If you are on a tight budget, then you have probably wondered if it is possible to pay your dropshipping supplier directly using your customer's payment.
By doing that, a part of your customer's payment would be sent to your supplier directly, and you would receive whatever is left.
The advantages of this would be that you wouldn't have to pay for your supplier's products out of your own pocket, but is this even possible?
Well, today we will find out!
In this article, we will learn about the journey of your customer's money.
By learning about this topic, you will gain a clear understanding of how money flows between all involved parties when dropshipping. It will allow you to answer questions like:
- Is it possible to pay a supplier directly using a customer's payment?
- How does your customer's money end up in your supplier's pocket?
- How long does it take to process a customer's payment?
- What are the steps that are needed to pay your supplier or other expenses?
Sounds interesting, right?
If you agree, then let's start!
Do you have to buy the products (first) to dropship?
Before we get into the journey of your customer's money, let's take a look at how dropshipping works.
If you're not familiar with dropshipping, you might be wondering if you have to buy the products first before you start with dropshipping.
Well, I can tell you that you don't have to buy the products first to dropship. Dropshipping is all about the concept of your dropshipping supplier holding and owning the products you are selling. This means that when dropshipping, you will buy products from your supplier one by one, but only if you get orders for them.
In other words, if you decide to switch products or stop with your online business, you won't be left with a lot of products in stock that you can't sell!
Who pays for shipping in dropshipping?
When dropshipping, the products you sell will have to be shipped from your supplier's warehouse to your customer's address.
As you know, shipping a product isn't free, so someone will have to pay for it.
Well, often, you will have to pay for these shipping costs.
The cost of shipping will depend on the destination of the package, its size, and its weight.
Sometimes, your supplier will offer free shipping. However, in that case, they have simply added the shipping costs to the product's price. Remember, shipping is never truly free!
The journey of your customer's money when dropshipping
As I said, I hope to answer all your questions about paying dropshipping suppliers by walking you through the journey of your customer's money.
How does it end up in your or your supplier's pocket after a customer order something?
By studying where your customer's money goes, you will be able to answer all the questions that you saw in the article's introduction.
Let's start at the beginning of the process, the moment when a customer orders something:
1. Payment processing
When dropshipping, one of the things you will need is a way to easily transfer money from your customer's pockets to all parties that are involved, including you.
Payment gateways are companies that do exactly this, transferring money. They can send money from one person's account to someone else's.
They are needed when dropshipping, because normally, your customer won't be paying you in cash!
When a customer proceeds to check out in your online store, they will often have to choose between several payment options. These are offered by payment gateway companies:
Payment gateways for dropshipping businesses can be a bit of a complicated subject. That's because:
- Different countries have different preferred payment methods.
- Not all payment gateways accept dropshipping businesses.
- Some payment gateways may hold your money for a prolonged amount of time if they see you as a high-risk client.
- Each payment gateway has different processing times and transaction fees.
Below, I will show you a table of the seven best payment gateways for dropshipping stores in 2023.
For each payment gateway, I have listed the place where your customer's money will be sent after they have made an order:
|Rank||Payment gateway||Where the money will be sent after an order|
|1||Shopify Payments||Your bank account|
|2||PayPal||Your PayPal wallet|
|3||Stripe||Your bank account|
|4||Amazon Pay||Your Amazon Pay account|
|5||Google Pay||Your Google Pay balance|
|6||Apple Pay||Your Apple Pay account|
|7||Crypto Payments||Your cryptocurrency wallet|
Please note that this list is internationally orientated. Specific countries may use popular payment gateways that are not present in this list.
For example, Klarna is a very popular payment gateway in Germany, and adding it to your dropshipping store will increase your conversion rate when targeting customers in Germany.
Related article: If you're wondering what the best payment gateway combinations are when dropshipping, check out this article here!
2. Paying your dropshipping supplier
Once you have received an order from your customer, you will need to purchase your customer's products from your dropshipping supplier.
As you could see above, each payment will be deposited to a specific account, depending on the payment gateway. However, eventually, each payment will end up in your bank account. In other words, it is not possible to let your payment gateway automatically send a part of the payment directly to your supplier.
Considering you will want to minimize your store's delivery time as much as possible, it is not advised to wait until your customer's payment has reached your bank account before ordering the products from your supplier.
Depending on the payment gateway, it can take two to five business days before your customer's payment gets deposited into your bank account. And, on some occasions, it can take even longer.
We can conclude that it is necessary to order products from your supplier before your customer's payment reaches your bank account.
So, how do you pay your dropshipping supplier?
Different dropshipping suppliers accept different payment methods, but most dropshipping suppliers will accept credit cards.
If you're on a tight budget, using a credit card to pay your suppliers may be a great solution because it allows you to send money to a supplier without directly deducting funds from your bank account.
This way, you can pay back your credit card company at a later date when you have received the payment from your customer.
To give you an idea of what kind of payment methods dropshipping suppliers accept, here's a table of the eight best US general dropshipping suppliers, including their accepted payment methods:
|Rank||Supplier||Accepted payment method(s)|
|1||Spocket||Credit card, PayPal, Shopify app|
|2||US Direct||Credit card|
|3||SaleHoo||Credit card, PayPal|
|5||Wholesale2b||Credit card, PayPal|
|6||DropCommerce||Credit card, Shopify app|
|8||Worldwide Brands||Credit card, PayPal|
As you can see, almost all of these suppliers accept a credit card as a payment method.
If you're interested now in using a credit card for your dropshipping business, then check out this article to learn everything you should know about it!
Related article: Are you currently dropshipping with AliExpress and not sure how to pay your AliExpress supplier? Check out this article with the best payment methods for AliExpress.
If you're directly dealing with your dropshipping supplier and need to transfer money abroad, then take a look at Wise (formerly TransferWise), they can save you a lot of money.
Here's an example:
Bonus tip: Juni.co
As a bonus tip related to payments, we would like to tell you about Juni.
Juni (juni.co) is a fintech solution made for digital entrepreneurs operating in the UK, Europe, and Norway.
It's a great product that can help you pay your dropshipping supplier and other business expenses!
With Juni, you can connect your ad networks (Google Ads, FB Ads, etc.), payment gateways (PayPal, Stripe, etc.), and bank accounts in one place.
You will be able to track the ROI across all your business's activities and improve cash flows!
If you’re running multiple Shopify stores, Juni makes creating this financial overview effortless with its Shopify integration.
Simply follow the steps below to activate it:
One of Juni's most significant perks is that you can get up to 1% cash back on all eligible card spending. This may not seem much, but when scaling your business, it can really add up!
Other benefits include:
- Virtual cards. With Juni, you can generate as many virtual cards as you need in GBP, USD, and EUR.
- Get savings relevant to your business. For example, as Juni's customer, you can get a 20% discount on the Loox Shopify app or a 15% discount on the BeProfit Shopify app.
So, what does all of this cost?
Turns out, not much!
Juni tried to eliminate as many fees as possible, as you can see on their pricing page.
As a result, you can sign up, get insights, create IBAN accounts, and generate all the virtual Juni cards you need for free!
The only thing that isn't free on Juni's pricing page is the account transfer FX fees, which can cost up to 0.25% of the transferred amount.
If all of this sounds interesting to you, you can find more info about Juni on their website here!
3. Paying your other business expenses
Once you've ordered the required products from your dropshipping supplier, you will also need to reserve some funds for your other business expenses.
A common error that beginner dropshippers make is underestimating these other business expenses. When looking at each expense separately, it may look like it's not that expensive. However, when looking at the whole picture, costs can add up very quickly.
Here are some everyday things that a dropshipping store will have business expenses for:
- Ecommerce platform and apps
- Domain name
- Paid advertising
- Dropshipping supplier monthly subscription (Or you can use a free supplier)
- Transaction fees
If you're interested in learning all about how much money you will need for each of these expenses (and more!), then check out our complete guide here.
4. Keeping anything that is left over
This is what it's all about; keeping a profit at the end!
If you still have a part of your customer's payment in your bank account after all the expenses, then you are profitable!
If you aren't profitable after paying all your expenses, then don't give up yet. There are many things you can optimize to minimize your expenses and maximize your revenue.
If you are interested, take a look at the following articles:
- Dropshipping Pricing Strategy: The Definitive Guide (2023)
- Shopify Dropshipping Conversion Rate Optimization: 12 Ways to Get More Sales!
- 8 Amazing Ways to Get Free Traffic to Your Dropshipping Store in 2023
We have now seen the process of how your customer's money is transferred out of their pockets, gets split up, and ends up in the account of your supplier, your business, and others!
In the end, it can all be summarized and visualized in the following image, where an example is given of how the journey of your customer's money may look like:
Do I need a bank account for dropshipping?
I hope you're excited about starting a dropshipping business, but I understand if you still have some questions left.
For example, you may be wondering if you need a bank account for dropshipping.
When dropshipping, you will need a bank account to manage your cash flow. You need it to pay your dropshipping supplier, receive payments from your customers, pay your business expenses, and more.
Furthermore, it is advisable to set up a credit card for your dropshipping business. Check out this article to find out what you should know about credit cards for dropshipping!
How do you approach a supplier about dropshipping?
When you are ready to approach a supplier, it is important to prepare yourself.
While it is possible to approach a supplier using a simple sentence like “Hi, I would to do dropshipping”, you won't get the most out of it.
The best way to approach a supplier about dropshipping is to prepare some questions to help you decide whether or not to work with that supplier.
These questions will clear up any misconceptions, and by asking them, both parties will know what to expect.
Some important questions that you should ask your supplier might be about their delivery times, packaging, or pricing. But, there is more to it.
If you are looking to partner with an awesome dropshipping supplier, then this article containing 14 questions for suppliers will definitely help you!
There you have it!
After reading this article, you should understand how you can pay your supplier when dropshipping.
The answer is actually pretty short and straightforward. The customer pays you, and then you pay the supplier.
If you're still confused, then take a look at the infographic above. I hope it will help to make it all clear.
Otherwise, you can also leave a comment below. We will do our best to reply as soon as possible!
Good luck with your dropshipping store, and have a great rest of your day!
Getting Started with Dropshipping in 2023
So, are you ready to get started with dropshipping? Or maybe you have already started, but you’re looking to get some inspiration?
If so, then I suggest reading this complete Shopify dropshipping guide.
It’s a huge article, but it contains everything that you need to know to create your own Shopify dropshipping store in 2023. It’s like a dropshipping course, but then for free!
Reading this article will surely help you to get started and to stay motivated while beginning and continuing your dropshipping journey.
Just don’t forget that success takes time. Keep improving each and every day!
And here are the articles I suggest you read next:
- The 25 Best Dropshipping Niche Ideas for Your Store
- Unique Dropshipping Store: 11 Amazing Tips to Create One
- Dropshipping Startup Checklist: 10 Things to Do Before Starting