• blog Business

    Best Payment Methods for Small Businesses to Accept

    Featured Image

    One of the most important decisions small business owners have to make is choosing which payment methods to accept. As simple as it may sound, choosing payment methods comes with a whole host of extra considerations, such as processing fees, demographics, scalability, and administrative burden. 

    In this article, we’ll look at the best payment methods for small businesses, including things to consider and how to start accepting multiple payment methods easily.

    Things to consider when choosing a payment method

    Before we explore the best payment methods for small businesses, let’s look at things to consider when choosing a payment method. This can help you better understand which payment types are most suitable for you. 

    Here’s what to look for when choosing a payment method: 

    • Fees: Transaction fees should be an important consideration as they can easily add up and affect your business’s bottom line. Different payment methods come with varying transaction fees. When comparing fees, consider the popularity of the payment method and what is most cost-effective for you. Your business may be better off accepting a high-fee payment method if it means appealing to more audiences and boosting conversions. At the same time, consider fee structures and transaction volumes.
    • Scalability: A payment method may be simple enough to implement now, but what happens if your business grows? Before you accept a payment method, consider whether it will be able to scale and grow with your business and its changing demands. For example, cash has many conveniences but it can be difficult to scale as it requires additional administrative burden, like manual recordkeeping and bank deposits. On the other hand, card payments are easily scalable due their speed and convenience. 
    • Implementation: If you’re just starting out, you might want to begin accepting the easiest payment methods first. When looking at the different payment types, consider the ease of implementation and whether any infrastructure is needed that you do not currently have. 
    • Features: When comparing payment methods, go beyond the method and consider any associated features that might be involved. This could include added security measures, data and reporting, and reconciliation support. For example, some payment processors offer dispute resolution mechanisms that can make it easier to handle unauthorized transactions and chargebacks. 
    • Security: Don’t overlook the importance of security when choosing a payment method. Small businesses can be particularly vulnerable to certain types of fraud as they have less sophisticated security measures. Look for secure payment methods that can provide you with peace of mind. 

    See more: Ecommerce payment methods: what they are and how to choose the right ones

    What are the best payment methods for small businesses?

    The best payment methods for small businesses to accept are: credit cards, cash, direct debit, digital wallets, and BNPL. These payment methods are popular and convenient, allowing your business to reach a wide range of customers while making payments relatively easy.

    1. Credit cards 

    Credit cards are one of the most popular payment methods for several reasons:

    • Quick: Credit card transactions are processed almost instantaneously, providing you with immediate access to funds. 
    • Convenient: Customers can easily input their credit card details to initiate a payment. With the right payment gateway, you can even save customer payment information to make future checkouts even faster.
    • Secure: Credit cards protect your business against fraud by offering advanced encryption and authorization. 
    • Financing: Credit cards allow customers to finance the purchase of high-value items, potentially broadening your reach and revenue potential. 
    • Popular: The vast majority of customers prefer paying with credit cards, with one survey estimating 78% of all retail transactions being paid for with a debit or credit card. 

    Despite the numerous benefits, there are some downsides to accepting credit and debit card payments which you should be aware of: 

    • Fees: Credit card transaction fees can vary between 1.5% and 6%, depending on the card. This can add up over time, especially for small businesses operating on thin margins. That said, their widespread use and popularity mean you’re better off accepting credit cards and paying fees than not accepting them at all. To reduce the impact of fees on revenue, you can choose a fee pricing model that is more cost-effective. Flat fees can be better for low transaction volumes while tiered models are more suitable for higher transaction volumes. 
    • Fraud: While credit cards are a secure payment method that can help prevent fraud, there’s also the risk of fraudulent (unauthorized) transactions and chargebacks. That said, a secure payment processing solution should help you reduce your exposure to these risks. 

    Similar reading: Best Practices for Secure Online Payment Processing

    2. Cash 

    While the use of cash is heavily declining, it’s still a straightforward and fee-free payment method that all brick-and-mortar businesses should consider accepting. The benefits of accepting cash as a payment method include:

    • Quick: With cash, funds are available immediately without the need for settlement periods or intermediaries. 
    • No fees: Cash payments don’t carry any transaction fees, unlike card payments. 
    • Regional considerations: Some regions still rely on the use of cash, such as the Middle East, Latin America, and Africa. If your small business operates in these regions then accepting cash ensures you’re catering to the wider population. 
    • Still popular: One study by the European Central Bank found that cash is still the most popular means of payment for small-value in-store purchases. Customers valued cash for its anonymity and privacy.

    The challenges of accepting cash payments include:

    • Maintaining accurate records: It can be difficult and labor-intensive to maintain accurate records of cash payments as they aren’t automatically recorded and stored digitally. This can lead to errors and accidental omissions.
    • Security risks: There is always an added risk of theft or loss when it comes to cash payments, requiring careful storage and handling.
    • Time-consuming: Counting cash, reconciling cash registers, and making bank deposits are all time-consuming tasks that will require extra resources compared to digital payments.
    • In-person: You can only process payments using cash if you run a brick-and-mortar store, and they cannot be used for online transactions. 

    3. Direct debit

    If your small business requires regular, recurring payments or operates on a subscription model, you should consider accepting direct debit. This payment method automatically withdraws from a customer’s bank account.

    The advantages of using direct debit include:

    • Timely payments: Direct debit payments can be scheduled to automatically withdraw cash on particular dates, ensuring you will always be paid on time. This reduces the administrative burden of chasing up overdue invoices.
    • Lower fees: Direct debit transactions usually incur lower fees compared to credit card payments, which can make them more cost-effective for small businesses. 
    • Secure: Direct debit is a highly secure payment method for both businesses and customers, helping protect from unauthorized transactions. 

    As with the other payment method, there can be some limitations to using direct debit. These include:

    • Delayed payment: Unlike credit card transactions, which are processed almost immediately, direct debit payments can take several days to clear. This can impact cash flow and pose an issue if your business needs to collect payments instantly. 
    • Insufficient funds: Direct debit transactions can fail if the customer does not have sufficient funds in their account. This can lead to missed payments.

    Continue reading: Installment Payments Explained

    4. Digital wallets

    Digital wallets, like PayPal, Apple Pay, and Google Pay, are quickly becoming the payment of choice for both customers and small businesses. These platforms allow customers to make payments using stored credit card or bank account information. 

    The benefits of accepting digital wallet and mobile payments include:

    • Popular: Digital wallets already account for 49% of all global ecommerce transaction value. If you run an online business, it’s essential you accept this payment method to appeal to a broad range of audiences.
    • Easy for brick-and-mortar: If you run a brick-and-mortar store, getting set up with digital wallets is easy. All you need is a mobile point-of-sale system to store client details and issue receipts.
    • Quick: Because digital wallets use stored payment information, the checkout process is even faster, eliminating the need for a customer to whip out their card and type in payment details. This can reduce card abandonment and increase conversions.
    • Secure: Digital wallets use robust encryption, tokenization, and multi-factor authentication to protect sensitive information. This adds an extra layer of security to payments. 
    • More payment options: Accepting digital wallet payments essentially offers a customer more payment options, which can enhance the customer experience and potentially increase sales. 

    Challenges of accepting digital wallet payments can include:

    • Fees: As with credit cards, digital wallet payments incur transaction fees which will vary depending on the payment processor and transaction volume. These fees can add up and affect profit margins. 
    • Complex: There are numerous different wallets and online payment methods available, and it can be complex for a business to know and integrate them. This issue is easily resolved by using a payment gateway that accepts numerous payment methods. 

    Keep reading: What is a Payment Gateway and How Does it Work?

    5. Buy Now, Pay Later (BNPL)

    Buy Now, Pay Later (BNPL) options, like Afterpay, Klarna, and Affirm, are another payment method that’s increasingly popular amongst both customers and businesses. BNPL services allow customers to pay for a purchase in installments, often without interest. This has numerous benefits for businesses, including: 

    • Increased sales: BNPL options can boost conversion rates by reducing the barrier to purchase. 
    • Increased average order values: Customers are more likely to make larger orders when BNPL is available, as it enables them to afford larger purchases.
    • Instant payment: Although the customer makes a payment in installments, your business receives the full amount immediately. 

    Like other payment methods, there are certain drawbacks to accepting BNPL, including:

    • Fees: Businesses that accept payments with BNPL are charged a fee, which can sometimes be higher than credit card processing fees.
    • Potential for more refunds: Because BNPL enables customers to purchase more items, it can encourage impulse buying. This can result in more returns, which can cost your business fees in processing refunds.

    How to start accepting multiple payments

    The success of your small business relies on reaching the widest audience. To do so, you must accept multiple payment methods. This has never been more important than now in the online age, where your business has the potential to reach customers all over the globe. That’s where payment gateways come in. 

    Payment gateways allow in-person and online businesses to accept, process, and manage multiple payment methods, including credit and debit cards, digital wallets, cryptocurrency, and more. When you partner with a payment gateway, you can immediately start accepting online payments with the click of a button.

    We’ve created ZEN to maximize income for businesses like yours, with the lowest processing fees on the market, instant settlement, multi-currency support, and strong security measures. With ZEN, you can also customize the checkout process, scale smoothly, and integrate easily with your platform of choice. All while accepting 20+ payment options.

    Our solutions are customized to meet your needs. Start by telling us about yourself and we’ll match an account to fit your business. Let’s go!