How to Guide: Accepting Bitcoin

Revised on 1-29-2016.   would like to start this guide off by referencing the wiki page here, which served as a starting point for me.  This is a primer guide designed to get your small business on track to taking Bitcoin payments, with the least amount of headaches, right away.

Are you a CEO for a large business or organization with several accounting departments and divisions?  If so, this guide may not be for you and I would instead recommend for you to utilize Bitpay for your business which is a tailored end-to-end solution for larger businesses looking to integrate their existing products seamlessly with BTC.  The most important step here is actually Step 0:  The planning phase.

Step 0: Planning

The bottom line is that, your plan, if left to the devices of your front line employees, could deviate dramatically, without having a proper set of procedures in place.

Ask yourself the following things about your small or medium business:

What is your operations model?  (Are you a physical, brick and mortar storefront or are you an Ecommerce website?  Perhaps both? Do you offer invoicing or terms payments?)

Does your Storefront or Business have internet Access or a management staff member available with a smartphone?

Do you offer a good, a service, or both? Are your offerings typically refundable or non-refundable?

What do you ultimately plan do to with the BTC itself?  Are you simply looking for another avenue to generate sales and plan to liquidate the BTC immediately back into Dollars|Euro|Pesos|Dinar etc?  Do you plan to retain some of it for speculative purposes?

stop sign
  Answer the questions I listed above before proceeding.

 

 

Step 1: Setting up your Storefront | Operations to promote BTC Acceptance

Buy your own BTC Accepted Here sticker label  – place it on the door or storefront window next to the Visa|MC|AMEX|Discover marquee stickers.  This will not only spread awareness of BTC as a currency to your regular customers, but will also allow existing Bitcoin users to now associate your real world business as an example to recant when also telling their own friends and strangers about Bitcoin. If you run a mobile type of business (independant mobile lockout service for example), consider applying a bumper sticker or clear window decal to your vehicle to also promote adoption.  For your countertop or Point of Sale Area, do be sure to have your store QR code easily visible to be scanned, it also helps to have a separate browser window open with your address being viewed on a block explorer. either on a smartphone, a tablet, or a PC closeby to be able to confirm payments received.  While having a browser with a blockexploerer is not required – it allows employees at the cash register to view the address and confirm payments.  Blockchain.info is the most well known of these, however there are many such as btc.blockr.io, blockexplorer, and biteasy are also great alternatives.

Step 2: Setting up your Back-End

Choosing a Wallet.  This should be easy enough:  Coinbase or Blockchain.  I suggest those web-based wallets for setup because they are quick to setup – can be used with smartphones, tablets, and even as far as using sms based administrative actions with a coinbase wallet (so if you had ye olde Nokia 3310 you could still send and receive bitcoin from a coinbase wallet with that phone!)

Nokia 3310
Is this your phone? Congratulations you can take SMS based BTC payments!

Beyond ease of use, these services do not require a full-time, always on, always connected computer. Using the Standard Core Bitcoin Client requires a full time, always on always connected computer to issue new addresses and see notifications of funds being received.  Why would a business choose the harder method you ask?  I will get to that later.

Once you have a wallet setup, be sure to enable 2factor Authentication – I recommend using AUTHY or Google Authenticator to secure this new account.  2 Factor authentication requires the registered smartphone to be available to login to this account – it is linked to one phone number as far as I can tell – this means you should only link 2FA onto the Accounting Manager’s phone or possibly the CFO.  Whoever has access to this authentication in addition to the password, could potentially have access to your BTC as though it was cash and could transmit it to themselves.  At this point you now have an important decision to make as it will impact your accounting and BTC related processes, that is, how to associate payments within your accounting system.

Step 3:  Setup a payment address(es) policy

The plain answer is – as often or as little as you’d like.  Now naturally you may say “okay then I only want one single BTC payment address” – that would be perfectly okay to do.  It would also be the easiest to present as you could simply create permanent signs with your QR code next to your Cash register & in your menus/brochures.  However, as an accounting best practice, I would recommend creating a new address per register|terminal for each accounting period in your calendar year.  (Your accounting period is determined by how often you reconcile your books.)  The overwhelming majority (more than 90%) of businesses use a monthly accounting period cycle which means their books will reset each month and all accounting related activities will be locked in record for an associated month.  Why make one for each register?  Imagine that you run a cannabis dispensary that accepts bitcoin in WA – what do you do when 3 different cash registers have different orders but the same price total? – how is the clerk to know for sure that this payment received is indeed THEIR customers’ payment and not the customer on the next register?  By having a QR code per register|terminal you eliminate this confusion and allow the cashier to see, in confidence that THEIR customer’s payment has been received.  (Now, imagine a store like Lucky or Safeway want to accept BTC within their stores – this would be a nightmare to manage which is why I recommend using Bitpay for larger companies looking to integrate directly and accept BTC payments)

Changing your payment address each accounting period makes it easier to keep track of bitcoin related sales and transfers of funds. (which I would do at the end of the accounting period to keep consistency)  For that matter is also allows reconciliations to go by smoother as well.  Increasing the number of addresses used just becomes cumbersome – having a specific address tied to each order is a total pain to deal with – just keep one wallet per accounting period and match the transaction id to the order on the reconciliation itself .

Each transaction on a BTC address within your wallet has a transaction id – use this like the equivalent of a check number from a remittance payment within your accounting solution. Notice it right below the TRANSACTIONS header on the left of the page

Again, I only recommend that you setup addresses for each accounting period as a general rule of thumb – there are certainly exceptions to this rule that I will discuss over time in a few future articles related to accepting bitcoin within certain conditions (how could a mom/pop restaurant take BTC payments with Servers and Tipping – for instance? and how could a therapist take BTC deposits towards prepaid hours?)

Step 4: Integrating BTC with your existing Cash Register | POS

Bitcoin in and of itself is being now used as a payment method for your business.  If you currently use a Cash register and DO NOT accept personal checks – use the Check function of your Cash register to be able to account for BTC sales.

If you do also take checks in addition to credit cards on your cash register, there is typically a 2nd type of charge button which could be used to differentiate sales on the End of Day Register Journal Tape.  If you have no way to add an alternative payment method – you will need to upgrade to another cash register or POS system (using a discount function to account for sales is dangerous because it could cause confusion during accounting reconciliations and also could cause employees to make mistakes during the actual point of sale with the customer).  If you are using a Point of Sale Terminal, simply utilize the same methods above.  Create a custom payment method that is a variant of Charge card and call it Bitcoin – have the payment received in full upon confirmation when viewing the address from either the wallet itself or from a block explorer as mentioned above.

Step 5: Taking Payments

Finally the moment you have been waiting for:  you’ve setup a wallet with a payment address, you’ve printed out your QR code signage to be posted on or near the cash register terminal, you’ve promoted on reddit and within your own local boards and on craigslist that you now accept Bitcoin for your business!  A customer comes in and wants to now buy something in Bitcoin, now what?  1st of all, thank him, then proceed to enter the item as normal into your cash register | pos terminal.  Ask him to send payment to the address on the QR code signage – pointing to it.  Once customer confirms that “I sent the payment”, check your address using the block explorer (or conversely, if you have your wallet already open, you can confirm payment immediately as well).  If it says unconfirmed transaction – success!  the transaction has been broadcasted to the network and it is safe to complete the transaction on your terminal and give the customer their receipt (The bitcoin network will continue to confirm transactions indefinitely – when they are first broadcasted they are considered ‘unconfirmed’ but they have been broadcasted)  The only exception to this rule is if you are dealing with a high cost item (>$500) – in that case, I would request that the transaction is confirmed 3 times before releasing the item – the reason for this is because while the person spending their BTC is likely trustworthy, there could be a case where they send you the money then immediately send the money to someone else using a hacked version of the wallet – For example they could have the wallet on two different phones sending to both you and someone else at the same time – the transaction is broadcasted and you see unconfirmed transaction on your end.  The bottom line is that if there is a lot of money involved, then have a ‘waiting’ policy to confirm confirmations on the network before releasing the item.

Step 6: Turning your BTC back into local Currency 

As of this moment, there is very little that you can do with the BTC proceeds from a business standpoint – I suppose you could use cheapair.com to order flights with BTC and perhaps expedia as well to book hotel rooms and rental cars, but as far as business verticals – like payments to McClane Distribution or Kimberly Clark for replinished inventory such as cleaning supplies – there are virtually zero companies within this space (hint hint! Be a First Mover in your Industry!) which is why this last step is currently necessary.  Remember how I asked you earlier:  “what do you plan to do with your BTC?  Keep it or convert it?  some of both?”

Again, going back to my “easy-advice” – use Coinbase.  They can link your bank account to your bitcoin wallet so that you can quickly sell the BTC for local currency.  To take advantage of the speculative aspect of the currency, I recommend holding onto 10% of your BTC as BTC so that if the price does climb to higher levels, you will have gained and the appreciated value of the BTC held – conversely, if BTC loses value, you could use that as a potential tax deduction if sold at a loss before the new Tax year.

Also, a 2nd option which I will go into much more detail in another article is to use a BTC ATM and replenish available BTC on that ATM with your BTC sales – this will allow you to have a looped cycle for BTC within your storefront.  DO expect to have to occasionally rebuy some bitcoin from time to time to refill the BTM if you’re out, but remember that by taking BTC payments and having a BTM, you do have a means to cycle the BTC to cash without needing to involve coinbase (or bitpay or any other exchanger for that matter).

OPTIONAL Step 7: Handling Refunds

At some point this will come up from time to time and that is – how do I issue refunds?  To mitigate any risks to your company I would establish a bitcoin specific refund policy and have it printed onto your sales receipts|invoices if possible.  More likely than not, your business denominates its goods in services in the local currency – that is, you sell me a hamburger for $5.00 USD, NOT .0079 BTC that I paid at checkout, Today, 7-18-2014, but $5.00.  If you issue refunds for your goods and services, notify you customers (this is where having it printed on the receipt counts as notification) that refunds will only be issued for the amount in dollars only.

Now you must make another decision: do I issue refund in BTC back or simply in dollars?  Ultimately, it is your choice as to whether you will refund back in BTC or simply in dollars or in store credit even if that is your existing store policy.  If it were my decision and I were running a brick and mortar storefront, I would offer a refund in the form of cash and not bother with calculating the exchange rate and returning the BTC – if you were to offer BTC back as a refund, you as a merchant, open yourself up to exchange losses if BTC suddenly drops dramatically in value.  Imagine that I purchased a table for $30 dollars in bitcoin today which cost me only .05 BTC, and within two weeks, something drastic causes BTC value to 300 dollars – nearly half as of this writing.  Now when I go to return my table – if you gave me a refund in BTC, you would have to pay me .10 BTC instead of the .05 BTC I purchased.  The bottom line – setup a policy that will refund back in dollars only – if your business has a refund policy.

In conclusion, it is very easy and inexpensive to accept Bitcoin Payments.  With a printed page, your smartphone, and perhaps 20 minutes of your time, you too can augment your small business to accept BTC.  This how-to guide is focused towards physical merchants because accepting BTC through e-commerce is much much easier and has been covered numerous times by many of the references given above. In our next piece for this series, I will focus on the accounting model and setup for a small business that offers invoicing and terms (a commercial electrical company for instance) then for our third piece, I will explain some BTM best practices for ensuring smooth operations when utilizing a BTM in conjunction with Accepting BTC.

Till Next Time,

Frankenmint

 

  • Joe Coyle

    I really enjoyed reading this guide. Thank you very much.

    Can you add to the section that discusses BTC ATMs to include MSB regulation and compliance. I have read that coinbase will suspend a user’s account after a couple months of processing BTM transactions.until they can provide proof they have a money transmitter license. This could also put the owner and operator at risk to legal issue in the state they are operating their BTC ATM if their state requires the business to register as an MSB..

    Regards,

    Joe Coyle

    • For sure Joe, I appreciate the feedback, I’m glad to you dropped by. I feel that this topic would require its own article so I could adequately research the legal environment more thoroughly. I can tell you from my own experience that one ATM operator told me in person that they were denied from using marketing materials or signage of any kind to specify that the device was an ‘ATM’ of any sort.