Direct Payouts & Taxes
"I am about to sign up with Stripe or Square and I am wondering who decides if a guest can get a refund. What if a guest files a chargeback because they want to leave early and the host stands firm on their cancellation policy? Does Stripe or Square decide if the guest will get their money back even if the guest agreed to my cancellation policy?"
The issuing bank determines the outcome of credit card disputes (chargebacks).
What is an issuing bank?
An issuing bank is the financial institution that issues a credit card to the cardholder (your guest's bank).
What is a credit card network (association)?
The most popular networks are: Visa, Mastercard, American Express, and Discover. American Express and Discover are both issuing banks (issue their own credit cards) as well.
What is a payment facilitator?
Stripe, Square, and PayPal are just a few examples of payment facilitators.
What is a merchant?
The vendor who sells services/goods (you). If you use a payment facilitator, it may technically be a shared merchant instead of a "traditional" merchant account with your bank. For simplicity, consider yourself the merchant even if your payment facilitator is the "merchant of record."
Whether you are a restaurant owner or sell jewelry at art festivals, when you accept credit cards, the cardholder can file a credit card dispute (chargeback) with their bank.
Have you ever noticed hosts say an Airbnb rep. told them they cannot charge a guests credit card without their permission? What about owners who said their Vrbo guest agreed to their cancellation policy but still won in a chargeback dispute?
The credit card networks (VISA, Mastercard, Discover, American Express) set certain policies that merchants must abide by when accepting their cards. And these policies can vary between industries. One of these policies is how a cancellation policy should be presented to the credit card holder.
Some owners have lost chargeback disputes because they did not follow the credit card network policies. But who reads through all that fine print?
The card network may have required the merchant to obtain the card holder's signature within so many inches of the cancellation policy. This information could have been buried on page 50. And the host was told a signature at the very bottom of the rental agreement was not sufficient to meet the card network's requirements.
Always require Id of the credit card holder so the guest does not claim the transaction was not authorized. Include a signature line within less than an inch of your cancellation policy. Bold some of the text so the font is conspicuous as well. It's much more difficult for a guest to dispute they overlooked a policy like this:
The above will wipe out 95% of issues. Guests will still often ask what their cancellation options are, even after agreeing to your policies. And you are always free to override your policy and make an exception.
Both Stripe and Square have their own best practices for fraud and chargebacks. I will highlight those in another post.
We have connected Stripe and Square on Houfy for you to receive direct deposits & payments from your guests. This will only work if your listing is verified by us.
The process to add this service is extremely simple:
Please Log in > Menu > Manage Listings > Payments & Payouts
Connect your properties to the accounts you would like to receive your funds in. (Below an example of 2 properties, 2 bank accounts)
Square: Pricing?
What are the countries that support Square?
Card payment acceptance with the Square app is currently available in the US, Canada, Japan, Australia, and the United Kingdom. Square currently doesn’t support payment card processing outside of these countries or in U.S. territories such as Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and Northern Mariana Islands.
Stripe: Pricing?
What are the countries that support Stripe?
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Japan, Luxembourg, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, United Kingdom, United States, Italy, Portugal
Sample of booking process with payment:
If you have more questions, please join our facebook member group
In order to connect to Houfy, you must use one of the integrated processor oprtions: at this time Stripe and Square. You can still choose to use any payment methods to invoice your guests directly.
Can my guests still send me an inquiry?
Yes. If your payment method is not connected then travelers will send an inquiry and you will invoice directly. From the inquiry you can use the "mark as confirmed" button. This will block the dates on your calendar while you arrange payment directly with the guest. Here is information of what to expect for your first inquiry or online booking request.
How do I add my own payment method?
Just complete the payment information section on your listing to let travelers know what kind of payments you accept. Check off any credit cards and add any additional information in the payment policies box.
What are the pros and cons of Stripe vs. Square?
Here is a comparison guide of Stripe and Square. Once you sign up for a free Stripe or Square account, you need to connect it to Houfy so travelers can book your property online.
In order to recover your credit card costs in your rental pricing, you need to understand the true cost of accepting credit cards. In this story, I'll explain how to determine the true cost of the credit card fee relative to your rental rate and how to set your rental rate at a value that will allow you to receive the rental take-rate you desire to cover these credit card costs.
Square Pricing Structure
Since I'm familiar with Square Email Invoice Pricing, I will use that service in my following calculation examples.
Square charges a fee of 2.9% on the invoice total plus 30 cents per invoice (as of October 2019). This is the cost for either email invoice or taking payments through Houfy using Square integration.
The cost to you can vary by the number of invoices you accept payment on:
- One invoice for all = 2.9% of invoice + 30 cents
- Two invoices for all = 2.9% of both invoices + 60 cents
- Three invoices for all = 2.9% of all invoices + 90 cents
Net: The more invoices issued and then paid through Square, means a slightly higher cost by fractions of a dollar to you.
Note: If you issue an invoice through Square, but payment is received outside of Square, you can mark the invoice paid with a notation of how that payment was made. Square will not charge you a fee on the invoice if they did not actually collect the payment.
What's on Your Invoice?
The invoice to your guest includes not only your rental fee, which could vary by the rental period, but also additional static or variable fees you charge (cleaning fee, additional guest fees, security/damage deposit etc), plus the taxes you collect for all taxing authorities on all the taxable items on your invoice (local, state, tourist, etc.).
Consider that not all these charges are for money going into your pocket. The cleaning fee may be the exact charge your cleaner charges. Many of the items on the invoice are taxable in most jurisdictions.
Net: You're paying the 2.9% Credit Card Fee on everything on your invoice including charges that aren't yours.
Let's Calculate the True Cost
This is where Algebra education will come in handy! Let me define some values and variables and develop formulas to calculate the true credit card cost.
Let's set the variable X to be the rental fee you plan to charge. This could include variable fees that you charge such as extra guest fee. The thing to understand about X is that this is money coming to you. This variable X is taxable.
Let's say that you require a $250 deposit for every reservation. It's a static cost that you will be charging. Per your tax jurisdiction, this is NOT a taxable item. This is also money going to you with the intention of refunding to the guest after their stay.
You also collect an $80 cleaning fee per reservation. This fee is taxable and you are required to collect the tax on this fee.
In this example, I will keep the taxing requirement easy. Let's say the tax rate is 9%. This rate will be written as .09 in our mathematical formulas.
The Square credit card fee is 2.9% and will be expressed as .029 in our formulas.
These are the items that will be included on the invoice to the guest:
Rental fee + tax rate on Rental fee + deposit + Cleaning Fee + tax on Cleaning Fee
When calculating your specific formula, it might be easiest to start as I've shown above, using words to list all items that will be included in the invoice.
Using Algebra, the formula looks like this (remember X is the variable associated with your rental fee from this guest.)
Invoice to guest = (X + .09X) + 250 + (80 + .09(80) )
Invoice to guest = 1.09X + 337.20
For a rental rate of $1000, this invoice to guest would be $1,427.20
The total is then charged 2.9% by Square, shown in the next formula, where I've also grouped values from our invoice values above and also added the 30 cents that Square collects per invoice payment received.
Square Fee = .029 * ( 1.09X + 337.20) + .30
Using Algebra, let's adjust this formula so it's easier to work with:
Square Fee = .03161X + 9.78 + .30
Square Fee = .03161X + 10.08
This Square Fee formula takes into account the 9% tax on the rental fee as well. ex. As X, the rental fee increases, X is still multiplied by 1.09 (rent + tax) and the .029 Square fee.
Let's Plug in Some Numbers
Let's say the rental fee to our guests is $1000. Using our established formulas that include deposit and cleaning fee:
Square Fee = (.03161 * 1000) + 10.08
Square Fee = 31.61 + 10.08
Square Fee = $41.69
Summary on $1000 rental rate:
Invoice to guest - $1,427.20
Tax on rental rate paid by guest: $90.00
Square Fee - $41.69
Your true take rate on the rental is actually $1000 - $41.69 = $958.31
Adjusting Your Rental Fee for Credit Card Fee Recovery
If you'd like to adjust your rental rate to cover this credit card fee, increasing the fee by $41.69 will not do that! This is because all prices on your invoice will be charged the same 2.9% fee. This would mean you would pay 2.9% fee on the $41.69 too, thereby collecting less than $41.69 from Square!
On top of that, when you charge a higher rental fee to recover this Square processing fee, you'll also have to collect more tax on the rental fee increasing the Square processing fee further than just the rental fee increase.
Let's figure out Rental Fee that Covers the Square Charge
If we didn't have fees, we've already determined that our invoice to guest including deposit, cleaning and taxes would be $1,427.20. So let's work towards receiving that amount....or really an amount close to this number. Keep reading to understand this....
We've already determined that our fixed costs including tax on cleaning fee totals $337.20. We also know that the Square fee is .029 times the total of rent + tax and these fixed costs.
Our formula that takes into account the Square Fee should result in a total received by us as $1,427.20. This total assumes we're collecting $90 in rental tax. But we know that with a higher rent, our tax will also be higher. We'll have to receive not only the $90 on the first $1,000 of rent collected, we need to receive 9% tax on the new rent amount over this first $1,000. Therefore, our new invoice must not only total $1427.20, but also include the 9% tax on the new rent over $1,000.
Here's our new formula and the steps to solve for New Rent:
Taxable New Rent + Fixed Costs - Square Fee = $1,427.20 + .09 (New Rent - $1,000)
1.09(New Rent) + $337.20 - [ .029 ( 1.09(New Rent) + 337.20) + .30 ] = $1,427.20 + .09 (New Rent) - $90
1.09(New Rent) + $337.20 - .03161(New Rent) - .029(337.20) - .30 = $1,427.20 + .09 (New Rent) - $90
1.05839(New Rent) + $327.42 - .30 = $1,427.20 - $90 + .09 (New Rent)
1.05839(New Rent) + 327.12 = $1,337.20 + .09 (New Rent)
1.05839(New Rent) - .09 (New Rent) = $1,010.08
.09639 (New Rent) = $1,010.08
New Rent = $1,010.08 / 0.96839
New Rent = $1,043.05
We would have to charge $1,043.05 to our guest to recover $1,000 after Square fees.
Let's Verify
Rent is $1043.05. Tax on rent is $93.87. Our fixed cost including taxes remains at $337.20 for a total invoice to out guest in the amount of $1,474.12. The Square fee is .029 * $1,474.12 + .30 = $43.05.
Subtracting the new Square fee of $43.05 from the new rent of $1,043.05, we get $1,000.00, our intended take-rate for rent.
This fee is 4.1% of your new rental rate ($43.05/$1,043.05) and 4.3% of your desired rental take ($43.05/$1,000).
Let's Calculate Rent When You Want $1,500 Income
Using the same fixed fees as in our earlier example, the total including related 9% tax is still $337.20. If our goal is to take in $1,500, then our the desired amount from the guest is:
1.09 * $1,500 + 337.20 = $1,972.20
Let's figure out New Rent to charge in order to recover $1,972.20 + the additional new tax over the first $1,500 in rent.
New taxable rent + fixed costs - Square Fee = Value Invoiced Before Square Fee + New Additional Tax on Rent
1.09(New Rent) + 337.20 - [ .029 ( 1.09(New Rent) + 337.20 ) + .30 ] = $1,972.20 + .09 (New Rent - $1,500)
1.09(New Rent) - .03161(New Rent) + 327.12 = $1,972.20 - $135 + .09 (New Rent)
.96839(New Rent) = $1,510.08
New Rent = $1,559.37
Let's Verify
New Rent plus 9% tax is $1,699.71. Fixed costs are still $337.20 for a total invoice of $2,036.91. The Square Fee on this amount is $59.37. Subtracting the Square Fee from the new rent, we receive $1,500.
In this example, the Square Fee as a fraction of the new rent is 3.8% ($59.37/$1,559.37). As a fraction of our intended rental income of $1,500, the Square Fee is 4.0% ($59.37/$1,500).
How Can You Calculate The Upcharge?
- Determine the amount you would collect if there was no credit card fee. This invoice would include your desired rental income, all taxes and any fees you charge. This is the base amount you need to still receive. This base amount includes the tax on your intended rent.
- Build your mathematical formula to solve for new rent. The formula needs to subtract the Square fee from the proceeds and acknowledge the additional tax created by the higher rent. The formula would look like this:
New Rent + Tax on New Rent + Other Fixed costs including tax - Square Fee on these 3 items = Value from Step 1 + Additional Tax Required on this New Rent which isn't included in the value in Step 1.
Plug 'n Play Formula
Assuming that there is a single tax rate that applies to all taxable items, just plug in your desired rental take into this formula along with the total non-taxable items, the total taxable items and the tax rate (ex. 9% is written as .09 in the formula) to determine the rate you need to charge to recover your Square fees. This formula assumes just one invoice.
Suggestions on Recovering Credit Card Fees
Rather than accept the Square fee as an expense and reduce your overall income, you might want to charge the guest to recover fees associated with credit card processing. Know that it is illegal in some places to charge a fee explicitly for recovery of this cost. You can increase your rental rate to ensure your income covers this cost. After making these rental fee adjustments, you could offer cash discounts (if allowed in your jurisdiction) ensuring that your net take is the same regardless of payment method.
Personally, I get a little disgruntled when I get an invoice that includes a fee designated as related to my payment by credit card. I would rather that cost be buried in the price of whatever it is I'm purchasing. For that reason and based on these examples where we assume that most reservations are for the $1000 rental fee and a single invoice, I would suggest increasing the rental fee by at least 4.3%. So instead of $1000 rental fee or the $1,043.05 calculated to return $1,000 income, charge the guest $1,050. If most reservations are in the $1,500 range, I would increase the rental fee by 4.0%. Please remember that my examples incorporated a specific tax rate and specific fees that influenced this percentage increase required.
For check payments, you can offer your guest a discount on your new rental rate and still make the rent you intended. However, I would save that offer for repeat guests who are more likely to pay by check since they are familiar with you and your business.
A Note about Refundable Security Deposit and Square
If you issue a refund of the security deposit within 1 year (for invoiced payments and those made using Square integration), Square will also reimburse you the 2.9% credit card fee along with the 30 cents if that invoice was solely for the credit card fee. In my calculations above, I included the security deposit fee as a cost I want to recover. I would suggest keeping the security deposit in the calculation rather than assume the deposit fee will be reimbursed in the future. Square could change its policy or you may be miss the reimbursement window and have to refund the deposit by personal check instead of through Square.
I've compiled a summary of the differences I've learned about both Stripe and Square. Connecting Stripe or Square to your listing allows travelers to book and pay like they would on Airbnb and Vrbo. Houfy does not have "instant book" so you always have the ability to accept/decline the Pending Direct Booking.
Be sure to visit the Square and Stripe websites directly for the latest updates and information. Be sure to contact them directly for questions about your account.
You can sign up for Square directly here through this referral link if you are in the U.S. For Stripe go to Manage Listings > Connected Payments.
1) What is the cost to signup?
Both Stripe and Square have no contract signup fees or termination fees. If you don't like them, cancel any time. Credit card processing fees are similar to what you pay Airbnb, Vrbo, and PayPal to accept credit cards from travelers. Traveler payments land directly in your bank account as they never pass through Houfy.
2) How quickly will I receive payments?
Right away! Well, technically as soon as Square and Stripe deposit the funds into your bank account. You receive payments directly from the customer at the time of booking. This is the payout schedule for both companies:
SQUARE: Within 1-2 business days, no matter which country the payment is coming from. This schedule applies to all Square account holders.
STRIPE: Unless your business is considered to be a "high risk" industry, below are the general payout times. Note: the first payment may take between 7-10 business days.
- Australia and U.S.: 2 business days
- New Zealand: 4 days
- Japan: once a week, day of your choice
- Most other countries: 7 days.
Read more here about Stripe's payout schedules, and even how to customize your payout time.
3) In which countries are Stripe and Square available?
STRIPE: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom, and the United States. Sign up here to receive notifications as new countries are added, or request an invite.
SQUARE: U.S., United Kingdom, Japan, Canada, and Australia. (Note: U.S. territories are excluded).
4) How much are the credit card fees?
If you process over $250,000 annually, contact each company's sales dept. for a quote. Both companies accept all major credit cards: Visa, MasterCard, Discover, American Express, JCB, and UnionPay.
STRIPE:
- Online domestic invoices, Apple Pay, Google Pay: 2.9% plus .30 cents per transaction
- International invoices: Same as above plus an additional 1% conversion fee, and a 1% international card fee may apply. Read about ways to avoid conversion fees. And read more details about other U.S. non-credit card payment methods.
- European Cards: 1.4% plus .30 cents per transaction
SQUARE:
- Online invoices (including international): 2.9% plus .30 cents per transaction. Your customer may pay a conversion fee to their bank.
- Read more details about in-person card payments and rates.
5) But I only accept payment by checks.
Some Houfy members have the guest make a small credit card deposit at the time of booking, then collect the balance by check or transfer. This keeps fees to a minimum. It also prevents a guest from blocking your calendar while that check never arrives in the mail. And the guest has now put some $$$ down to secure the reservation.
6) What about chargebacks?
Hopefully you'll never have a chargeback. But just in case, here is a quick overview:
STRIPE: Chargeback fee is $15. If you win the dispute, you are reimbursed the chargeback fee.
SQUARE: No fee if a customer files a chargeback, even if you lose the dispute. For those of you who receive a lot of transactions equaling $250 or less, you may benefit from their free chargeback protection program. Many home shares and one night stays will qualify. Transactions amounts over $250 do not qualify.
The protection program does come with some limitations. As long as the amount in dispute is no more than $250, you've followed Square's payment "best practices," and responded to the dispute sufficiently... you'll be covered up to $250 a month, even if the dispute is not ruled in your favor. This is not a month to month carry forward policy. Read more details about this program.
7) Willl traveling abroad affect my ability to accept payments?
As long as you have Square or Stripe connected to Houfy, you are good to go. If you aren't connected, then you MUST read the section below about Square.
STRIPE: You can generate invoices from any location.
SQUARE: You can only process payments when you are physically located in the country where you activated your account. For in-person card payments using the Square app, your location is tracked by GPS. If you are sending invoices through your Square dashboard, then location is tracked by your IP address. When you connect to Houfy there shouldn't be any issues, as the cardholder entering payment info is considered to be generating the invoice rather than you.
8) How will refunds affect my cancellation policy?
It's crucial to consider your cancellation policy when choosing a processor. For those who have a NO refund policy, this likely won't affect you. However, the rest of you keep reading...especially if you offer guests a cancellation window!
SQUARE: Processing fees are reimbursed back to you when refunding guests through your online dashboard. Note: It's against Square's terms of service to use them for refundable damage deposits.
Time frames: Refunds processed via your online Square dashboard must take place within one year of the original transaction date. Refunds processed via a mobile device must take place within 120 days of the original transaction date. Outside of that time frame, you will need to process refunds outside of Square.
STRIPE: Processing fees are not reimbursed back to you when refunding guests. There is no time limit on applying a refund back to a guest's credit card; however, the more time that passes, the likelihood the card has expired, etc. Stripe recommends first contacting the guest (to see if anything has changed) if at least 6 months have passed. Payments that underwent currency conversion will be converted back during the refund process.
9) How do i sign up for Stripe or Square?
You can sign up for Square directly here through this referral link. For Stripe go to Manage Listings > Connected Payments.
10) What if I need customer support?
Both companies offer online and phone support; however, you will need to sign up for a free account before you can receive phone customer support from either company. No worries! You are not obligated to use them just because you created an account.
When you call Square you will hear a recording asking for you to enter your customer code in order to access a phone representative. Log in to your Square dashboard and click here. You will now see your customer code and it will always remain the same. Keep it in a safe place as it identifies your account.
SQUARE: Phone: 1-855-700-6000
STRIPE: No listed phone number. They will call you immediately, but you first need to log into your dashboard to request a phone call. Hours: 24/7
After you create a free Stripe account, click on the "open book" icon in the top right corner. There will be a drop down menu to select support. Scroll to the bottom and click on "contact us." From there you can choose to have a rep. call you. Fill out the short info and you will be presented 2 codes. One code is what the rep will repeat when they call you. The other code is for you to repeat back to the rep. It's usually very fast. I called 3x within the past few days and Stripe called me in about one minute.
11) How do I connect my Stripe or Square account to Houfy?
Log into Houfy. Go to Manage Listings > Connected Payments.
12) How do I show I accept credit cards?
Go to Manage Listings > Edit > Settings > Payment Information. Check off the cards you accept.
Note: You will not see anything that says "Stripe" or "Square" because it wouldn't make sense for your listing to show the payment processor you use. Travelers just want to see the credit cards you accept. Saying you "accept Stripe and Square" may just confuse travelers since they aren't credit cards.
Whether you are sending email invoices through Square or receiving payment through Houfy using the Square's eCommerce integration, all transactions will be visible from your Square account dashboard. i.e. Sign into your Square account to see the transactions.
Below are some screen shots showing transactions recorded in the month of August from my Square account. I have 2 business locations, but only have transactions for one of them in August. My correlating Houfy listing is #1545. I don't have any other eCommerce integrations other than Houfy.
Display your Square Transactions
On your Square Dashboard Home screen, the left panel will display several icons. Choose the "Transactions" icon. You can then choose filters to limit what you display in the transaction report.
The screen shot below shows 4 of the 5 transactions that I have in Square for the month of August. I've redacted the dollar values and names that I didn't want to share here. Note that the colorful additions are mine to help explain what's shown.
On the upper right of this screen, my business name is listed. Although my filters allow "2 locations" (the 2 locations I've created where each represents a specific rental property), I didn't have any transactions for one of my properties. The information in the green box of each transaction holds my location name. This location name is the one I assigned to my Houfy #1545 property.
Square Invoice Payment Compared to Houfy Payment
In this example report above, the first 2 transactions are payments I received and the last 2 transactions are refunds I issued. In each group, the first is via the Houfy eCommerce integration and the second is related to email invoicing using the Square interface directly.
On the Houfy payment, the "ROIRZ..." value (underlined in blue).is the reservation code as generated and stored with this reservation in Houfy. I can also see that this payment is for my Houfy #1545 listing. But to understand for which reservation these payments and refunds correlate, I need to click on that transaction to get additional details as recorded by Houfy.
For my email invoiced payment, the transaction includes the invoice number that I can look up on "Invoices". Plus it also includes the full subject line of my email invoice. I've underlined that value in red.
On the Houfy refund, the report description indicates it's a refund but no real details. To understand for which reservation this refund correlates, I have to click on the transaction to see the details.
On the refund I issued via Square dashboard, the "item" from the invoice that I'm refunding is listed (underlined in red). But again, it's not evident for which invoice/guest this refund is being issued and I'll have to open the details by clicking this transaction.
See Transaction Details
Let's look at the Houfy payment transaction. I just clicked on the transaction and a detail window opens on the right allowing me to see most of the transaction report at the same time. I know which transaction I'm looking at because the report row that I selected is now shown as white lettering on the blue background.
The green box area shows that the source of this transaction is "eCommerce Integrations" (i.e. Houfy). My Square email invoice transaction shows "invoices" as the source.
The red boxes show "Paid by: Unknown Name" on the Houfy transaction whereas on my Square email invoice transaction, my guest's name is listed.
The Houfy guest name does show up in the "Custom Amount" section in the red box area. This section also shows the total amount from Houfy. There is no breakdown showing rental charge, any fees and taxes. I'd have to go back to Houfy and look at my reservation record to see those details.
The Square email invoice detail includes a copy of the invoice with the specifics of the transaction. You'll know what portion of the collected amount is rent or taxes or fees.
The refund transactions also specify the source of the refund - either eCommerce Integrations or Invoices.. Both also include records of the original invoice/payment from which the refund is being issued. Again, the Square original invoice is detailed but the Houfy invoice is just a total originally charged.
At the bottom of this detail section (blue box) is the total transferred to my bank account and the value of the fee charged me and deducted from the guest's payment.
The Square fee is the same whether using Square Email Invoicing or eCommerce Integration with Houfy.