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You’re out to dinner with your friends, and the waiter drops off one check instead of splitting it for each of you. Someone says “let’s just Venmo one person instead of asking for it to be split”, and you all agree. So, one friend pays for the entire bill, and the rest of you each pull out your phones to open Venmo and send over your payment to them. And then it hits you - this is so simple and so easy, what if I had my clients pay me through Venmo?
If you haven’t heard of Venmo yet, it’s an app where you can easily send and receive cash. It’s most commonly used between friends and family members to pay for things - like when one person covers an entire tab and you all want to split it.
It connects right to the bank account of your choice, and it’s incredibly simple to go in, choose your friend/family member, and send over some cash (at no cost to you). When you receive cash, it sits in your Venmo account until you either use that to pay someone else, or you send it to your own account. Instant bank transfer will have a small fee, but if you plan ahead and request the transfer 1-3 days before you need it in your account, it’s free.
So, can you use Venmo to accept business payments? Yes, but you do have to set up a Venmo for Business account. You can’t just use your regular Venmo account. The difference being that Venmo does charge a fee of 1.9% plus 10 cents per transaction. That fee is on you. Your customers will also be charged a 3% fee if they use a credit card. Similar to the personal Venmo account, instant transfers incur a fee, but those that are 1-3 business days are free.
Now that you know what Venmo for Business is, the big question is - is it legal? Good news - yes! As long as you have a Venmo Business account set up. Some people try to use their personal accounts instead of a business account so that they don’t incur those transaction fees. However, this is explicitly against Venmo’s terms of service and we’d really suggest you don’t do that.
As with anything you’re using for business transactions, you want to be sure you’re aware of the tax laws surrounding Venmo for Business. If you collect $600 or more for the sales of goods and services without first providing your tax information to the payment service provider, that provider is required to withhold 24% of those payments and send them to the IRS for backup withholding. The good news for this one? As long as you set up your tax ID with Venmo before you start using it for business transactions, this won’t apply.
More good news? Venmo will issue you a 1099-K at the beginning of each year, and also send a copy to the IRS. Making it simple to claim your transactions on your taxes!
Note: These tax laws aren’t strictly for Venmo - they’ll apply no matter the payment processor you’re using.
[What You ACTUALLY Need to Start a Business]
When it comes to Venmo for Business, let’s talk about the Pros of using it versus other payment processing tools.
The beauty of Venmo is that most millennials are already using it, and using it often. So, if millennials are your target clients, there’s a low barrier to entry for getting their payments to you.
While no one likes to pay payment processing fees, it’s a known cost of doing business. However, we all want to pay as little as we can (legally, of course) and Venmo’s low fees are a major check in the pro column. While Square fees come in at 2.6% + 10 cents, and Stripe fees come in a 2.9% + 30 cents, Venmo for Business fees are just 1.9% + 10 cents.
We all know that the QR code has had a resurgence and Venmo knows it as well. If you’ll be taking payments at an event, you can simply print a QR code to make it easy to accept payments without needing to pull out your own phone or handle cash.
With the new tax laws being put in place, it’s a huge pro that Venmo will be sending you a 1099-K and sending a copy of that 1099-K to the IRS as well.
That being said, nothing is perfect and Venmo for Business is far from it. Let’s go over some of the cons you can expect if you decide to use this service for your payment processing.
Instant transfers will cost you, which can be a pain if you forget to initiate a transfer and realize you need that money in your account ASAP. Expect a fee of 1.75% of the amount transferred (with a minimum of 25 cents and a maximum of $15). However, 1-3 business day transfers are free.
If you’re outside of the United States, you’ll be unable to use Venmo for Business as it’s only available in the States at this time.
A huge con in the client satisfaction side of things is the 3% credit card fee that’s charged to the client - not to the business. If they use a debit card or a bank account, there’s no fee, but be aware that your clients would get hit with an additional fee on top of their payment to you if they need to use a credit card.
If you’re a Non-Profit, Venmo for Business is also not available to you at this time.
Finally, there are quite a few features that businesses will likely expect from a payment processing system that just aren’t available with Venmo for Business at this point. There’s no ability to send invoices, set up discounts, or have recurring payments. You also have to initiate every single transfer of your money from Venmo to your bank account - you can’t set it up to do it automatically for you.
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That’s the million dollar question, right? And exactly why you’re here. However, we can’t give you a cut and dry answer. As with most decisions, you’ve got to assess your unique situation, your business needs, and your goals.
Carefully consider the pros and cons we’ve outlined above to determine if it aligns with those needs and goals. If not, it might be better to find a different payment tool that aligns with all of your needs. However, it’s fully legal to use Venmo as a business tool - as long as you’re following their Terms & Conditions and using a Venmo for Business profile, and not a personal profile to accept your payments.
Is ensuring that your business is legally protected a priority for you? Take this quiz and we’ll show you what to shore up next to ensure you’re as protected as you can be!
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