Split payments: How to implement them for your business

Split payments occur when a transaction is divided between multiple payment methods or split among multiple people. This can mean using two credit cards to cover a purchase, paying partially with cash and partially with a card, or even splitting the bill between friends at a restaurant. In business, it can also refer to payment processors dividing a transaction between multiple recipients, such as automatically routing funds to different sellers in an online marketplace.

Below, we’ll cover the different types of split payments businesses typically encounter, how to set up split payment processes, and how working with Stripe Connect can help overcome common hurdles.

What’s in this article?

• How are split payments used in business?
• How do you set up split payments?
• What are the challenges of working with split payments?
• How does Stripe Connect simplify split payments?

How are split payments used in business?

Businesses that rely on split payments might be dealing with multiple payers, multiple sellers, or multiple payment methods from a single customer. Here are some situations where businesses might handle split payments:

• Multiple payers: A group at a restaurant, roommates sharing a streaming subscription, or a team splitting a software plan all involve multiple payers for a single bill.

• Multiple payees: Marketplace sales, gig work, affiliate programs, and booking sites all include multiple parties taking a cut from a single purchase.

• Multiple payments: Some customers prefer to pay off purchases in installments or to mix payment methods, such as using a gift card and then a credit card for the remaining balance. In this way, businesses that accept split payments can close more sales.

How do you set up split payments?

Split payments require everything to work well from checkout to payout. To get started, first map out the flow of money. You need to know who gets paid, when, and the amount.

If you don’t want to build everything from scratch, choose a payment processor that supports split payments and multiparty transactions, such as Stripe Connect. If you’re going the do-it-yourself route (e.g., using a standard payment processor and handling payouts manually), be prepared to accommodate extra steps for reconciliation, tax reporting, and potential regulatory issues.

These are some considerations you can either automate through a provider such as Stripe Connect or handle manually:

• Paying out third parties (e.g., sellers, freelancers, or service providers): You’ll need to verify their identity, collect tax information, and ensure compliance with local financial regulations. This means collecting W-9s or W-8 BENs in the US or other relevant tax documents, depending on where your business and users are based.

• Setting payout timing: Some businesses hold funds for a set period to prevent fraud, handle refunds, or manage cash flow, while others will offer instant payouts for a fee. Your goal should be to balance user expectations with your own risk and cash flow needs.

• Deducting commissions: If your business takes a cut, you’ll need to deduct commissions before sending out the remaining payouts. If you’re handling this manually, you’ll need to build logic into your payment flows.

• Managing refunds: When a customer requests a refund, you’ll need to pull funds proportionally from each recipient.

What are the challenges of working with split payments?

Implementing split payments comes with technical and operational obstacles. Businesses that offer them need to monitor:

• Compliance requirements: Any time you’re moving money between multiple parties, you’re subject to payment laws, taxes, and potential financial reporting requirements. If you handle these incorrectly, you could face fines, frozen accounts, or legal issues.

• Transaction fees: Every payment processor collects a portion of the transaction as a fee, and splitting a transaction can mean multiple processing fees. If a business isn’t careful, those costs can quickly eat into its margins.

• Timing mismatches: Not every payment method settles at the same speed. Some bank transfers process almost instantly, but credit cards, ACH transfers, and digital wallets typically take a few days to settle. Managing cash flow without fronting the money yourself is a balancing act.

• Refunds and disputes: Refunds can be complex, and businesses need clear policies to handle them. For example, if a customer disputes a transaction paid out to different recipients, the business needs to determine how to settle the dispute and who will pay the chargeback fee.

• Technology issues: Routing payments to multiple recipients requires a thoughtful tech setup. You need logic in place for how funds are divided, when they’re sent, and how to handle edge cases such as partial payments, payment failures, or unexpected chargebacks.

• Customer confusion: The more ways you allow people to pay, the more questions your team might have to field when something goes wrong. If customer support isn’t ready to meet demand, expect frustrated customers.

How does Stripe Connect simplify split payments?

Stripe Connect removes the usual challenges of handling split payments with a structured, API-driven way to move money between multiple parties. In 2024, Stripe Connect was used to process more than $1 billion across 84 different platforms. Here’s how it works in practice:

• Native multiparty payments: Some payment processors assume money moves in a straight line from buyer to business. Stripe Connect is built for more complex flows, such as splitting a transaction between sellers, platforms, or service providers in real time. Businesses can set up automatic revenue splits at checkout instead of handling it manually later.

• No need for transmitter registration: Businesses transferring money between third parties often have to register as money transmitters, which involves a significant amount of legal and compliance work. With Stripe Connect, Stripe is the financial entity handling the actual transfers, so businesses can process split payments without taking on that regulatory burden.

• Embedded seller onboarding: The typical onboarding process for marketplaces or platforms that pay multiple sellers involves collecting tax forms, verifying bank accounts, and maintaining compliance with local laws. Stripe Connect does this within its API so businesses can onboard sellers in minutes.

• Dynamic payout control: Businesses can decide when and how to pay out recipients. Some might want instant payouts (which Stripe can complete for bank accounts and debit cards), while others might hold funds for a set period of time. Connect affords this flexibility without businesses having to build their own systems.

• Automatic fee and tax deductions: If a platform takes a commission on each transaction, Stripe Connect automatically deducts that fee before sending funds to the seller. It also supports automated tax collection and reporting.

• Integrated refunds and chargebacks: Generally, if a customer requests a refund or files a dispute, businesses have to contact individual sellers or service providers to return their portion of the funds. Stripe Connect automatically pulls back the correct amounts from each party.

• Cross-border payment logistics: Stripe handles currency conversion and international payouts, so businesses don’t need separate banking relationships in every country in which they operate. Sellers are paid in their local currency without businesses having to figure out the logistics of foreign exchanges.

• One integration with multiple functions: Stripe Connect offers a single integration that covers onboarding, compliance, moving money, and payout tracking. The API is structured enough to handle standard use cases but flexible enough to support custom payout flows.