Two days ago I received an email from “Ardos” that said the following:

[…] I had my online shop ready and I applied for a Paypal account, but there was a serious problem: I’m based on South America. Unfortunately for me, Paypal has a monthly withdrawal limit for my country which doesn’t allow me to ask them more than $3000 USD of *my own money* every month. How can I solve this problem?? […]

To sell goods online, whether they are physical or digital, you need a payment gateway. The most used and famous gateway out there is Paypal because is the easiest, and they don’t have setup fees, so small businesses see in Paypal a really good opportunity to make money online.

But sometimes Paypal is not the best option for many reasons:

• As Ardos said, they have a monthly withdrawal limit for some countries, and that amount can be so low that it doesn’t make sense trying to make business because you won’t earn enough money given that limit.
• You can argue that an online business, with its very own domain and not just an online shop hosted by some 3rd party, needs a more professional way to handle online payments because Paypal it’s just too amateur.
• You have heard all those horror stories about Paypal frozing accounts filled with legit money just because the shop started to do a lot of sales.

Whether you agree with those concerns is up to you. In my case I have seen the first point before because I’m also based on South America and my country (Chile) has that monthly withdrawal limit of $3000 USD. I have looked for other payment gateways similar to Paypal and I have found that they also have withdrawal limits although sometimes better.

So let’s suppose you are a small business based outside the US and you need to receive credit card payments. How do you do it if “free” payment gateways are not an option?

Sadly the answer is not easy to accomplish, although it will help you a lot to do business online: You have to incorporate in the US in order to open a bank account, a merchant account and finally be able to process internet payments with some payment gateway.

Maybe you didn’t expected that answer but I’m sure you have a couple of questions. I’ll try to address the most probable ones below:

Why incorporating in the US?

By incorporating in the US you will have a real business entity there (you will have an EIN as a corporation, LLC or your preferred option) and that will allows you to open a bank account in a US bank, which will allows you to open a merchant account to collect payments.

Another reason is that the most part of payment gateways require you to have a valid EIN or SSN to apply for their services, so if you are not american you will find hard to accomplish those requirements.

But there are not just difficulties. There are benefits too: If your business is truly international, then the most part of your clients will come from -guess where- the US, and many US business won’t like the idea of having deals with small businesses that doesn’t even have US presence, so being incorporated in the US will allow you to overcome this difficulty quite easily.

Sure, you won’t be there really, but US business will still know that they have somebody to sue if things goes wrong :P.

I don’t have money nor expertise to do that in the US

Calm down, you don’t need to make a trip to the US. You can do it in the net thanks to a couple of services that will do all the paper work without requiring you to go there even once. Valis International is, as far as I know, the most reputed one. They offer a US Business Presence package at a really affordable price.

I encourage you to take a look at their website to read their offers by first hand.

What’s a merchant account?

A merchant account is what allows you to receive payments made with cards (i.e. credit cards, debit cards, etc.). Every business that wants to accept payments by card needs a merchant account, it doesn’t matter if the sale is done online or offline (i.e. in a point-of-sale). Merchant accounts are usually provided by banks, and you will have a US bank account so you will be able to apply for a merchant account too.

What kind of payment gateway will I need?

A payment gateway is a bridge between the secure form on your website which collects information from the buyer, and your merchant account which allows you to receive payments for your goods or services.

“Free” alternatives like Paypal don’t work this way because they collect all the payments in their bank accounts and after that they send you the money in some way or another.

There’s a lot of payment gateways out there, and you will find it’s easier to apply to one of them once you have a US corporation under your belt.

As part of the US Business Presence Package that Valis International puts at your disposition, you will find that they also offer to open a merchant account for you and to provide you with a payment gateway through LinkPoint.com. Please notice that you will have to pay a setup and monthly fee to use their service, plus their transaction fee.

How should I incorporate?

That’s up to you and the needs of your business, although I must say that a sole-member Delaware LLC is very convenient if you are based outside the US. Check this page to know why and check this article on Types of Business Organizations to get deeper on those kind of aspects.

How much will it cost to me?

Having a corporate presence in the US is not the same as using Paypal, so you can expect it will cost you more. The good news is that it’s not very expensive: if you use Valis International as your Registered Agent you can expect it will cost you around $2000-2200 USD. Not all the money goes to Valis though, and not all the money is payable at once because the entire process takes two to three months to be completed. Here’s a detail of expected costs by operation:

• USBPP ($775) + 5% payment fee (if you pay by credit card)
• Registered agent fee ($50/year if you renew your mail office yearly)
• $200/year if you want to form a Delaware LLC. The cost may vary if choose other option. This goes to the State.
• $600 + 5% to open your US Bank account.
• $150 initial deposit in your new bank account.
• $300 merchant account setup.

Total: $2144 USD.

This is an approximation of the money you will have to pay the first time. After that you will have to pay yearly fees to your registered agent, bank and State. That will depend on your business so I can’t give you an estimate here.

Good or what?

Good. Although is more expensive that just using Paypal, it’ll allow you to enjoy the ability to process online payments without having to worry for withdrawal limits (as far as you don’t qualify as “High Risk, Travel, Gambling/Betting or Adult “). The not-so-good side is that you will be subjected to US laws, so you will have to do your tax declaration as any other US business, and doing that can be difficult so I recommend you to look for a US accountant to help you in those issues.

I have not done the entire process yet but I intend to do it soon. I have talked to the Valis people many times and they have been very nice with me. They are really quick answering your questions, so if you plan to do this I recommend you to give them a try. In the other hand you can do the entire process just by yourself traveling to the US, but you will have to know where to go and what to do.

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This entry was posted on Friday, April 20th, 2007 at 6:28 pm and is filed under Entrepreneurship, Make money online, Online business, eCommerce. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.