What’s a Money Order and Should I Accept Those As a Payment Method? 

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If you accept customer payments, you’re probably prepared to deal with invoicing via credit and debit cards, as well as new digital payment methods like PayPal, Apple and Google Pay. Sometimes, you might even agree to take a good old-fashioned check. Now, what about money orders? They may not be used very often, but are still a valid form of payment.

In this post, we’ll take a closer look at how money orders work and whether you should accept them as a payment method from customers (or use to pay to your suppliers). Let’s dive in.

What is a Money Order?

A money order is a paper instrument of payment. It usually look similar to a check with a payee designation, and an amount. Unlike a check that is only paid out when it is presented by the receiver to a bank, a money order is pre-funded ahead of time with cash. In other words, if you want to send a 100 dollar money order, you must pay 100 dollars for it beforehand.

Where to Get a Money Order?

Money orders can be purchased in a variety of places. The United States Postal Service sells money orders (USPS money order). So do many grocery stores and retail chains (e.g. Walmart), pharmacies, and gas stations. You can also often purchase a money order at your local bank. Other establishments that offers money wiring services such as Western Union will usually sell branded money orders.

How to Send a Money Order?

When someone purchases a money order, they will need to specify a payee, or have the money order printed with that information blank to be filled in later. The money order will also contain the payers personal information, date purchased, and some additional data. Most will have some sort of header with the name of the bank or service provider.

In addition to paying the face value of the money order, the customer will have to pay a service fee. This can vary from a dollar or so for unbranded money orders. Whereas banks and credit unions will usually charge $5 to $10 for issuing one. So it’s best to get the details on fees from a specific location in advance.

Learning how to fill out a money order is simple. In many cases, the clerk printing the money order can preprint the payee information and date.

The Pros of Accepting Money Orders as a Payment Method

If you’re going to decide whether accepting money orders is a good idea, start by considering the positives.

Money orders are a good alternative to cash. If you accept payment by mail for example, money order is definitely safer than sending cash. If you accept payments in person, it’s less risky for you or your staff to transport money orders to a nearby bank branch.

Money orders are also safer than checks. Because they are printed with issuer information, and paid for ahead of time, they won’t bounce. The bank or other issuer has already secured payment for you. This means less chance of dealing with chargeback fees from your bank, and chasing down customers to collect payment on bounced checks or issue endless payment reminders.

Customers may also feel safer using a money order. If the wrong person accesses a check, they have the payers name, address, bank account number, and routing number. They could potentially alter the check, or print additional checks and use those for malicious purposes. None of that is possible when using a money order.

From an invoicing and billing standpoint: if you already accept checks, it will be simple to take money orders. You simply treat them the same way at your bank.

As a business owner, you may also find there are some occasions where a money order may be useful to you. For example, if you have a vendor that only accepts checks by mail, a money order is a secure alternative to that. They can cash or deposit it like a check, and you don’t have to keep checks on hand. Money orders are also a good solution for any situation in which you don’t feel comfortable paying with a credit card or alternative payment method.

Finally, accepting money orders can be an act of goodwill. Not everyone is able to obtain a bank account, and get a debit or credit card. You may be surprised to know that 25% of US households are unbanked or underbanked, meaning they lack access to traditional banking services. Some older people simply don’t want to deal with the technology involved. These folks may appreciate that you are willing to take this form of payment.

The Cons of Accepting Money Orders

There are also negatives that must be taken into consideration.

Money orders often have maximum limits. This is usually a thousand dollars. Sometimes an issuing institution may set an even lower limit. So if you’re invoicing a customer for a higher amount, the buyer will have to purchase and send multiple money orders.

Also, it’s an alternative form of payment. That means you’ll likely have to break away from your billing and accounting standard procedures in order to handle it. That can slow your business down.

You should also be smart about preventing the common scams. Just like any other payment methods, money orders come with a certain degree of fraud risk:

  • Be wary if someone presents you with a money order for significantly more than the amount of purchase. They may ask you to cash the money order, and return the extra funds to them. This is a common scam.
  • Call the issuer to verify the amount and validity of the money order.
  • Learn what money orders from the major issuers look like. If something looks as if it was printed from a home computer, that’s a red flag.
  • Be cautious if someone seems as if they have been pressured to give you a money order, or if they seem upset or confused.
  • You should also be suspicious if someone pressures you to complete a transaction quickly without verifying anything.

It’s perfectly reasonable to ask for identification before taking a money order as a form of payment. You may need this identifying information should you need to contact the issuer if a problem occurs.

Money orders must be purchased in advance. This means that the customer will need to know the exact price they are going to pay. This makes it difficult to factor in extra fees, warranties, even last minute discounts.

There’s also some inconvenience to using a money order. A customer can use a debit card, cash, even write a check immediately. With money orders, they must go through an additional set of steps to purchase the instrument before they can make payment.

If you do not want to accept money orders. You might consider some alternatives that will work for customers who may not have a bank account. One option is to accept cashier’s checks or traveler’s checks. Another option is to take wire transfers.

How to Cash Out a Money Order

If you do decide to accept or use money orders, you should understand what you will need to do in order to receive the actual money. Your options fall into two categories:

  • You can cash a money order almost as if it were a check. Many grocery stores offer this service. So do check cashing places, or currency exchange centers. Your bank may also allow you to cash a money order there. If you know the issuer, you can go to its locations to cash your money order.
  • You can deposit your money order directly into your checking or savings account. Simply sign the back. Then, treat the money order just like a check on your deposit slip. You may or may not be able to use mobile deposit for your money orders. This depends on your banking app.

So Should You or Shouldn’t You Accept Money Orders?

There’s no definitive answer. There are some clear disadvantages. You cannot handle money orders electronically, there’s some risk for fraud, and it can be inconvenient for customers to purchase a money order and pay the service fee. On the other hand, it can be helpful to allow your unbanked clients to use this method of payment. This could allow you to tap into another market, and to build some goodwill. So if handling money orders will not intervene with our accounting practices and damage cash flow, it’s worth considering them as another payment option.

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