Why PayPal is still the only option for bootstrapped startups: cashflow
As mentioned in The future begins now: Project HD, one of the phase 1 activities I'm working on is an event. The main rationale behind this is that I'm planning to use the profits of this conference (if any ;-)) to further fund the development of my bootstrapped startup.
It also helps that I enjoy organising events big and small, I'm organising one I'd like to attend myself if only there were already one in Europe and I've got some experience in doing it having organised 8 editions of the Italian Agile Day (from 100 attendees the first year to around 700 in 2011) and countless other smaller events in both Italy and UK.
While I was doing a bit of research in preparation for this post I also found an old entry by 37Signals about this very same idea: There's more than one way to skin the revenue cat.
One crucial aspect of organising a conference is, you know, selling tickets :-) and so I began my quest for a good solution. I pretty quickly settled on using Eventbrite (warning: referral link) because I've used it in the past and it offers everything I need for a good price (better than amiando and regonline). Next was deciding which payment processing option among those offered:
- Standard credit card processing
- Google Checkout
I immediately excluded Authorize.net because I don't have a merchant account and neither do I want one (I don't need it for my long-term business) and I really wanted to try and avoid PayPal because of all the horror stories you can read online (although I've used it in the past and in fact I use it to collect donations for the Italian Agile Day every year).
So I spent quite some time modelling in a spreadsheet the various fees and percentages of the other 3 options to see what was best until I realised it was useless because there really is only one option if you are bootstrapping and/or need to keep an eye on your cashflow: PayPal.
You see, PayPal is the only payment processing system that is cashflow-friendly, at least if you are not based in the US. Let's take a quick look at what I mean:
Standard credit card processing
This is pretty simple and it's all clearly stated in the very first page:
"Receive funds via direct deposit or mailed check 5 days after the event"
and the last thing you want in a bootstrapped startup is to advance all the money for a 2-day, 200-people event and only get them back 5 days after the event. Especially when you are organising an event months in advance (as you should if you want to give people enough notice).
Again, pretty clear upfront:
"Receive funds immediately into PayPal account"
and from there it usually takes 3 business days to transfer the funds to your bank account.
Oh dear! I really wanted to use Google Checkout instead of PayPal and the fees are roughly the same but when you start digging on the payment terms you can easily get lost. Take a loot at Checkout Merchant payout schedule towards the middle of this page:
"If you're new to Google Checkout, payouts will be initiated to your bank account 14 days after you successfully charge an order. After 60 days, Google Checkout will conduct a review of your account. During our review, we will consider a variety of factors to determine if your payout schedule should be adjusted. These factors are based on a proprietary set of rules and include chargeback rates, transaction behaviour and business credit reports. If our review finds your Google Checkout account to be in good standing after 60 days, you'll undergo a transition to the standard payout schedule as described below."
and then it goes on describing weekly, bi-weekly, and monthly payment schedules. So basically, apart from the first payment after 14 days, you have NO idea on which payment schedule you will be put on, you have NO idea what the criteria are to go from a monthly to a bi-weekly or weekly payment schedule and you have NO idea how long after those 60 days the next payment will happen.
In short you cannot assume anything and it's easy to imagine this going very wrong and overall take you nearly 3 months to see a payment even in the best case scenario.
So there you have it, I wanted to avoid PayPal but PayPal is still the only cashflow-friendly option out there after all these years. Should anyone have other options I'll be happy to take a look.