Credit Matters Blog

Payment Methodologies - Credit Cards, Bitcoin, Etc.

Kim Radok 24 January 2015


An important aspect of doing business is to have a payment method which enables the customer to pay us as easily and as efficiently as possible. There are the old tried and true methods such as cheques, direct payments, telephone banking, and credit cards. Bitcoin is a new payment option which seems to be gaining increasingly popularity. Inevitably, there will a number of other new options in the future.

Irrespective of which payment method you offer, there are positives and negatives. For instance, we are told cheques are on the way out. However I could equally argue there are a number of benefits in accepting cheques. Not everybody wants to pay via the internet because of fears associated with hacking and lack of security. Funny though it seems, even cash can be a problem for some people.

It is always wise to review how you accept payments and whether the current methodologies are still suitable. Everything changes and we see this state of affairs with credit card payments. In the past, if you accepted a payment under the terms advised by the credit card provider, the payment was deemed to be authorised. The exception was as now, the supplier needed to prove they had supplied the goods and services and there was no element of fraud.

However there appears to be a new trend with credit card payments. An increasing number of people are buying and using their credit card. Subsequently they advise the product or service was never supplied. Despite the supplier having documentary evidence the sale was authorised and delivered, the credit card providers are often reversing the sales and leaving the supplier to fend for themselves.

From one perspective, you can understand the credit card provider's dilemma. The credit card holder is their customer, not the supplier. So naturally at first they tend to act in the interests of their customer. However if the credit card providers are unable to support the supplier from their customer acting fraudulently, the credit card providers have a problem. At the end of the day, if the customer can act fraudulently without fear of being held accountable, suppliers may be reluctant to accept credit card payments.

A number of mainstream business organisations are now accepting bitcoins. Bitcoin offers an interesting example of the issues which are evident in any payment methodology. It is almost got to the stage where it is fashionable to trade in bitcoins. However, there is a downside to bitcoins. Bitcoins can be easily lost when the computer goes missing or is hacked. Bitcoins are subject to price fluctuations which affects the value of the business's bitcoin holding, almost on a daily basis.

It is also obvious that bitcoins are increasingly the payment method of choice by criminals. This leads to an interesting conundrum. What if your employee asks to buy bitcoins from your business? How are you going to protect the business's reputation if it is found your employee used those bitcoins to support criminal behaviour through their purchases?

Finally, the taxation authorities around the world are working out how to treat bitcoin for taxation purposes. Once they work out their policy, you will be asked to identify all your bitcoin transactions. In which case, I suggest you had better have good records.

Should you accept bitcoins?

Clearly this is only an answer you can make. However there are precautions which could be taken to ensure there are no adverse or material repercussions to your business.

I am no expert on the use of bitcoins and only know what is in the media.  However one fact is becoming obvious. At some stage you will have to account for the use of bitcoin as part of your accounting process and for taxation purposes. Therefore I suggest the following points are worth considering.

1  You should have an audit trail to identify where each bitcoin came from and how it was used.

2  Safety backups and procedures are required to protect your bitcoin holding.

3  You should limit sales by bitcoin until you are confident that you can buy using the same value in bitcoin.

4  You should also be able to prove your bitcoin transactions led to a profit. If you cannot prove your bitcoin transactions lead to a profit, why are you using bitcoin?

5  If in doubt, employ a professional to ensure your business is protected.

In conclusion, all payment methodologies have strengths and weaknesses. With new payment methodologies becoming available, all aspects of these methodologies should be periodically evaluated. Only then can a decision be made as to which methodology currently best suits your business. However as in all aspects of business, nothing stays the same. So the wise business person will periodically review whether their original decision still offers the best solution for their requirements.