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The Startup Founder's Guide to Payments Processing Solutions

First Republic client Henrique Dubugras, founder of the corporate charge card startup Brex.

No stranger to the complex world of payments processing, Henrique Dubugras started coding at 12 and, by the time he was 16, had co-founded Pagar.me, a Brazilian-based payment solutions company. Now in his early 20s, Henrique navigated the entrepreneurial waters of Silicon Valley to start Brex, a corporate charge card startup. Now he’s focused on leveraging his past experiences to help other entrepreneurs find the right solution for their business expenses.

We recently sat down with Henrique to discuss why the payments industry is ripe for evolution, the challenges founders face with that part of their business, and potential solutions they can try.

Take the time to set these things up the right way from the beginning. It will save you tons of time, money and resources later on.

As a young entrepreneur, why did you decide to focus on payment processing?

Simply put, I wanted to improve the payments process for businesses. I met Pedro Franceschi, my co-founder at Brex, on Twitter. Both of us had prior payments experience and had been coding since we were young, so that helped us grow our first startup, Pagar.me.

Over the course of three-and-a-half years at Pagar.me, we achieved $1.5 billion in total processing volume. We decided to sell that business in 2016 because we were accepted at Stanford. But then, after moving to the U.S., Pedro and I saw more areas of opportunity here and decided to continue pursuing this space for our next startup, which became Brex.

In looking specifically at handling payments, what are some of the available options entrepreneurs have for paying clients and contractors?

  1. First, pay with a credit card if possible.

    It’s the lowest friction option. Credit card payment is the easiest option for businesses since it’s processed instantly, you have 30 days to pay and you get to enjoy the best fraud protection and security. Also, it’s automatically reconciled on your books if your card is set up properly. However, some vendors don’t accept credit cards.

  2. Your second option should be to try ACH.

    ACH payments are reversible, in case something goes wrong. The bad parts about ACH are that it can take a while to process and paying via ACH means giving out your bank account number.

  3. If you require an instant transfer, your default choice should be a wire transfer.

    Wire transfers are fast, which is helpful in scenarios where you need to route payment quickly. The bad part about a wire, though, is that if the sender makes a processing error, it's more challenging to get the money back. Furthermore, because wires are often irreversible, they can be difficult to process as banking systems rightfully have lots of checks in place to make sure the wire is accurate. 

  4. If there’s absolutely no other option, then write a check.

    Checks can be cumbersome and people lose them, but they’re still an option because certain vendors only accept checks.

    As for peer-to-peer money transfer platforms like Venmo, I wouldn’t recommend them for corporate payments as they are somewhat difficult to control and can mix business and consumer payments in a bad way.

Does the type of invoice sent by a contractor make a difference in how you should pay them?

Sometimes invoices include an area for credit card information, so you can complete that section in that case. But, if a vendor or contractor won’t deliver your product before you pay them and you really need that product tomorrow, just wire them the money.

You should follow the same steps we touched on earlier in this scenario — opt for a credit card payment as your first choice, then try ACH. If you need instant, go wire, and only if you absolutely have to, go check.

Smaller startups can be slow to set up their payment processes. Why is it so important for entrepreneurs to get ahead of this and nail it down so it works right?

Many first-time entrepreneurs just think it’s harder than it actually is. What often happens when there isn’t an established payment process early on is some non-technical person on your team becomes responsible for payments, and they’ll spend entire days paying for things. They’re going to be the bottleneck.

So, I recommend taking the time to set these things up the right way from the beginning. It will save you tons of time, money and resources later on.

What are the best ways entrepreneurs can set up an internal structure to accommodate wires as well as more involved payments?

Often, setting up a chain-of-command approval process with multiple people involved is an easy way to start. For example, one easy thing we did from the very early days was create a method of documenting approvals for payments — if someone had a payment that needed to get out, then someone else with authority in the company could respond with an email saying “approved.” So, then you have evidence that the payment was approved.

When two people are involved, wires typically aren’t a problem either. Whenever a wire is sent to the banking system, you have someone to add the payment and someone to go into the system and approve it. Also, when you get audited at some point, they’re likely going to require this level of documentation anyway.

What are some of the security risks involved in using these forms of payment that entrepreneurs should know about?

The biggest issue businesses often have with cards is that they don’t have controls — that anyone with access to a card can swipe it anywhere. With credit cards, charging your card and getting money back is a fairly simple process, but with debit cards it’s more complex. Using only debit cards for payments is not something we recommend for entrepreneurs. Alternative card options — like what we’ve built at Brex — give companies the opportunity to set limits and controls on individual users’ cards.

ACH and check payments are a little different in that the money actually leaves your account when the deposit is made, and wire and cash are the less safe payment methods because they’re often not reversible.

Finally, what are some of the biggest payments mistakes you see entrepreneurs make?

A lot of entrepreneurs get stuck with huge amounts of credit card debt because they didn’t know their cards were personally guaranteed — that information is always in the small print no one reads. If the company is not doing so well and you decide to walk away, you are personally responsible for any credit card debt the business carries. This is why entrepreneurs should utilize providers that don’t immediately report to FICO and damage your credit score.  

Another mistake is not leveraging accounting practices like keeping and recording all receipts from the beginning. It’s really annoying to fix your books later. For those entrepreneurs who neglect accounting, it’s like when you were in school and you procrastinated on an assignment until the very last day before your homework was due. Now, multiply that scenario by years and that’s what some entrepreneurs are faced with if they haven’t tracked their finances with accounting software.


The views, opinions and recommendations in this article are those of the interviewee and do not necessarily represent the views, opinions and recommendations of First Republic Bank.

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