If you are going to use a new form of payment within your business, you need to have a good reason to do so. If there were no advantages to using bitcoin, why would you bother? One of the keys to running a successful business is only making decisions that will benefit the whole of your business, so you need to pick and choose your moves carefully.
Fortunately, there are a number of potential upsides that may just make the idea of bitcoin worth your time. Let's focus on the elements that bitcoin brings to the table, so you can get a clear picture of what you stand to gain or lose by experimenting with this revolutionary new form of payment processing.
- It allows for quick transactions. Each credit card transaction goes through a number of steps, so you will have to wait for a period of time until the money is actually deposited into your account. If you choose to deal in bitcoin, you won't need to wait for the transaction to clear. Bitcoin is what is known as a peer-to-peer payment system, meaning there is no middleman to go through. That means most transactions are complete in under 10 minutes, so you can move on to the next sale without having to worry about revisiting credit card payments later on.
- The value is constantly changing. This is the biggest issue to consider when deciding to accept bitcoin as a payment form at your business. I have personally stayed away from using bitcoin, as I have found its fluctuation in value to be risky and the potential for having to account for a second currency to be troublesome. This can be a problem when it comes time to turn your bitcoins into a traditional currency, such as the U.S. dollar. You can exchange your bitcoins for dollars through a variety of services, each charging a small fee for the transaction. Once the bitcoins have been turned into "regular" currency, that money will then land in your bank account. I work primarily with U.S. companies that transact in U.S. dollars given its stabilized value and ease of use, but bitcoin does offer many benefits to those willing to take on some additional risk.
- There are lower processing fees. Of course, this is a big upside. Most merchants will need to pay somewhere between 2 percent and 5 percent for the right to process credit/debit card payments, meaning a good chunk of your income is gone before you even see it. Since there is no middleman involved in each bitcoin transaction, there are minimal fees to consider when accepting bitcoin payments. Depending on exactly how you decide to process bitcoin payments, you could pay anywhere from 0 to 1 percent on these transactions in order to move the bitcoins from your customer to you.
- It's universal. Since bitcoin is a global digital currency, there is nothing to worry about in terms of exchange rate from one national currency to another. This makes the international commerce experience simpler for both the merchant and the customer. A customer who intends to pay with bitcoin won't have to worry about calculating the exchange rate for a purchase, as they will know exactly how much it is going to cost them as soon as they see the price.
- There's no paper trail. Most good accounting practices involve a detailed paper trail, but there is no paper trail when it comes to bitcoin. If you are going to account for your business correctly, and in turn pay your taxes accurately, you will need to develop a system to account for all bitcoin sales. It is certainly possible to do this correctly, but you will likely need to go outside of your current accounting system to solve the problem. Since bitcoin is such a new form of payment, there are very few accountants who are prepared to deal with this issue. This is another reason I don't use bitcoin. It would also mean that I would need to perform value calculations on a currency whose value has changed drastically over the last couple years.
You may decide that you would like to get started with bitcoin given its many benefits. Conversely, you may choose to sit on the sidelines until you see how bitcoin develops. My recommendation would be to avoid using bitcoin unless your clientele prefers to use it or you do a lot of foreign business and want a single currency to work with. Either way, knowing your customers is going to be the key in deciding whether or not adding bitcoin to your business will be a worthwhile endeavor.
Enrico Palmerino, a graduate of Babson College, is a serial entrepreneur recognized by Inc., Bloomberg Businessweek, CNN, and USA Today. He is an investor and partner in botkeeper, which uses machine learning and skilled CPA's to provide low cost automated bookkeeping for startups and small companies.