Choosing a payment method depends on the specifics of your small business. What is your business model? How do you operate? Who are your customers?
The answers to these questions can help guide you to suitable and effective payment options for your business. Important things to consider include costs, delays in receiving money, the typical size of transactions and your accounting system.
The best payment method for your business should satisfy all these factors. You want a payment method with low fees that delivers funds quickly and that fits your company and its customers.
While all businesses have a preferred method, you’ll likely need to offer multiple payment options to help attract customers and improve your business’ cash flow. Thankfully there are plenty of options available. Here’s a list of seven payment methods you should consider for your small business.
#1. Electronic funds transfer
EFT is an umbrella term describing methods for transferring money electronically, directly between bank accounts. EFT removes the need for a third-party application which makes it a convenient and remote payment method. Common forms of EFT include:
- Wire transfer.
- Direct deposit.
- Electronic check.
- Automated clearing house (ACH).
The downsides of EFT include fees required to process payments and delays of roughly two to four business days. You also need to have your account at a bank that accommodates EFT.
ACH is becoming an increasingly popular option for business transactions. Advantages include faster payment (one-two business days), reduced costs (some services offer ACH payments at no cost), security and traceability.
Sometimes the terms can get confusing, and businesses think they have to choose between EFT or ACH. In reality, ACH is a popular form of EFT.
#2. Cash
Good old bills and coins. Card, mobile, and online payments have removed the need to visit the ATM and carry cash everywhere we go. However, cash is still very much king for many businesses across different parts of the world and industries.
It’s easy to see why. Cash is immediate, has no processing or admin fees, can simplify accounting, and has been extensively tested over several decades. On the other hand:
- It can inconvenience customers who have come to expect other options.
- It requires the physical transfer of money and in-person interaction.
- Cash comes with the risk of theft or mismanagement.
#3. Checks
Checks are a simple way of transferring funds without paying any fees. A short document authorizing banks to transfer money from one account to another sounds like the ideal solution. However, they do require physically handing or mailing over the check, and even after you receive the check, it can take several days for the funds to clear into your account. Plus, a bounced check can be costly and take time to collect.
#4. Debit cards
Checks are a simple way of transferring funds without paying any fees. A short document authorizing banks to transfer money from one account to another sounds like the ideal solution. However, they do require physically handing or mailing over the check, and even after you receive the check, it can take several days for the funds to clear into your account. Plus, a bounced check can be costly and take time to collect.
#5. Credit cards
While debit cards facilitate payments with existing cash, credit cards allow purchases based on future cash.
Generally, they have higher fees compared to debit cards. So unless businesses pass the expense onto the customer, fees associated with credit card payments (transaction, physical equipment, merchant services, compliance charges, etc.) can eat into profit margins.
Credit cards are accepted primarily due to customer preference and their ability to make purchases on credit. With credit card payments, your small business can expand its customer base, and generally speaking, funds are quickly deposited into the company’s account.
#6. Online payments
Nowadays, numerous online services process payments in a range of different ways. From e-checks to digital wallets and apps that authorize credit and debit card payments, online payment methods facilitated by direct debit providers aren’t restricted to the internet; they have made their way to brick-and-mortar retail as well.
Compared to other payment methods, online payments have many options for businesses and customers to consider. Some are fast, low-cost, and offer the ability to automatically combine costs (taxes, shipping, etc.), so the customer gets a simple breakdown of their final purchase.
While a relatively small number of companies dominate the credit card industry, the online payment world is filled with different options and services to choose from. With that in mind, some important things to consider when looking at online payment methods for your small business include:
- Cost: What are the prices associated with transactions, and how are they assessed?
- Flexibility: Does the service restrict your business or customers to a specific payment method?
- Security: How are payments secured, and does the service offer additional protection against?
- Integration: Can it fit with broader business operations?
- Features: Does the online payment service offer any unique services?
Some of the most popular online payment methods include Paypal, Venmo, CashApp, and Stripe and that’s without even mentioning digital wallets like Apple Pay or Google Pay that are booming in popularity, especially among younger demographics. With contactless payment, customers no longer need cash or cards for in-person purchases; instead, they can use near-field communication (NFC) and quickly tap their smart devices.
#7. Crypto payments
Finally, many businesses are beginning to offer crypto payments. This payment method requires a level of tech-savviness to get up to speed with how it all works. Still, cryptocurrency provides immediate payment, low transaction fees, and encryption guaranteed by the blockchain. Currently, the customer base for it may be limited to crypto enthusiasts, and there are issues with price volatility related to the various coins.