Nonprofit Essentials: Understanding Donation Processing

Jacob Spencer

July 13, 2021

About the Author

Jacob Spencer

I strive to make every step of our customer journey as enjoyable as possible. My goal is to turn everyone that trusts Donately into a raving fan! Raising funds can be daunting, but we know that with the right tools, it can and should be easy.

Throughout my career, I've been able to help sales and success teams tackle new markets, grow and expand.

Leading with empathy, listening to actually solve problems, and remembering that we are all human are the key elements to growing any business in a meaningful way.

When I'm not working you can find me spending time with my wife, 2 boys and our Border Collie, Abbie. Family>Everything.

Nonprofit donation processing is an often overlooked aspect of strategic fundraising, frequently seen as a mysterious technical process that happens automatically in the background. In fact, donation processing is the fundamental process that supports your organization’s online donation page — the online hub for your digital fundraising strategy. 

It’s important to understand donation processing because it fuels your online donation efforts and empowers you to accept all types of payments from supporters. This includes event tickets, membership fees, merchandise sales, and other transactions. 

When you fully understand donation processing, you can discover areas for improving your payment processing process. With this foundational knowledge, you can create stronger fundraising strategies that optimize your use of payment processors. 

This guide will explore the fundamentals of donation processing in the following sections: 


We’ll cover the basics of digital donation processors as well as the overarching fundraising platforms organizations can use to optimize their payment processing systems. Let’s dive in!

What is nonprofit donation processing?

Nonprofit donation processing is the process of managing online transactions. It’s the back-end process that donors trigger when they first share their financial information and ends when their gift is deposited into your organization’s account. 

Here’s how Donately’s guide to nonprofit donation processing defines the steps of the donation processing process: 

  1. A donor contributes a gift using your digital donation page. They may use a credit/debit card or an eCheck to do so. 
  2. The information enters the payment gateway. The payment gateway is a fraud prevention procedure that your payment processor completes to protect donors’ financial information. 
  3. The payment processor transmits this information to the donor’s card association. A card association is an organization that issues credit or debit cards to cardholders, such as MasterCard or American Express. The card association notifies the donor’s bank about the transaction. 
  4. The bank approves or rejects the donation based on the donor’s available funds in their account or credit limit. The bank sends this information back to the card association, which communicates it to your organization.
  5. If the transaction is approved, the bank transfers funds from the donor’s account to your nonprofit’s merchant account. Your merchant account is your bank account that’s configured to accept online donations. 

Your organization’s payment processor is not the same as your online donation platform. Your online donation platform is a supporter-facing tool used to collect donations. You can use this tool to create a website page for donors to initiate the donation process.

Your payment processor is the background tool that safely stores your donors’ information and harnesses their contributions for your organization’s use. 

If you’re looking to expand your nonprofit’s online fundraising capabilities, you’ll want to look for an online donation platform that integrates with top payment processing tools. 

For instance, Donately is an online fundraising platform that facilitates the process of creating digital donation pages and peer-to-peer fundraising pages. Donately offers integrations with leading payment processors such as Stripe and PayPal. These payment processors allow organizations that use Donately as their online fundraising platform to safely and securely process donations and other transactions. 

This way, nonprofits can create customized, branded donation pages that seamlessly integrate with quality payment processors, optimizing the fundraising process at both ends. 

Why do nonprofits need donation processing tools? 

In short, nonprofits use payment processing tools to grow their fundraising potential and streamline the donation process for both their staff and supporters. What exactly do these tools empower nonprofits to accomplish, though? Payment processing solutions affect a wide variety of activities within your organization, including your ability to: 

  • Accept online donations: Online donation processors make it much easier to accept digital donations. Some donors still prefer to give via traditional means (like direct mail), but being able to accept online gifts is a priority for most nonprofits since supporters are increasingly turning to virtual platforms to support their favorite organizations. 
  • Handle donors’ sensitive information carefully: With a donation processor, you can reassure donors that their financial information is safe thanks to an organized, formal process. 
  • Manage membership fees: If your organization offers a membership program to supporters, a payment processor can manage the collection of recurring dues. These tools make it much faster and more convenient for supporters to pay their monthly or yearly membership dues. 
  • Sell online merchandise: Selling branded merchandise, such as t-shirts, mugs, hats, and stickers, can be an efficient fundraising method for your nonprofit. An online payment processor can facilitate this process so supporters can purchase merchandise from the comfort of their homes. 
  • Sell event tickets: Whenever your nonprofit plans events, you need a way to sell and distribute tickets. Payment processors help facilitate these transactions quickly and easily to boost your attendance numbers and the resulting funding that comes from ticket sales. 

Check out Double the Donation’s nonprofit payment processing overview for more information about what donation processing tools can do for your organization. As this source mentions, without a dedicated payment processor, conducting these activities becomes very difficult, if not entirely impossible. With a payment processing system, you can easily carry out each of these functions under one roof.  

What should you look for in online donation software?

Using your knowledge of how donation processing works, you can start to search for the right online donation tool for your organization. As you investigate, there are a few desirable features you should look for in any platform you consider. You’ll want your online fundraising platform to include the following features: 

  • Nonprofit-focused: This means the tool was created with nonprofits in mind. When you invest in a nonprofit-focused donation tool, you’ll benefit from functionality that’s specifically tailored to philanthropic organizations, such as the ability to create online donation forms. You’ll also have a better customer service experience because your provider will better understand common nonprofit needs and concerns. 
  • Flexible payment options: You’ll want to invest in a fundraising platform that supports integrations with top donation processors like Stripe and PayPal. This provides more flexibility to find the right payment processor that aligns with your organization’s needs. You’ll also benefit from the legitimacy and professionalism of partnerships with top payment processing organizations. 
  • User-friendly: Search for an online donation tool that offers easy-to-use, out-of-the-box functionality. This is especially important if your organization doesn’t have a dedicated digital team or IT department. This allows you to get started right away on designing your donation pages and accepting gifts. 
  • Low operating costs: Similar to in-person transactions, every online donation you accept will come with a processing fee. Every payment processor charges a different rate, so be mindful of your budget as you search. Also, some processors include the option to pass transaction fees onto your donors, which could be an effective way to cover your processing fees. 
  • Fraud protection tools: These may include an address verification system, bank identification number checking, and IP blocking to prevent connections with harmful internet addresses. Each processor varies in its fraud protection tools, so be sure to ask each of your prospective providers to discuss the tools they offer. 
  • Ability to generate donor reports: Your fundraising software can play the dual role of accepting online donations and gathering valuable donor information. When you choose an online donation platform that can collect donor data and display it in organized reports, you can assess the status of your online fundraising efforts as a whole and determine which audiences you’re reaching or missing. 

It’s important to note that you don’t have to invest in an online donation platform to accept and process virtual gifts. You can use just a payment processor, such as just PayPal, on its own to accept donations. 

However, many organizations decide it’s more beneficial to use dedicated fundraising software as an alternative to PayPal to build out a more robust, comprehensive online fundraising approach. 

Online fundraising platforms can be branded to match your organization’s logo, colors, and imagery, which helps remind donors of why they’re giving whenever they access your online donation page. In addition, PayPal is used by a wide range of organizations and not tailored for just nonprofit use, meaning you may have a less personalized customer service experience. 

What are the benefits of a quality donation processor? 

When you invest in a robust online fundraising system to manage your donation processing, you’ll gain access to a variety of benefits that can push your organization’s fundraising efforts forward, including: 

  • Process donations safely to provide donors with a good experience. The most obvious benefit of a quality online donation platform is that you can securely collect donations and reassure donors with a professional, safe giving process. This can boost your donor retention rates over time because donors will know your organization handles their information and contributions wisely. 
  • Capture donor data to use to inform future fundraising strategies. Comprehensive online donation platforms can collect donor data such as names, contact information, home addresses, email addresses, and phone numbers. You can store these details in your nonprofit CRM to follow up with donors again and secure continuous support. 
  • Access additional fundraising features: Plenty of online donation platforms offer a wide range of services besides just payment processing, including the ability to create online donation and peer-to-peer fundraising pages and promote these pages with social media integrations and text-to-give functionality. These features help organizations drive online donor engagement in a comprehensive, multi-tiered strategy. 

Spend some time exploring your online donation tool options to find the solution that’s right for your organization. There are tools for all types of organizations, from nonprofits to schools, churches, and more. Each varies in the tools it provides depending on the target organization, so keep your eyes peeled for the specific features your team needs.

Hopefully, you now have a better understanding of nonprofit donation processing and what it means for your organization’s fundraising efforts. By optimizing your online donation process, you can give more attention to your smaller and recurring gifts, which helps form a more comprehensive fundraising strategy. In turn, you’ll prove to donors that you value and prioritize keeping their online contributions safe.