Selecting the Right Payment Methods for Small Businesses

ART MALKOVICH

10 min

·

August 8, 2023

Choosing the best payment alternatives is a critical choice that may affect a company’s profitability, client satisfaction, and overall success. It necessitates a thorough comprehension of the various payment options, their benefits and drawbacks, and an understanding of how they fit with the particular requirements and objectives of a small business.

This in-depth guide seeks to help small business owners navigate the confusing array of payment alternatives. We will examine the various payment options that are now accessible, ranging from cash and cheques to cutting-edge electronic substitutes like mobile payments or online wallets.

We will examine the important aspects of your decision-making factors, such as the client base, transaction volume, cost, security precautions, and the degree of integration with your current systems.

For expert guidance on managing small business finances, explore our related article.

How to Choose a Payment System?

Selecting the best payment platform for your small business might be challenging due to the abundance of alternatives available. Here are several valuable tips for determining which payment method is more suitable for your company.

Trustworthiness

Find a reliable payment gateway that has a proven track record. This will guarantee the security of your clients’ payment data and the continuity of your payment processing.

Payment data(Source)

Customer Support

When you require help, you should have a payment gateway service that provides top-notch customer support and has received favorable consumer feedback. This may be done through live chat, phone assistance, or online how-to articles.

Fees

It’s crucial to understand the costs involved with each payment gateway provider. Some systems have transaction costs or processing fees based on a certain percentage of the transaction, others require monthly charges. Be careful with those as well as other hidden expenses since some payment systems also impose termination fees and extra credit card processing fees.

Ease of Use

Your payment gateway should be easy to install and use. It’s one of the crucial aspects of cart abandonment strategies. Adding it as a checkout option on your website shouldn’t require a lot of technical know-how. Ideally, the process of paying should be as effortless as possible for you and your clients.

Security

Security is of the highest significance when deciding on the appropriate payment method for a small business. To secure the financial information of your consumers, make sure the payment gateway you use has strong security measures and cutting-edge fraud protection techniques like PCI compliance, encryption, and data tokenization.

phishing of the card(Source)

Scalability

A payment gateway that can expand with you is the greatest option for small businesses. You’ll need a platform that can manage the extra volume without causing transactions to take longer as your business grows and processes more payments.

User Feedback

Before choosing a payment gateway for your small business, make sure to study customer reviews. An excellent method to obtain a fair picture of what to anticipate is to read what others think of their experiences using the product. Look for testimonials that speak well of the company’s customer service, usability, security, and cost-effectiveness.

9 Payment Methods

Your consumers will be able to choose how they want to pay the bill more easily if you accept payments through a variety of methods. The majority of systems built with a payment feature can process any kind of payment method. Yet, some of the methods may turn out to be too expensive, too inconvenient, or just redundant for your business. So carefully weighing the various payment options will help select the best ones for the business.

1. Cash

One of the most frequently employed forms of payment in the past was cash. Cash payments ensure that transactions may be fully completed at the point of sale because there are no waiting periods for clearing. Receiving cash payments involves little or no fees since there are no costs associated with transaction processing. 

Despite these advantages, collecting cash can be challenging for independent contractors and small enterprises without a physical location. Small businesses that run solely online are unable to take cash payments securely since it is not advised to transmit money over the mail. Additionally, regularly putting significant sums of money into the bank may arouse suspicions of fraud, increasing the possibility that the account may be closed or submitted to an audit.

Aside from that, the use of cash as a payment method had been slowly declining through 2020, when the epidemic hastened the shift from physical money towards digital payments.

counting cash
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2. Checks

As the usage of electronic payments rises, checks are losing popularity. However, checks include high-tech security mechanisms that limit who may cash them to authorized users. This can help small firms reduce electronic fraud, which is undoubtedly advantageous. 

However, checks have a longer lead time when they are mailed, making it difficult to predict when they will be received. Furthermore, the postal service is occasionally unreliable and regularly misplaces cheques. Apart from that, the time it is required for checks to clear might affect your company’s cash flow.

Similar to collecting cash, there are no upfront fees associated with accepting checks; nevertheless, there are hidden fees associated with manual accounting procedures and the time needed to deposit checks into banks physically.

3. Credit or Debit Card

The most common method of payment worldwide is still a card. It is the preferred method for billions of customers worldwide, both offline and online. In order to capitalize on the expectations of consumers, it is imperative to provide this payment option to your clients.

Additionally, there are several ways to take card payments. A card reader can be used in-store. But employing a payment processor to manage your online transactions with quick speeds and complete security is one of the most efficient online solutions.

The popularity of this payment option among consumers should make it the standard for many small enterprises. Credit cards offer a consistent paper trail and are a safe way for customers to make purchases. 

However, the transaction processor will charge a fee for each credit card transaction, with some credit card issuers charging more than others. Customers can also readily submit chargebacks with credit card issuers, leaving you with few choices in this situation. Even if the consumer decides not to return the goods, a lot of small businesses feel obligated to accept the chargeback and loss on the sale.

4. Email Invoices

One of the simplest payment options for independent contractors is email invoicing. After finishing the task, you can add payment links taking the customer directly to a payment page where they may enter their bank or credit card information. To maintain order, use an automated system to generate and submit invoices, accept payments, and generate receipts.

To learn how to create an effective late payment email, read the following article.

The main difficulty with emailing invoices is that the clients will need to take manual action to pay you, which significantly increases the risk of late transactions. Apart from that, it’s advisable to verify your email address.

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5. Digital Wallets

For many small companies, especially those in service-based sectors and newer, smaller start-ups, digital wallets have replaced traditional wallets as the preferred form of payment. To get started, all you’ll need is a mobile point-of-sale device that can print receipts and save customer information. Customers may use near-field communication (NFC) technology to pay with their phones with digital wallets like Google Pay and Apple Pay. 

Although useful for consumers, digital wallets offer a number of disadvantages for small and medium enterprises. Businesses are constantly concerned about relatively high fees, the variety of available wallets, and the time and money required to integrate them.

online credit card
(Source)

6. Online Payment Gateways

Online payment gateways make it easy to accept payments on your website. There will be a significant difference in fee structures and the types of payments received through the gateway, so make sure to research your alternatives carefully. The technological side of the question should also be taken into account. You might need to employ a developer to incorporate the payment gateway infrastructure into your website.

7. Mobile Payments

With two billion users globally, mobile payments are expanding in popularity, much like third-party payment processors. With mobile payment apps, customers can pay their bills quickly since it is easy to do using a smartphone or tablet. Additionally, the payments are safe and are instantly cleared before being transmitted to your bank account. 

Mobile payments do have costs, just as traditional payment methods. Meanwhile, these costs are quite low compared to what alternative approaches would make. Moreover, if a business is ready to tolerate a 1-3 day clearing period, several mobile payment platforms allow them to avoid having any fees deducted.

8. ACH

Automated Clearing House (ACH) is another popular payment option that small businesses should definitely consider. Businesses can start an ACH payment and transfer funds to a bank account or any other account you’ve designated to accept payments.

ACH payments incur processing costs with each transaction despite the speedy transfer. These costs might pile up and reduce your company’s earnings. Additionally, the possibility of overpayment and overdraft costs discourages many clients from using this approach.

9. Wire Transfers

Wire transfers are a type of electronic transmission, much like ACH payments. Customers’ payments are made immediately into your account. This payment option is usually used by small businesses operating internationally due to its speedy payout, transparent timeline, and overall dependability. 

When dealing with international wire transfers, it’s important to consider your sort code number. The sort code number is essential in ensuring efficient and secure money transfers between banks internationally. This unique identifier helps banking institutions direct the funds correctly, proving pivotal in seamless global operations.

However, wire transfers now come with higher processing costs, exactly like ACH payments. Additionally, even while wire transfers are frequently reliable, there is always a possibility that money will disappear during the transaction and might be lost forever. Moreover, since the other party has access to your account information during bank-to-bank transactions, there’s a risk of fraud.

Which Method is Right for Your Business

If your company has no physical location, you should avoid accepting cash payments and instead look into electronic payment options. Electronic techniques are more beneficial since cash collection via mail is risky and unpredictable. 

However, if you do have a physical store, you may accept cash at the point of sale. All online transactions should remain digital, though. The greatest payment options will be those with low transaction costs, short clearing times, and continued convenience and clarity.

If you prefer a certain payment method, consider giving customers a modest payment discount for using it. It’s also a nice idea to regularly check the payment options you provide to your clients. Consider providing alternatives if you observe high costs from a certain payment method in order to boost your income.

Final Word

In today’s digital era, it is crucial to consider the various payment preferences of clients. Businesses may meet the demands of a broad spectrum of clients by providing a number of payment alternatives, such as credit cards, mobile wallets, and online payment systems. Small companies may get a competitive edge in the market by embracing new technology and keeping up with the most recent payment trends.

When choosing payment methods, security should be given the greatest attention. Small enterprises must provide secure transactions and data protection for customers top priority. To secure sensitive information and win clients’ trust, it’s critical to select reliable payment processors that use encryption technology and adhere to industry standards for data protection.

Moreover, it is essential to carefully consider the fees and costs related to various payment choices. Small companies should consider transaction fees, processing expenses, and any other fees when selecting payment options. To best utilize financial resources and increase profitability, it’s vital to strike a balance between price and each alternative’s features and advantages.

Another important consideration for small businesses with expansion goals is the scalability and flexibility of payment alternatives. The selected payment systems should be able to handle rising transaction volumes and evolve with changing company requirements. Scalability guarantees that companies may develop without being constrained or interrupting their payment operations.

Finally, it’s crucial to look for payment options that seamlessly integrate with current corporate processes. Small companies should look for simple choices to connect with their accounting, inventory control, and customer relationship management systems. Operations are streamlined, human data input is reduced, and overall efficiency increases.

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ART MALKOVICH

CEO at Onilab

Art Malkovich is a co-founding partner and CEO at Onilab. The company develops eCommerce websites and progressive web apps on a turnkey basis, offers store migration and UX/UI design services.