Payment methods to suit your small business

Cash, cheques, bank transfers, credit and debit card payments are common, depending on your business type. Standing orders and direct debits can save time and effort for regular payments. Digital payments like PayPal and Google Pay and digital wallets are also becoming more popular. If your customers are other businesses (B2B), you might use automated clearing house (ACH) payments or real time bank transfers. 

 

Some customers still prefer traditional cash or cheque payments, although the pandemic made electronic payment methods more popular. Cash is immediate, but you have to count and pay in your receipts at a branch, which takes time. For cheques there’s often a limit to the number you can bank without charge and the risk they won’t be honoured. Some banking apps now speed things up by allowing you to pay in cheques using the camera on your smartphone. 

 

Card payments remain popular and millions of us use them. Although debit cards look much like credit cards they work differently. Customers don’t have to have funds immediately available to use their credit card. However, they must have enough in their account to cover their payment to use a debit card. 

 

Accepting a debit card payment is similar to receiving a cheque or cash and the money is automatically deducted from your customer’s account. Fees for debit card payments are typically lower than credit cards or cheque transactions. Processing times are usually faster too, so you should receive your payment more quickly. 

 

There is usually a monthly service charge, transaction fees and/or sales fees to accept card payments. Service charges often depend on monthly transactions plus up to 3% in fees, so the costs can mount up. 

 

Bank transfers are popular because they are reliable and there aren’t usually any transaction fees for smaller payments. However, larger payments using a Clearing House Automated Payment System (CHAPS) transfer will involve fees. 

 

However, bank transfers have their problems. Most importantly, you rely on your customer to make the payment, so you don’t have any control. Chasing late or failed payments uses your valuable time and your cashflow might suffer in the meantime. You must then reconcile your bank accounts to make sure payments were for the right amounts. 

 

Direct Debit is a trusted payment method and has a low failure rate. Fees are generally lower than card payments – typically 1%. It’s also a ‘pull’ method of payment, so your customer authorises you to take agreed payments from their bank occasionally or regularly. This represents a big saving on administration time and costs, especially if your business is growing quickly. It’s also much easier to see what payments you will receive and when. You will see cancelled and failed payments and, if payments don’t go through, you’ll also know why. 

 

Collecting regular payments such as subscriptions or instalments via standing orders is simple and reliable and doesn’t usually incur a fee. As long as your customer has a current account a standing order is easy to set up. It can be done online, over the phone or in person at a branch. Your customer can authorise payments to you for specific periods, for example every month for a year. However, your customer can also cancel their standing order at any time without notice. If changes are needed, you will have to rely on them to make the updates. 

 

If your customer’s bank uses Faster Payments, a standing order payment usually arrives in your account on the same day it is sent. If the customer’s bank doesn’t use Faster Payments, it can take up to three working days for a standing order payment to move from one account to another. 

 

Digital payment methods give customers more flexibility but this can add complexity for you as a business owner. Contactless payments are widely available, so if your business relies on more traditional methods you could need to update your approach soon. Accepting electronic payments means you need to meet the requirements of the Payment Card Industry (PCI) standards, especially online. 

 

If you sell online you probably already accept credit cards and other digital payment methods via a payment gateway. There are now also a growing number of mobile payment methods using processing devices, smart cards, touchless terminals and QR codes and your mobile phone. 

 

You can spend a long time reviewing the requirements, costs and benefits of each option. Frequently the details vary depending on the payment method and your type of business. 

 

Previously accepting card payments remotely required a telephone landline, a card machine, and a way to add processing fees. Modern mobile payment providers are trying to make the process easier but the number of choices is still daunting. In addition, there’s also a growing number of digital point-of-sale (POS) options. 

 

You need to prepare for your customers’ preferences, such as accepting mobile payment options like Apple Pay and peer-to-peer (P2P) payments. ‘By now, pay later’ options from providers such as Klarna and PayPal are also changing customer expectations.