Accepting Credit Cards: Comparing Authorize.Net, Virtual Payment System, and PayPal
Credit cards are more convenient for clients and a more reliable way to get paid for lawyers. After struggling with PayPal for years, I recently shopped around for a professional card processing solution. I mainly looked at three options: Authorize.Net, Virtual Payment System, and PayPal Website Payments Pro.
(Spoiler: I chose Authorize.Net.)
Understanding credit card processing
What I found is that credit card processing is a complicated mess of components and fees. No matter who you choose, it’s hard not to feel like you are getting nickeled-and-dimed, because there are at least 8 potential fees for even a simple setup.
That said, credit card processing boils down to just two main components, each of which charges a monthly fee and takes a cut out of every transaction:
- The payment gateway is what you or your clients use to enter credit card information into the system. This can be a physical card reader, a form on your website, or a virtual terminal—basically a credit card entry form that you can use to enter a client’s credit card information yourself.
- The merchant account receives the money on its way to your firm checking account.
The total monthly fees were about $30 per month for all the services I looked at. The per-transaction charges include a flat fee plus a percentage of the amount charged. Both components vary by about 1% depending on which service you choose. I found 30–35¢ for the flat fee and 2.19–3.5% for the percentage. (The per-transaction charges get smaller if you do enough business by credit card, so if you expect a lot of payments, investigate the options.)
You also pay for any extra services you want. For example, I wanted recurring billing, since I have a number of clients on a monthly subscription plan. The cost of recurring billing in the options I looked at varied from an extra $10–30 per month.
My credit card processing requirements
What I need my credit card processing service to do is (1) allow clients to pay for some services online; (2) integrate with Freshbooks, my timekeeping and billing software so clients can pay with a credit card without leaving their invoice; (3) allow me to take payments by entering a client’s credit card information manually; and (4) recurring payments, preferably through Freshbooks.
Integration with Freshbooks, my timekeeping and billing software, is important to me because I want to do as much billing as possible through a single portal. That leaves quite a few options, however. In addition to PayPal, Freshbooks integrates with 9 other merchant services, 7 capable of recurring billing.
Initially, I just upgraded my PayPal account because it was the path of least resistance. However, I quickly realized that an upgraded PayPal account is a lot more money for not much more functionality.
PayPal didn’t meet my needs, so I took another look at the options. Of the merchant services that integrate with Freshbooks, only Authorize.Net provides detailed pricing information on its website, so that was what I looked at, first.
In addition to being up-front about its fees, Authorize.Net seems to be relatively popular among online merchants. Since that is the nature of the credit card processing I need to do, it seemed like it might be a good fit. It is also supported by Freshbooks, which makes billing smoother for me, since I can generate invoices and accept credit cards through a single, integrated portal.
I also liked that Authorize.Net didn’t make me call to find out more; I just filled out the application online, and got a call from a very nice sales representative who helped me understand the process and pricing. They also took care of arranging the merchant account, so I didn’t have to figure out how to do that and connect the account to the gateway myself.
Here is the cost breakdown for the services I signed up for:
- Setup fee: $99
- Monthly fee: $29.95 ($20 gateway; $9.95 merchant account)
- Per-transaction fees: $0.35 + 2.19%
- Recurring billing: $10/month
In other words, $99 to set up my account, then $39.95 per month, plus the per-transaction fees every time I run a card.
Connecting Authorize.Net to Freshbooks was a piece of cake, and my clients can click on their invoice, click on pay now, and pay me without leaving the invoice. I can also enter transactions into the virtual terminal at Authorize.Net, or generate web forms. It’s a very slick system, and makes it easier for me to get paid.
The only downside to Authorize.Net for lawyers is that it is not set up for trust payments. In order to do trust payments, you need a credit card provider who will deposit 100% of the payment into your trust account, and withdraw any fees from your regular firm checking account.
I don’t accept advances on fees often, so this wasn’t a huge problem for me, but it would be nice to have the option. That’s why I also looked at Virtual Payment System, which specifically advertises this functionality.
NB: If you go with Authorize.Net, realize that at some point during the signup process, you will sign up with another company that will handle part of the credit-card processing (PowerPay/E-OnlineData, in my case). If at some point you decide to cancel your Authorize.Net account, you will have to cancel with this other company separately, or it will keep billing you even though you are not getting any value from it. I can’t see any reason why Authorize.Net couldn’t do this for you, but then the other company wouldn’t get an extra month or two of your fees before you find out about it.
Virtual Payment System
I looked into Virtual Payment System mainly because it advertises easy credit card processing for trust accounts in our sidebar. However, VPS doesn’t publish its prices; it wants you to call for more information. Instead, I reached out to VPS and got its price sheet for comparison.
Assuming I understand the price sheet right, here is what I would pay with VPS:
- Annual fee: $150 (includes $50 “PCI compliance & security scan”)
- Monthly fee: $15
- Per-transaction fees: $2 + 3.5%, but paid by your client
- Recurring billing: included
If I have that right, VPS is significantly more expensive than Authorize.Net overall, but much cheaper for you, the merchant, because your client pays the transaction fees. That is also why VPS is compatible with advance fee payments. If you want to take advances that need to go into your trust account, VPS is the only legitimate option on this list.
So VPS presents an alternative. If you don’t like paying the merchant fees with every transaction, you can make your clients pay. Sounds like a good deal, as long as your clients don’t object.
PayPal has one enormous advantage over the other options: price. You can accept credit cards without paying a monthly fee, and if you use Freshbooks, Harvest, or any other company that has partnered up with PayPal, you can get the PayPal Business Payments transaction fee, which is just 50¢ per transaction—way less than the other options.
There are substantial downsides, though. PayPal’s website is a user interface nightmare, and based on my conversations with customer support, I get the impression the backend is just as bad. If you use the free version, your clients will complete their transaction at PayPal instead of right in their invoice (as with Freshbooks) or on your website. That means they have to try to navigate the PayPal website, which isn’t always easy. If you want to do automatic recurring payments with the free version, subscribers must have a PayPal account connected to their bank account; they can’t just use a credit card.
Upgrading to PayPal’s “pro” merchant services fixes some of these problems, but it is significantly more expensive than the competition. And you still have to use the same hard-to-navigate website. I did sign up for PayPal pro at first, and here are the costs I had to pay:
- Setup fee: none
- Monthly fee: $30
- Per-transaction fees: $0.30 + 2.9% (or as low as 2.2% for transactions of more than $10,000)
- Recurring billing: $30/month
In other words, nothing to set up my account, but then a whopping $60 per month, plus higher per-transaction fees every time I run a card.
Despite its significant shortcomings, PayPal a relatively easy, free way to accept credit cards. It just isn’t a very good wayto accept credit cards. If you want to accept credit cards more than just occasionally, go with Authorize.Net or VPS.
Closing the sale with a credit card
There are other ways of accepting credit cards, of course. Your bank probably has merchant services, and if you are using QuickBooks, you might want to look into Intuit’s merchant services. It probably pays to shop around more than I did, but if you want a quick, easy setup, go with Authorize.Net. I’m a happy customer so far.
On the other hand, if you want to accept trust account payments, consider giving Virtual Payment System a try and let us know how it goes.