Kabbage Payments Guide For Small Businesses: How To Use Kabbage For Credit Card Payments

If your business relies on invoices to get paid, you know how frustrating the process can be. You send invoices to your customers and wait for them to respond. After 30 days, you start sending out reminders to encourage payment. After waiting even longer — sometimes as much as 90 days — you finally receive payment. Then you get to wait up to five business days for the payment to be deposited into your account.

This kind of unpredictability can create serious cash flow problems for your business, as bills for rent and utilities have hard deadlines.

In response, Kabbage has recently launched the Kabbage Payments service to help freelancers, independent contractors, and other services-oriented businesses get paid more quickly. While most people think of Kabbage as a lending company, it offers much more than just loans. Kabbage aims to bring the kind of automation features and digital services enjoyed by big businesses to the small business community.

This article will explain how Kabbage Payments works, how much it costs, and how it compares to similar services offered by other providers. Hopefully, we’ll give you the information you need to decide whether Kabbage Payments is a good choice for your business.

How Does Kabbage Work?

Kabbage is one of the few companies we’ve found in the payments industry that is specifically geared toward meeting the needs of the small business community. SMBs usually don’t have much financial clout individually, but collectively, they make up the backbone of the American economy.

Products and services offered by more traditional banks and merchant services providers are often designed with larger businesses in mind, making them much too expensive for the typical small business owner. While the small business segment of the market is too large to ignore, most traditional providers don’t tailor their services (and their prices) to the needs of their small business customers.

Since its founding, Kabbage has expanded from merely lending money to small businesses to offering a much more well-rounded suite of services, all of which integrate seamlessly with each other. In addition to Kabbage lines of credit and other lending options, the company recently added small business checking services. Its latest service, Kabbage Payments, was first announced in October 2019.

This platform has gradually expanded in terms of availability and features, with more added capabilities planned for release in the near future. Since its acquisition by American Express in 2020, Kabbage now has the backing of a major financial institution, clearing the way for further expansion in the years to come.

How Does Kabbage Payments Work?

It’s more accurate to think of Kabbage Payments as primarily an invoicing platform with built-in payment acceptance features. Before you can get paid, you’ll have to generate an invoice and send it to your customer. Kabbage makes this as easy as possible with an invoice-generating feature that can be customized to add your business logo and any other information you want to include.

Invoices can be sent to customers via SMS, email, or through the web. If your customer doesn’t have an email address or access to the internet, you can always print them out and drop them in the mail. With SMS or online transmission, your customer receives a customized link to your business, where they can view and save a copy of their invoice. They can also submit payments right from the web page.

With Kabbage Payments, customers can pay their invoices online with credit or debit cards. They can also pay using cash or paper checks, but you’ll have to handle this yourself offline. The invoice tracking feature allows you to manually mark invoices as paid if a cash payment is submitted. Note that the Kabbage Payments website doesn’t mention echeck or ACH payment methods, so we presume these methods aren’t currently being supported.

For some businesses, one of the best features of Kabbage Payments is that next-day funding is included with all accounts at no cost. As long as a transaction processes before 5 PM Eastern Time, your funds will be deposited to your account the next banking day. Transactions coming in after the 5 PM deadline require two business banking days to process.

Here are some other basic things to know about Kabbage Payments:

• It’s Free To Sign Up: You can complete the online application process and get approved in a matter of minutes. Kabbage doesn’t charge any application or account setup fees unlike many traditional merchant account providers. Note that high-risk merchants are not accepted.
• There Are No Monthly Fees Or Long-Term Contracts: Billing is strictly on a pay-as-you-go basis, and you can close your account at any time without penalty.
• Invoicing Limitations Are Very Generous: With Kabbage Payments, you can send unlimited invoices or estimates per month at no cost. Individual transactions are limited to a maximum of $10,000, which is much better than what many merchant services providers allow. Kabbage doesn’t disclose a firm monthly processing volume limit on its website, but there will probably be a maximum monthly amount that you cannot exceed.

Your Kabbage Payments account also includes the following features:

• A dashboard that you can access via a web browser or the Kabbage mobile app
• Support for either full or partial payments on invoices
• Automatic payment reminders that can be sent via SMS or email
• Kabbage gift certificates ($15-$500)
• Miscellaneous business tools available through the Kabbage mobile app
• Free customer support via email or telephone seven days/week

How Much Does Kabbage Payments Cost?

As we’ve mentioned above, Kabbage Payments is available on a pay-as-you-go basis. You won’t have any of the monthly, annual, or incidental fees that come with a typical merchant account. As you might expect, however, the service isn’t entirely free. Here are the costs you will have to pay:

• 2.9% + $0.25 per transaction for credit or debit card payments
• 2.5% payment processing charge per gift certificate

That’s it! Payments made in cash or with paper checks don’t require processing, so depositing them into your business checking account is free. At the moment, we aren’t aware of any other costs associated with using Kabbage Payments. However, this situation may change in the future as the service expands to include additional features that aren’t available yet. Also, please note that the 2.25% per transaction promotional rate that’s still advertised on the Kabbage Payments web page expired on June 30, 2021.

Kabbage Payments’ single processing rate compares favorably with what you would pay if you used a competing payment services provider, such as Square or PayPal. For example, it’s $0.05 cheaper than Square’s card-not-present rate of 2.9% +$0.30 per transaction. Unfortunately, Kabbage Payments also follows its competitors in charging the same rate for debit cards as it does for credit cards.

While you’ll have to pay an inflated rate when accepting a debit card payment, most small business owners will find that they save money overall due to Kabbage Payments’ lack of additional monthly or annual fees.

4 Ways Kabbage Payments Will Simplify Your Business

Relying on invoices for customer payments has traditionally been a slow, convoluted process that’s long overdue for a digital upgrade. Kabbage Payments brings the invoicing process into the 21^st century by harnessing tools you’re already using (i.e., smartphones, tablets, and laptops) to simplify the process of sending invoices and shorten the time it takes to get paid.

Here are the main ways in which Kabbage Payments can simplify the task of running your business:

• It Shortens The Time Required To Send An Invoice To A Client: If you’ve still been sending paper invoices up until now, Kabbage Payments will mostly eliminate the time and cost required to physically mail your invoices to clients and the additional time needed for them to reach their intended recipients.
• It Encourages Quicker Payment By Supporting Credit Card Payments: Part of the delay in the traditional invoice payment cycle is that your customers are themselves waiting on payments owed to them before they can pay you. Enabling the option to pay by credit card makes it possible for your clients to pay you immediately, even if they don’t have the cash on hand right now.
• It Offers Faster Deposit Times On Payments: With physical checks, you might have to wait as long as five days for the funds to be available for withdrawal from your account. With Kabbage Payments, you can have your funds as quickly as the next business banking day. Best of all, you don’t have to pay anything extra for this feature.
• It Supports Automatic Email Reminders For Past Due Invoices: Manually sending out Past Due notices to your clients takes time that could be better spent on running your business. With Kabbage Payments, you can easily monitor the status of outstanding invoices from your account dashboard. Automatic email reminders to clients can be customized any way you like, freeing you from the task of composing them yourself and having to track the status of each invoice manually.

How Does Kabbage Payments Compare To Other Options?

The Kabbage Payments web page would have you believe that the company’s digital invoicing platform is something never done before, which is not true. Online invoicing has been around for quite some time now and is offered by several payment companies that are popular with small business owners.

Let’s take a look at how Kabbage’s service stacks up against its main competitors:

Kabbage Payments VS Square Payments

Square offers nearly every possible service a small business owner could need or want. Its feature list continues to grow as the company expands, including an invoicing feature called Square Invoices. Pricing and terms are as follows:

• Pay-as-you-go billing (i.e., no recurring fees or long-term contracts)
• No charge to send or receive invoices
• 2.9% + $0.30 per online transaction
• 3.5% + $0.15 per card-on-file or keyed-in transaction

Square offers same-day and even instant deposits on your transactions but will charge you 1.5% of the transaction for the expedited processing. If you’d prefer not to pay extra just to get your money, standard processing is free and requires one to two business days. Check out our article on how to use Square Invoices for more details.

Overall, Kabbage Payments will cost you a little less money, but you probably won’t notice the difference unless you process a very high number of invoices every month. Square’s invoicing service, on the other hand, offers quite a few more features than Kabbage does. Square has offered invoicing services for several years now, whereas Kabbage Payments is still a new product. We fully expect Kabbage to close this gap in the coming years as new features and options are rolled out.

Kabbage Payments VS PayPal

As an early pioneer in the online payments industry, PayPal has had even more of a head start than Square in refining and expanding its online invoicing features. Nonetheless, features and pricing are very similar to what Kabbage Payments can offer you.

PayPal Invoicing requires a PayPal Business Account, which is free to set up. There are no long-term contracts or recurring fees, and you’ll only pay processing fees if your customer pays with a credit or debit card. Just like Square, processing fees are either 2.9% + $0.30 per online transaction or 3.5% + $0.15 per card-on-file or keyed-in transaction. Again, Kabbage Payments is a little cheaper, but not by much.

Invoice customization options with PayPal Invoicing are robust, but many businesses will find that the customization options that come with Kabbage Payments are more than adequate for their needs. Although Kabbage Payments is currently a rather basic product still in development, we believe it will rapidly evolve into something just as robust as what PayPal Invoicing can offer you now.

Choosing one vendor over the other will come down to the actual needs of your business. Kabbage Payments will usually be the better option for sole proprietors, independent contractors, and freelancers. On the other hand, if you’re already heavily invested in the PayPal ecosystem, there’s little reason to change.

Kabbage Payments VS Wave Payments

Wave is another very popular service for small businesses, mainly because it’s free (well, mostly free). As part of its suite of business products, the company offers a free invoicing program similar to Kabbage Payments and its other competitors. With Wave Invoicing, you’ll get the same pay-as-you-go billing model as Kabbage, with no monthly fees and no long-term commitment.

Costs for transaction processing are as follows:

• 2.9% + $0.30 per transaction for credit or debit cards (3.4% + $0.30 for American Express)
• 1.0% for ACH payments

Wave currently offers three mobile apps: Wave Invoicing, Receipts by Wave, and Wave Money. While this fragmentation has caused some consternation among avid Wave users, you’ll only need a single app if you plan to just use Wave for invoicing. Note that a single, integrated app that will replace these three separate apps is currently in development.

Wave Invoicing offers the same invoice customization features as Kabbage, although we can’t say that one company stands out from the other in this area. Which one works best for you will probably come down to personal preference.

Both Wave and Kabbage offer a basic but very functional invoicing service that’s adequate to meet the needs of most small businesses. Wave gets a few extra points for offering ACH payments, but Kabbage has a better reputation for providing quality customer support. If you’re already using any of either company’s other services, there’s no reason to switch just to add invoicing capabilities.

Should You Use Kabbage Payments?

A decision to use Kabbage for credit card payments will depend on the nature of your business and whether you’re already using the company’s lending or business checking features. As we’ve mentioned above, Kabbage Payments works best for freelancers, independent contractors, and some service industries. It can also be a good choice for a business that takes a lot of B2B payments using invoices, although Kabbage doesn’t seem to promote this use case very much.

Pricing for Kabbage Payments is about as low as you can get, with no account fees and the ability to send and receive an unlimited number of invoices from your Kabbage account dashboard. You’ll still need to pay for credit card transactions, of course. Those charges are unavoidable with any provider, as they have to pay hefty interchange fees to the credit card associations and issuing banks for every transaction.

Kabbage Payments, however, is currently not a viable alternative to a full-service merchant account. It’s also not suitable for retail merchants who make dozens of sales every day. There’s currently no support for in-person credit or debit card transactions — a serious limitation for some businesses. Fortunately, the company has announced that it plans to roll out support for countertop terminals and POS systems sometime later in 2021. This will be a welcome addition to the service’s currently somewhat limited feature set and will make it a more viable option for a lot more small business owners.

Kabbage Payments can shorten your overall payment cycle by instantly transmitting invoices to your clients and shortening the time it takes for deposits to post to your business checking account. However, it won’t necessarily reduce the time it takes for a client to issue a payment on your invoice. Adding the option to pay by credit card can encourage faster payment, but it won’t do so in every case.

Overall, Kabbage Payments is a solid product that will be a good choice for the types of businesses it’s designed to support. We’re looking forward to seeing what additional features the company adds to it in the future. At the same time, if you’re already using an online invoicing service from a competitor and are happy with it, the slightly lower costs for credit card processing aren’t reason enough to switch from your current provider.