Accepting different forms of payment is critical to the success of a small business. The good news is that there are more ways than ever to accept payments from your customers. Each payment option comes with a set of risks and benefits. And you can choose more than one. Some might carry hefty fees for using them while others are more susceptible to fraud or theft. Choosing the right payment method for your business is tricky but you can balance the pros and cons based on your business’s needs and customers’ preferences. Credit Cards and Debit Cards Credit cards and debit cards are some of the most popular payment methods for small businesses. A study conducted by the Federal Reserve in 2020 found out exactly how popular they are. The study found that about 42% of consumers prefer to pay for purchases using their debit cards. Another 29% of consumers preferred to use their credit cards to make payments. Cash came in last place at 23%. To avoid alienating customers, many small businesses offer credit and debit card payments. It comes with pretty significant benefits: \tCustomers find it convenient, quick, and easy to manage \tPayments show up quickly, which improves business cash flow \tExtra payment options help to expand your customer base \tDebit card transaction fees are low. (These can vary based on the merchant) \tImproves security by reducing the risk of carrying large amounts of cash \tHelps facilitate larger purchases There’s no doubt that accepting card payments have a positive impact on your business, but you still have to consider the drawbacks: \tIt could be expensive. Card issuers like Visa, Mastercard, Discover, and American Express charge a fee for each transaction processed. According to Reuters analysts, credit card processing fees cost small business owners 1.5% to 3.5% on average. \tYou’ll need to pay for costly equipment or software. This might include card readers, virtual terminals, Point of Sale (POS) machines, and merchant services. \tCustomers may process disputes with their bank that result in chargebacks on the business. Chargebacks can hit your account unexpectedly. Credit and debit card payments are preferred by customers in most cases, so the pros might outweigh the cons here. Depending on the structure of your business, accepting credit cards might be beneficial to your bottom line. Mobile Payments Offering mobile payments has become essential for businesses that are always on the go. Such as food trucks, construction, or landscaping. All of these require a way to process payments without being tied to one location. All it takes is a smartphone and a mobile card reader. Mobile payment options allow the use of several payment methods to receive money from a small business customer. \tMoney transfer applications (Zelle, Cash App, or Venmo) \tDigital wallet payments facilitated by NFC technology \tMobile card reader payments \tMobile POS systems A quality card reader or POS system helps you keep customer information secure while collecting payments. Secure transactions help protect you and your customers from fraud. Many times this also allows you to provide customers with a digital receipt for their transactions. Online Payments Online payments are done by using a payment gateway to process an electronic transfer. This covers almost any payment method that requires an internet connection to process. It can include: \teChecks \tCredit card and debit card payments \tDigital wallets like Apple Pay, Android Pay, and Google Pay \tMoney transfer apps (Venmo and Zelle) \tMoney transfer services like PayPal, Square, and Stripe Online payments are often done through eCommerce sites. Customers add merchandise or services to their online shopping cart and complete their purchase with one of the payment options available. This isn’t exclusive to businesses that only exist online. Physical storefronts can accept payments online too. Here are some of the reasons why small business owners are quick to adopt an online payment system: \tPayments hit your bank account fast. This helps the business improve cash flow. \tYour customers have more ways to pay. They’re more likely to buy from you again when there are plenty of payment options. \tTop-notch security. Online payment gateways offer features that keep your clients’ information secure, like two-factor authentication and encryption. This gives you theft and fraud protection. \tOnline payment gateways take tasks off your plate. There are fewer bank visits to deposit cash. You can manage transactions and money transfers in one place. And most times, the system will automatically send a receipt to the client. Accepting digital payments is convenient for you and your customers. The downside is that it still comes with fees that vary based on the payment processing company you choose to work with. So essentially, it still costs to get paid. Lendio Lendio's software is free accounting software for small business that handles payment processing and tons of other small business tasks all in one place. Their software enables you to give your customers multiple online payment options, such as: \tIntegrated payment processing with Stripe, PayPal, and Square \tAccept debit and credit card payments from Visa, Mastercard, Discover, and AmEx \tAccept bank transfers as payment \tManage income and expenses \tCreate and send invoices (Note: Many of these payment options require a paid subscription.) Accepting digital payments can be costly with other services, but it doesn’t have to be with Lendio's software. Drop the expensive per-transaction fees. With a reasonable monthly fee for their Plus version, you get a 1% discount on each transaction fee for card payments and bank transfers. Businesses that need mobile solutions can use their free small business accounting app to manage invoices from wherever your business takes you. With Lendio's software, you can: \tEasily check on the status of invoice payments \tTrack expenses and income with minimal effort \tTake receipt images with your phone and directly upload them into your account The free version is powerful, but the seven-day free trial of Plus opens new doors for your business. Sign up for your free trial today! ACH Payments Automatic clearing house (ACH) payments come directly from a customer’s bank account to your merchant account. So they’re somewhat similar to check payments since it pulls from a client’s bank account balance. Unlike checks, they’re less susceptible to fraud and they’re faster. When the customer goes to check out with their purchase, they supply their bank account information, which may include their account number, routing number, and the name on the account. Then they authorize the business to withdraw the total purchase amount. ACH payments are often used to satisfy recurring billing obligations. Customers can choose to set recurring payments as well. Common examples of businesses that accept ACH include: \tChildcare providers \tProperty management \tHealth and wellness businesses ACH processing is a secure, fast way to receive payments, but some downsides still come into play. For example, transaction and amount limits with your bank might affect how many transactions they’ll allow your business to process each day or month. If you don’t have a bank account that’s suitable for receiving multiple ACH payments, it could result in high bank fees or holds on your account. Cash Small businesses that are looking to avoid the fees associated with accepting debit and credit cards might only accept cash, but these days, it might be costing you more in potential sales to not accept other payment methods. As mentioned in the earlier study, cash was the least preferred payment method for customers. That doesn’t mean it’s obsolete though. 23% of people still prefer it when the option is there. Cash transactions come with two big pluses. \tImmediate payment means no waiting around for transfers. \tThere are no fees for accepting cash. Although cash means you’re getting immediate payment with no cost to accept payments, there are some disadvantages you’ll have to work through. \tMore susceptible to theft. Cash requires extra security measures and protocols to stay safe until you can make it to the bank. \tExtra equipment is needed to store it. Registers and locking safes are essential for cash businesses. \tYour merchant account could have deposit limits that restrict the amount of cash you can deposit daily or monthly. Going past the limit could be costly. \tOnly accepting cash may drive away customers who only carry cards. \tCash-heavy businesses are a big target for tax audits. Excellent accounting records are needed to stay in the clear. Checks Checks are paper documents that the customer fills out which authorizes payment to be deducted from their checking account. It includes the following information: \tDate \tPayment amount \tWho the check is payable to \tCustomer signature \tWhat the check is for Checks have almost become obsolete for most B2C transactions. Mainly because they’re easy for fraudsters to manipulate, they’re slow to deposit, and bounced checks are expensive to deal with. Some B2B transactions still favor checks through. Accepting checks as a form of payment requires a business account and a predetermined policy for how checks are handled. For protection, the SBA recommends: \tOnly accepting in-state checks from familiar banks \tRequiring checks to be written for the exact amount \tUsing a third-party to check verification Instead of going with hand-written checks, many businesses opt for eChecks instead. These use a similar verification process as ACH payments to clear the transfer of funds. Cryptocurrency Accepting cryptocurrency as a payment method holds a lot of unknowns, mainly because it’s still new. There are plenty of benefits that might be associated with being a business that accepts crypto as a payment option, but there are also a lot of risks to consider. Some benefits include: \tAccessing a different type of clientele that values transparent transactions. \tIncreased purchase amounts. A Deloitte study found that customers who use crypto make 2X larger purchases compared to credit card users. \tReal-time money transfers that are secure and verifiable. Cryptocurrency may provide increased profits and new clients, but with technology that’s so new, it’s important to be aware of the disadvantages also. Cryptocurrency doesn’t follow the same rules as cash or credit. Its value is considered more volatile and there’s a lot more that goes into hosting these payments. \tConversion pricing and tax considerations make accounting challenging \tThe value of the currency fluctuates wildly \tYou’ll need to hire a third-party payment processor \tAccepting these payments might be more expensive than others Deciding if cryptocurrency is best for your business requires a solid strategy. The benefits it offers might attract industry enthusiasts, but it’s likely not going to be the most used payment option for now. It is better to explore more about what you need to know about buying crypto with a credit card to have better experience and safer decisions. What Are The Best Payment Methods For Small Businesses? The best payment methods for your small business are the ones your clients are asking to use. Retail stores and restaurants might see more cash and credit card payments, so it’s crucial for those to be offered. B2B companies, like commercial vendors or property management, might go for checks or ACH payments. Meanwhile, construction companies, salons, and landscapers need to have mobile and online payment options. Still, you’ll need to consider the cost of offering each option. Processing fees, penalties for rejected payments, and the price of equipment will impact your bottom line. With that being said, determining the best payment method requires you to analyze three factors: \tCustomer preferences \tBusiness requirements \tCost compared to profits Overall, there are a number of payment options that your business can benefit from. Finding the right one will depend on what your business needs, what your customers want, and how much it costs. It’s possible to offer more than one option to help expand your customer base and increase sales. It may take trial and error to see which ones are the best. Checking around with entrepreneur peers in your industry can help as well. *The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.