Small business owners have a lot of options when it comes to accepting payments, each with its own advantages, challenges and opportunities. While some payment methods are pretty much ubiquitous (and you risk losing a sale if you don’t offer them), others may or may not be suitable, depending on your business type.
5 Suitable Payment Options for Small Businesses
The following are among the safest, most universally reliable payment options.
1. Cash Payments
Around the world, cash is still an important payment method. An estimated 73% of UK residents used cash in January 2022. Cash payments are direct, without intermediaries, come without any transaction fees and can be made without access to electricity or the internet. Cash comes with the risks of theft and forgery but doesn’t come with a risk of chargebacks (as in the case of card payments) or bouncing (as in the case of cheques).
Consider cash payments if you:
- Sell low-cost items
- Sell goods and services on the go
- Are located in a small town or rural area
- Deal with a demographic that prefers to pay with cash
- Live in a country that mostly operates in cash
- Need a payment method that doesn’t require access to electricity or the internet
Cheques aren’t used as much today as they once were, but B2B transactions are still often made using cheques. The advantages of cheques are that they are free to receive and are also fairly secure (only the addressee can cash the cheque). The main disadvantages are that they can take a few days to clear and can potentially get lost in the mail.
It may be appropriate to accept payments by cheque if:
- You run a mail-order business
- Your country has a fast turnaround time for cashing cheques
- You deal with other businesses that prefer to pay by cheque
- You need a payment method that doesn’t require access to electricity or the internet
3. Bank Transfer
If you and your customers prefer to pay through the banking system rather than in person, direct deposits (in person) and electronic funds transfer payments (online) can be good payment solutions for small businesses. The advantages of both of these payment methods are that they are free or cheap to perform and provide complete security for the seller. The disadvantages are that they may not be instant and can be a hassle for the customer.
Consider bank payments if:
- You offer delivery services
- You run a rental business
- You offer recurring services (nannying, cleaning etc.)
- Your customers don’t typically use cards
- You want a payment solution that doesn’t require a point-of-sale system
- Your country has quick bank transfer processing times
4. POS Payments
A point-of-sale (POS) payment system allows you to process debit and credit card payments as well as contactless payments made with a mobile device. POS systems are typically hard-wired through the landline telephone networks, but you can also accept card payments wirelessly on your mobile phone with a portable add-on.
To accept payments made with credit and debit cards or a mobile device, you will need a merchant account with an acquiring bank to facilitate these transactions. Most small business owners also contract with a merchant services provider to manage the entire credit card transaction process and take care of things like chargebacks and sales reporting.
A point-of-sale system (either hard-wired or wireless) might be right for you if:
- You have a brick-and-mortar store
- Your ticket size justifies credit and debit card transaction fees
- Your customers prefer to use credit, debit or payment cards over cash
5. Online Payments
Small e-commerce businesses need to be able to accept payments online, which automatically excludes cash. And while customers could theoretically mail you a cheque, the need for fast transaction approval times and centralised data collection means that online payment methods are typically electronic.
The main methods for online payments include:
- Debit and credit cards
- Mobile payments (such as Google Pay, Apple Pay, Samsung Pay, Amazon Pay etc.)
There are other options for online payments as well, including buy now pay later (BNPL), QR codes, cryptocurrency and eCheques. The right payment methods for you will mostly depend on your customer base.
How to Accept Payments Online
To accept online payments, small business owners can either add plugins for the payment methods they want to offer (PayPal, Apple Pay, Google Pay and so on) or set up an integrated global payment gateway that allows customers to complete transactions using any of these payment methods without leaving their site.
Just as for POS payments, accepting payments online requires payment processing services and a merchant account (either your own or an aggregate merchant account). These services come either with fixed and percentage transaction fees or monthly fees coupled with lower per-transaction rates.
Online Payment Systems and Security
As online payments are vulnerable to fraud, you will need to make sure that your payment gateway provider is PCI compliant and offers end-to-end encryption. Advanced merchant services such as an adjustable fraud scrub also help you block fraudulent transactions while allowing legitimate transactions through.
Special Considerations: Recurring Billing and Loyalty Points
As a small business owner, you might still be getting your head around the basics or have a good rhythm of sales established. However, as you grow, you might consider trying out ideas like subscriptions and loyalty points. Subscription service models have been growing quickly in popularity over the last few years and adding a loyalty program to an e-commerce store can increase average order value by 319%.
To process monthly payments and loyalty points automatically, you’ll need a merchant services provider that can set up these processes for you and keep them running smoothly. You’ll also need to think about electronic payment methods—including card payments and EFT—as customers are less likely to complete regular payments in cash.
The Best Payment Options for Small Business Are Different for Everyone
Ultimately, there is no one-size-fits-all answer when it comes to payment options for a small business. However, finding out which payment methods your customers prefer to use and offering various payment methods in your store (either brick-and-mortar or online) can dramatically increase your revenue.
If you want to add card payments or scale your business, it might be time to partner with a merchant services provider. As explained above, MSPs can not only process a wide range of payment methods securely but also provide tools like recurring billing and loyalty points that can help your business grow.