isn't home when the delivery is made? What if the buyer is at home but doesn't have the cash? What if the buyer refuses to payand rejects the shipment? I've heard stories of up to 25% of all C.O.D. orders being refused, for one reason or another.

Even worse, C.O.D. service often comes with a high fee from the carrierand it's a fee that you, the seller, have to pay. The additional fee alone rules out C.O.D. for many sellers.

Then there's the fact that you don't get your money until after the item is delivered. The delay in your getting your cash reduces the appeal considerably.

All things considered, it's easy to see why few eBay sellers offer C.O.D. paymentand why eBay has quit offering it as a default payment option. The problems with this payment method tend to outweigh the benefits, and I can't recommend it.

Personal Checks

One of the most common forms of payment is the personal check. Many buyers like paying by check because it's convenient, and because checks can be tracked (or even cancelled) if problems arise with the seller.

As a seller, you should like personal checks a little less because they're not instant money. When you deposit a check in your bank, you're not depositing cash. That $100 check doesn't turn into $100 cash until it tracks back through the financial system, from your bank back to the buyer's bank, and the funds are both verified and transferred. That can take some time, typically 10 business days or so.

Note

If you accept personal checks, it's a good business practice to state in your eBay listing how long you'll wait before shipping an item paid for by personal check. Better to warn the buyer up front than receive a complaining email afterward.

Because some buyers prefer paying by check, you should probably be prepared to handle this payment method. When you receive a check, deposit it as soon as possiblebut do not ship the merchandise. Wait until the check clears the bank (two weeks if you want to be safelonger for checks on non-U.S. banks) before you ship the item. If, after that period of time, the check hasn't bounced, it's okay to proceed with shipment.

If you are on the bad end of a bounced check, all hope is not lost. The first thing to do is get in touch with your bank and ask it to resubmit the check in question. Maybe the buyer was just temporarily out of funds. Maybe the bank made a mistake. Whatever. In at least half the cases, bounced checks unbounce when they're resubmitted.

Whether you resubmit the check or not, you should definitely email the buyer and let him or her know what happened. At the very least, you'll want the buyer to reimburse you for any bad check fees your bank charged you. The buyer might also be able to provide another form of payment to get things moving again. (Credit cards are niceas are money orders.)

Money Orders and Cashier's Checks

Money orders and cashier's checks are, to sellers, almost as good as cash. You can cash a money order immediately, without waiting for funds to clear, and have cash in your hand. When you receive a money order or cashier's check, deposit it and then ship the auction item. There's no need to hold the item.

Note

If a check bounces, the depositor (you) will likely be assessed a fee from your bank. (Of course, the writer of the bad check will also have a fee to paybut that's not your problem.) If the buyer who wrote the check offers to make good on the payment, make sure he or she reimburses you for your bad check fee, over and above the final auction pricepreferably via a different form of payment.

The only bad thing about money orders and cashier's checks is that you have to wait for them to arrive. Even if the buyer puts payment in the mail the very next day, you'll still wait anywhere from three to five days after the auction to receive payment. Still, there's not a lot to dislike about this method of paymentit's hard to get burned with either a money order or cashier's check.

Note

Beware a common scam where a buyer sends you a money order or cashier's check for an amount larger than the purchase price and then asks you to send funds for the difference. Don't fall for this. Accept payment for the amount of the purchase only!

There's also the (extremely slight) possibility that you can receive a bad cashier's check. To be precise, a cashier's check or money order isn't exactly the same as cash; your bank still needs to be reimbursed by the issuing institution, and if this doesn't happen, the cashier's check/money order will bouncealthough this is highly unlikely. Be particularly careful of money orders or cashier's checks drawn on foreign banks or issued by unfamiliar institutions. When in doubt, hold the merchandise and ask your bank to verify that the payment is good.

Credit Cards

Until just a few years ago, if you wanted to accept credit card payment for your auction items, you had to be a big-time retailer, complete with merchant account and bank-supplied charge card terminal. This limited the number of sellers who could accept credit card payment, which probably cut down on potential bidders because many buyers like the convenience and relative safety of paying by credit card.

Today, however, there are options available that enable you to accept credit card payments for your auction items. First, several financial institutions provide merchant credit card accounts for smaller retailers, as we'll discuss later in this chapter. Second, you have PayPalan online payment service that lets any auction seller easily accept credit card payments, with little or no setup hassle. PayPal works by accepting credit card payments from your customers and then sending you a check or depositing funds directly in your bank account for that amountminus PayPal's fee, of course.

Any time you accept a credit card, with either a merchant account or PayPal, you are charged a feetypically several percentage points of however much the buyer pays. When you consider that you have to pay eBay's listing fee and final value fee, paying another few points for the convenience of accepting credit cards can really sock it to a small selleror anyone selling a low-priced item. You should definitely research the payment service's fees before you sign up.

We'll look at credit cards in more detail in the "Accepting Credit Card Payments via PayPal" section, later in this chapter.

Escrow Services

A final payment option, used primarily in higher-priced auctions, is the use of an escrow service. An escrow service is a company that acts as a neutral third party between you and the buyer, holding the buyer's money until the buyer receives the purchased merchandise. You get paid only when the buyer is satisfied, which is good protection for the buyerbut delays you receiving your money.

Here's how a typical escrow transaction works. Either during or just after the end of an auction, you and the buyer contact each other and agree to use an escrow service. The buyer sends payment (by check, money order, cashier's check, or credit card) to the escrow service; thenafter the payment is approvedthe escrow service notifies you and instructs you to ship the item. After the buyer receives the item, verifies its acceptability, and notifies the escrow service that all is hunky-dory, the escrow service pays you.

The escrow service's fees can be split between the two parties, but are more typically paid by the buyer. Fees differ widely from service to service.

For what it's worth, eBay recommends that customers use an escrow service when the transaction is over $500 and the seller doesn't accept credit card or PayPal payments. So, if you accept credit card payments (via PayPal or otherwise), you shouldn't have to bother with escrow.

If you do find yourself in a situation that calls for an escrow service, eBay recommends Escrow.com (www.escrow.com). If you choose to use another escrow company, make sure that it's bonded and legitimate; there are some phony escrow companies operating on the Internet that you need to watch out for.