As a small business owner, choosing the right payment method for your customers can be crucial to your success. With the increasing number of payment options available, it’s important to understand the pros and cons of each and choose the best option that meets the needs of your business and customers. In this blog post, we’ll provide you with valuable insights on how to choose the best payment method for small businesses.
We’ll discuss the different types of payment methods, including credit cards, debit cards, mobile payments, and e-checks, and compare their fees, security, and convenience. We’ll also provide guidance on how to set up a merchant account and choose the right payment gateway for your business.
Furthermore, we’ll share tips on how to evaluate your customers’ preferences and behaviors to choose the most popular and convenient payment options. We’ll also discuss how to balance the costs and benefits of each payment method and optimize your checkout process to reduce cart abandonment and increase conversions.
Whether you’re a new business owner or an established one, this blog post will provide you with valuable information on how to choose the best payment method for your small business. So, read on to discover how to provide your customers with a seamless and secure payment experience while maximizing your profits.
Types of small business payment methods
The first thing you’ll need to decide is which types of payment your business can accept. Generally speaking, there are five payment options to choose from:
- Cash payments
- Check payments
- Credit card payments
- Online payments
- Mobile payments
Consumers make cash payments with bills and coins. Typically, you manage cash payments from a point-of-sale system. Until recent years, cash had been a primary form of payment, but digital payment options have steadily increased in popularity.
The benefits of accepting cash payments include receiving payment immediately rather than waiting for a transaction to clear. Cash payments also cut down on overhead costs because there are no fees associated with accepting cash from customers. For small businesses with slim profit margins, credit card fees can be costly.
Running a cash-only business may help some small businesses improve bottom lines and simplify responsibilities. But it’s important to note that this type of payment comes with drawbacks. With a cash-only business, you may run a higher risk of theft and mismanaged money. There’s also a chance you could also lose business by inconveniencing customers who only have a card.
Regardless of your industry, if cash is your preferred payment method, you can avoid an audit with diligent accounting.
Checks are documents that authorize banks to transfer funds from your customer’s bank account to your business bank account. Checks document the payment amount and date and the payer’s account number and signature to authorize payment to the recipient.
Paper checks piqued in the 20th century. But they have lost some of their popularity with the widespread adoption of electronic payment systems. eChecks, electronic alternatives to paper checks, are now commonly used to make online payments.
But checks aren’t entirely outdated. They’re common among small business owners who own rental properties and lawn service companies, for example. All you need is a business bank account to start accepting check payments. But the SBA suggests creating a policy for your protection.
Standard practice is to accept check payments written in the exact amount and issued by major banks in your state. A third-party company can help verify the legitimacy of each check. But if a check bounces, you could wind up in small claims court or using a collection agency to recover your losses. Both results can be expensive and don’t guarantee repayment.
eChecks have become increasingly popular, along with ACH transfers from one financial institution to another.
According to research by QuickBooks, card payments are the second-most common form of payment accepted by small business owners globally, behind only cash. Whether it’s a debit or credit card, plastic has become the primary way consumers pay for purchases today. Paying with cards is convenient and can facilitate a smoother checkout process. Plus, it allows people to finance large transactions, so most customers expect businesses to accept at least one type of card.
This type of payment benefits small business owners, too. Card payments broaden your customer base and legitimize your company. And in most cases, card payments deposit into your bank account quickly, so they can help improve your cash flow. But this type of payment method comes at a cost for small business owners.
The Durbin Amendment caps debit card transaction fees to help make processing debit card payments more affordable to sellers and consumers. The Durbin Amendment set the fee cap for debit transactions at 0.05% of the purchase amount, plus 22¢. However, the amendment doesn’t impact credit card transaction fees, which can cost sellers significantly more.
Credit card transaction fees, flat fees, and incidental fees can significantly impact your bottom line unless you pass the expense to consumers. Each company sets its rate, with Visa and Mastercard leading the way, followed by American Express and Discover. You’ll need to cover the costs of the physical equipment and pay for merchant services and PCI compliance charges. And you might face monthly minimums.
Consumers have the right to dispute credit card charges if they’re unhappy with your product. Chargebacks can debit your account without warning, and when margins are tight, they can send your small business into the red. Some banks hold merchants responsible for credit card fraud, which adds another expensive liability, especially if your reputation is tarnished as a result.
Despite the drawbacks, credit card payments have some benefits compared to alternative payment methods, particularly security, hygiene, and customer preferences.
Online payments transfer electronically. They use a payment gateway to facilitate and authorize several types of payments, including eChecks, credit cards, and direct debit payments.
Online payments aren’t restricted to online businesses. Online purchases can occur in brick-and-mortar stores using digital wallets, or apps that store credit and debit card information on a mobile device.
Online payments seem to be the way of the future in terms of cost and convenience. They offer a cheaper and faster way to get paid, and they give consumers options when they check out.
Cash and credit card sales require you to tally up the total price, including taxes. But the best online payment methods do this automatically, saving you time and reducing the risk of error. You’ll need to pay fees to accept payments online. But these fees are generally more affordable than those charged by credit card companies.
E-commerce online payment services often utilize a virtual shopping cart to calculate the total with shipping costs. That’s in addition to collecting the customer’s shipping and payment information. Several providers offer free shopping cart services to small businesses. You must have this type of payment to sell products or services online. But the ease and affordability have made them more popular among brick-and-mortar retailers, too. Digital wallets, as well as smart debit and credit cards, can enable contactless payments, which use near-field communications with card reader equipment to facilitate in-person payments.
Digital wallets, like Apple Pay or Google Pay, are going mainstream, especially among younger consumers. The change indicates a tipping point for online payments wherein the advent of digital wallets is around the corner.
Mobile payments use mobile devices, such as smartphones or tablets. Mobile payments can encompass a range of payment options, including:
- Payments made through digital wallet apps and near-field communication technology
- Money transfer apps
- Payments using a mobile card reader to swipe debit or credit cards
Mobile payments facilitate mobile transactions using a method of payment, like cards or electronic money transfers.