What You Need to Know About Using Venmo for Business

The rise of Venmo and other mobile payment services quickly changed the way a lot of us handle money. Suddenly, with just a few taps on your phone, Venmo ended the awkward credit-card shuffle.  One person could cover the bill, and everyone else could Venmo the payer their share before even leaving the table.  You could pay your neighbor’s kid for shoveling your driveway or chip in on a group gift for a friend’s birthday too. But what about using Venmo for business purposes?

Because Venmo is so ubiquitous now, you can assume that many of your customers prefer to pay this way. As a business owner, accepting Venmo payments may help you appeal to a young audience and retain existing customers who want to pay for everything from their phones. Unfortunately, using personal Venmo accounts for business can be problematic. In fact, even the recently released Venmo business accounts have limitations. Here’s what you need to know when using Venmo for your business.

Venmo offers separate personal and business profiles—but neither provides buyer or seller protection.

Venmo was designed for personal use, as a way for friends and family members to pay each other. The idea was that, because users would already know and trust one another, there was minimal risk that people would be scammed into sending money to someone and receiving nothing in return.

Consequently, Venmo doesn’t offer protection for buyers or sellers. If a user is tricked into sending money under false pretenses, Venmo won’t help them get it back. According to their user agreement, users, “could lose both the underlying goods or services and the money sent for them,” if transactions don’t follow the business terms in the user agreement. Venmo’s user agreement also states, “Do not use Venmo to transact with people you don’t know, especially if the payment involves the purchase or sale of a good or service.”

This means, by the company’s own admission, Venmo isn’t the optimal platform for conducting business with unfamiliar clients—but really, per company rules, you shouldn’t be using Venmo for business at all. Up until recently, the company only offered users personal accounts, which it specifically forbids people from using for business transactions.

But things are changing. In mid-2020, Venmo introduced a new account option: business profiles. Creating a business profile should allow business owners to connect with customers and easily accept Venmo payments. The catch? Most businesses can’t participate just yet. As of early 2021, business profiles are only being offered by invitation, though the company says these kinds of accounts should be openly available for more businesses in the future. Because Venmo for business is such a new feature of the company’s services, and there are many kinks that still need to be worked out, it may be a long time before you feel comfortable accepting Venmo for business transactions.

There are tax considerations.

Let’s say that in the near future you’re able to create a business profile and accept payments with Venmo’s blessing. Before you do, it’s critical that you understand your tax obligations around these payments. If you receive payments through Venmo, they must be reported in your taxable income on your tax return. Payments made to vendors through Venmo must be tracked for 1099 reporting purposes. 

Venmo transactions are a lot like cash or general bank account transactions. The IRS requires receipts or invoices as backup for cash payments. For things like employee expense reimbursements, the IRS won’t accept a time-stamped Venmo transaction alone as proof for a tax deduction. Be sure to discuss Venmo reporting and tracking with your accountant before accepting payments this way.

You may not save money.

Personal accounts are free on Venmo (though there are fees for certain services), which is part of the reason why accepting Venmo payments may seem appealing to business owners. But if you’re able to establish a business profile, you may be alarmed by how much Venmo takes. The company plans to charge 1.9% + $0.10 per transaction for business profiles.

You have alternative options.

For some businesses, Venmo may eventually be a great option. If it doesn’t work for you, consider building your credit card processing costs into your service fees. Sure, you’re still paying the costs, but you’re accounting for them elsewhere.

Of course, there isn’t a one-size-fits all solution here. The fees associated with ACH and E-Check payments are often less than those for credit card processing as well. Programs like QuickBooks and FreshBooks are well-tested and used often. Ultimately, we urge you to make sure the system you choose allows you to keep accurate books and track sales and expenses in real time.

Let’s talk strategy. 

We know there’s a lot of confusion about payment methods available to you as a business owner. The professionals at Abbott & Company LLC can help you choose the virtual payment methods best suited to your business’s operations and budget. Contact us today to discuss a virtual payment strategy that meets your billing, accounting and tax needs.

by Melinda Abbott, CPA

As a CPA and small business owner with experience in corporate America, Mellinda Abbott is a distinguished, invaluable personal and business tax advisor. She understands the everyday issues, compliance matters, best practices, and operational concerns of her clients. Mellinda prides herself on fostering personal client relationships while providing year-round, customized services to her clients designed to maximize savings, limit tax exposure, and, most importantly, to help her clients attain their financial goals.