Small businesses tend to be more heavily dependent on their cash flow than their bigger counterparts. This why the question of ‘What type of payment methods should my business use?’ assumes great importance for a small business owner like you. Before you start evaluating the different payment methods and their pros and cons, it is best to list out what exactly your expectations are.
Irrespective of the business niche that you operate in, there are some general aspects that you definitely want your payment method to cover:
- It should be convenient and easy to use for your customers: You don’t want to lose customers simply because they can’t figure out how to pay you. That means, opting for a simple, user-friendly payment method is really a huge priority for you. While you are figuring this one out, don’t forget to keep your typical customer profile in mind because this makes a huge difference.
For instance, consider a business that sells baby clothes and toys online. You would expect that new parents would be the major customers, right? What can’t new parents do, most of the time? Leave the baby at home and come out to do a bit of shopping. So the business owner would want to make it easy for them to pay online and purchase the products with just a few clicks of the mouse right from their homes.
Now, consider a business that sells hand- made wooden furniture. The chances are that customers want to walk in, inspect the furniture maybe do some negotiating and then make their purchase. Online purchases may happen here but the owner is sure to lose customers if this is the only option he has. Make sure that your payment option is easy and convenient for your customers.
- Is it easy to manage and track for you?: You don’t want to spend hours tracking your payments and integrating all that information into your accounting software. Keep in mind that your payment method should match conventional norms so that you don’t have trouble at tax time trying to explain why none of your receipts are showing up in your books.
- Safety is a priority: Well, your customers are not going to be a happy lot if their payment gets lost in transit or if their bank account details are exposed to the world. You don’t want your receipts going into accounts other than your own either. That means safety is a big priority when you are thinking of ‘what type of payment methods should my business use?’.
- Speed : Although this is not more important than safety or ease, speed does make a difference to your business because it affects your day to day liquidity position. A payment method that necessitates a huge gap between the sale time and payment receipt time may be unviable for your business because your cash is locked up effectively.
- What type of establishment do you run?: This is another important factor to think about because all payment methods don’t work for all types of businesses. For instance, can you imagine your local McDonald’s giving you a one month credit for your $10 meal? They would have to shut down real quick with that policy!
In general, retail stores can opt for checks, credit card payments or debit card payments as standard practice. Restaurants can opt for virtual wallet payments, debit/ credit cards or cash. For e-businesses, there are tons of virtual payment options that can work well along with credit/debit cards or direct bank debits. You get the idea- keep your business type in mind.
- Factor in the hassle of recovering cash: There are bound to be instances where a customer payment goes bad. Say, a customer check bounces and you have to go through a fairly painful process of following up for payment or getting a new check issued. The time consumed by this non- productive activity is not the only loss you face; there is also the question of penalties imposed by your bank. Basically, you should opt for lowest risk payment methods without compromising on the ease and convenience you offer to customers.
So what are your options?
Let’s start with the most conventional ones.
Cash: Accepting cash is the safest form of payment for you, the business owner. Of course, for your customers, this may not be a great method because they have to carry cash with them when they visit your store. That means spur- of- the- moment purchases are not possible and that’s something you want to think about too. After all, you want to make sure that you maximize your sales and limiting your payment option to cash only is not the way to do that. However, sticking to your cash only policy for brand new customers or for those who have failed to pay on time before, is a good idea.
Checks: If you want to make payments more flexible but you are still unwilling to compromise too much on the risk levels, checks are a good option. Set up a check acceptance policy to ensure that you/ your staff carry out some basic checks to limit bad checks. Some key policies you should adopt are:
- Only accept checks drawn on local banks or banks in the state
- Make sure that check and the bill amount match exactly
- Check that it is numbered and personalized
- The date of the check should be current
Apart from these, also verify that the check has been filled in correctly.
Credit/ debit cards: Accepting payment through credit cards or debit cards makes life much easier for your customers. They can freely make big ticket purchases at your shop without having to carry around a big stash of money. The ability to make on- the- spot decisions to purchase even when they don’t have cash to pay for the product is a big advantage that boosts your sales. Clearly allowing credit/ debit card payment is in your best interests, provided you have a system to verify the card and the user before you accept payment. There is a small charge associated with card payments but when you look at how far this payment method goes in overcoming sales barriers, you will see that it is worth the money.
Wire transfers: This is one of the fastest and safest ways to move funds anywhere in the world. While many other methods take at least a day to get the funds in your account, wire transfers are instant, meaning that you get the cash in your account the same day. It is secure, safe, reliable and quick- which makes it a perfect payment method for small businesses that want zero risk payments. If you have large cash transactions to be done, wire transfers are the best option for you since it does not require your customer to carry the cash with them to any sale point. Since the account is directly credited and debited with the amount, it is easy to keep track of your wire transfer receipts too. Another big advantage is that you can have customer virtually anywhere in the world without worrying about how to get paid by them when you have a wire transfer set up.
Digital payment methods
As the world increasingly moves towards virtual shopping, small businesses are making the best of this evolution and establishing a strong online presence. In fact, this lets them compete with much bigger, cash rich businesses on even ground, giving them the opportunity to grab a good percentage of the market share. As websites become an integral aspect of the business landscape and virtual store fronts become the norm rather than the exception, the switch to virtual payment methods is just an inevitable step from here.
The fact is that customers are increasingly switching to using their hand-held devices to carry out practically all of their tasks, including shopping from the comfort of their homes. This means you cannot afford to ignore digital payment options. In fact, today, there are so many of these options, offering such a range of advantages that it is not in your best interests to overlook these any more. This is why we dedicate a whole section to these payment methods.
PayPal: Perhaps the most well known of all online payment methods and certainly one of the oldest, PayPal is trusted worldwide, which is great for your business because your customers will not think twice before they use this method to pay. PayPal lets you place their checkout buttons onsite and customers can use these to access the payment site’s page where they have a choice of options to complete the purchase.
Square: Similar to PayPal, this site offers some great transaction rates that make it affordable for you to adopt virtual payments. You also get a free online store listing to sell your products or services and you can also embed these into your own site.
PayStand: If you don’t like the idea of paying transaction fee whenever a customer makes a purchase from you, this is a great option to adopt. You do pay a monthly fee that is fixed, though. So if your sales are increasing and the transaction fee is growing bigger and bigger, you could switch to PayStand instead. Another advantage with this payment option is that your customers can pay using traditional methods like credit cards or e-wallet cash and also Bitcoins or foreign currencies.
Stripe: If you don’t want your customers to be diverted to a payment site when they want to purchase, you should go with Stripe which was developed to work around this. The payment process happens on your own website so that you can retain your customers on your pages and allow them to explore further once they have made one purchase.
Flint: A smart way to let customers pay using their credit cards even if there is no card reader available, Flint is a good option for small businesses. This is a mobile app that lets you scan the credit card number. You can also accept cash and check payment via Flint.
ProPay: Another service that lets you read credit card information using a Smartphone, ProPay has the additional feature of allowing Buy Now or Donate now buttons to your pages. The transaction rates are on the lower end which is a big advantage too.
PaySimple: Another effective answer to your ‘What type of payment methods should my business use?’ question, PaySimple charges a flat rate per month for using its services. For businesses that have a huge number of transactions every month, this may be the better option than a service that charges per transaction. You can receive echecks via this service and also debit and credit card payments. You can also avail of the credit card reader for smartphones that PaySimple offers.
2Checkout: Once you apply for your own 2Checkout account and get it approved, you can add this service to your website. The service is integrated into your site like many other such options but there is one difference that gives you better control and more flexibility in its use. You can choose a Plug and Play integration on your site or go for a shopping cart payment model. When the customer clicks the Buy button on your page, they are taken to 2Checkout’s payment area. The can pay for their purchase there and once this task is done, the customer is redirected to your site’s pages. This payment method addresses any concern you may have about losing customers once they enter the payment process.
There are new and improved virtual payment methods coming up every day and you could keep track of these to ensure that your business remains aligned with your customers’ changing and evolving preferences. Just pay attention to safety, security and ease of use and you should have a winner on your hands!