How to Select the Method of Payment for A Small Business?

What is the best way of payment for small businesses? Some believe that Cash is king, while others believe that credit cards are the way to go. However, due to the coronavirus, small company owners may have been forced to abandon their chosen payment method in favor of online payments.

However, the ideal small company payment option will ultimately be determined by several criteria. Consider the magnitude of your transactions, managing the money, and your accounting system before deciding on the appropriate technique.

Let's look at some payment alternatives and payment processing solutions that could be appropriate for your business. Payment solutions for small businesses come in a variety of shapes and sizes.

The first decision you must make is which forms of payment your company will accept. In general, there are five payment alternatives to select from:

• Payments in Cash
• Payments via check
• Payments by credit card
• Payments through the internet
• Payments using mobile devices

Payments in Cash

Cash payments are made by consumers using bills and coins. Usually, cash payments manage using a point-of-sale system. Before, Cash was the most common form of payment recently, but digital payment options have rapidly grown in popularity.

Accepting cash payments has the advantage of getting the money instantly rather than waiting for a transaction to clear. Because there are no fees connected with taking Cash from clients, cash payments help reduce overhead costs. 

Credit card fees may be pricey for small firms with thin profit margins. Some small firms may find that operating a cash-only business helps them improve their bottom lines and streamline their duties.

However, this method of payment has certain disadvantages. With a cash-only firm, you may be more vulnerable to theft and money mismanagement. You may potentially lose revenue if you inconvenience consumers who only have a credit card.

If Cash is your primary payment method, careful accounting can help you avoid an audit regardless of your business.

Make Sure Your Payments Are in Order.

Checks are papers that allow banks to move payments from your customer's account to your company's account. Checks document the payment amount and date, as well as the payer's account number and signature.

Paper checks became popular in the twentieth century. However, with the increasing use of electronic payment systems, they have lost some of their attractiveness. EChecks, which are electronic versions of paper checks, are increasingly widely used for online transactions.

However, checks aren't entirely obsolete. They're prevalent among small company owners, such as those who operate rental homes or lawn service businesses. Accepting checks made in precise amounts and issued by central banks in your state is standard procedure.

A third-party business can assist in the verification of each check's authenticity. If a check bounces, you may have to go to a small claims court or hire a collection agency to get your money back. Both outcomes might be costly and with no promise of payback.

Payments by Credit Card

Seventy-seven percent of customers prefer to pay using a card, according to the TSYS 2017 Consumer Payment Study. Whether it's a debit or credit card, it has become the predominant payment method for consumers today. 

Paying using a credit card is convenient and can speed up the checkout process. Furthermore, because it allows consumers to finance significant transactions, most customers expect companies to offer at least this payment method.

Small company owners profit from this form of payment as well. Card payments expand your client base and establish your company's legitimacy. Card payments, in most circumstances, transfer rapidly into your bank account, allowing you to enhance your cash flow. However, for small company owners, this sort of payment option comes with a cost.

The Durbin Amendment limits debit card transaction fees to make debit card processing more affordable for both merchants and consumers. The Durbin Amendment established the debit transaction charge ceiling at 0.05 percent of the purchase price plus 22 percent. 

The change, however, does not affect credit card transaction fees, which may be pretty expensive for sellers. Unless you pass the cost on to customers, credit card transaction fees, flat fees, and incidental fees can have an impact on your bottom line. 

Visa and MasterCard are the most popular credit cards, followed by American Express and Discover. You'll have to pay for the actual equipment as well as merchant services and PCI compliance fees. You could also have to pay a monthly fee.

If customers are unsatisfied with your goods, they have the right to challenge credit card charges. Chargebacks may delete your account without warning, and they can put your small business in the negative when margins are thin. 

Some banks hold merchants liable for credit card fraud, which is an additional costly responsibility, especially if your reputation suffers as a consequence. Despite the disadvantages, credit card payments offer certain advantages over other payment systems, especially security, cleanliness, and consumer preferences.

Payments Made Over the Internet

Electronic payments are made over the internet. They utilize a payment gateway to process and approve checks, credit cards, and direct debit payments. Online prices aren't just for online merchants. 

Digital wallets or applications that save credit and debit card information on a mobile device can be used to make online transactions in physical stores.

In terms of cost and convenience, online payments appear to be the way of the future. They provide a less expensive and speedier method of payment, as well as alternatives for customers when they check out.

When selling with Cash or a credit card, you must add up the whole amount, including taxes. The most acceptable online payment methods, on the other hand, handle this for you automatically, saving you time and lowering the chance of error.

To take payments online, you'll have to pay a charge. However, these fees are usually less expensive than those imposed by credit card issuers.

E-commerce online payment systems frequently use a virtual shopping cart to determine the total with delivery charges. That's on top of gathering the customer's shipping and payment details. 

Small businesses may get free shopping cart services from several companies. To offer items or services online, you'll need this form of payment. However, because of their accessibility and cost, they have become increasingly popular.

Contactless payments, which employ near-field communications to support in-person payments, can be enabled via digital wallets, as well as intelligent debit and credit cards.

Paying with digital wallets like Apple Pay or Google Pay is becoming more widespread, according to TSYS, especially among younger customers. If your small business does not take this form of payment, you may be missing out on a lucrative market.

According to research, 51% of customers use their phones instead of credit cards when checking out at a store. The shift signals a turning point in online payments, introducing digital wallets just around the horizon.

Payments Through Mobile Device

Mobile devices, such as smartphones and tablets, are used to make mobile payments. Mobile payments can include a variety of payment methods, such as:

• Money transfer applications that use digital wallet apps
•  Online applications
• Payments made with a debit or credit card swiped using a mobile card reader

Mobile payments allow users to conduct mobile transactions utilizing a payment mechanism such as cards or electronic money transfers.

For Small Companies, The Best Online Payment Methods Include

Online payments are a new technology that may help you acquire more consumers, save money, and streamline your accounting operations. However, it's a good idea to evaluate the top online payment options for small businesses to discover the most excellent fit for your requirements.

A few big firms dominate the credit card processing business. However, various companies may assist your business with online payment processing, and they are all structured differently.

Five Things to Look Out

When evaluating the top online payment services, there are five things to look for.

Price

What is the price structure? Which transactions are charged a fee, and how much is it?

Features

 What distinguishes the supplier from the competition?

Flexibility

Customers should have the option of paying by credit, debit, or bank transfer.

Integration

How does the payment processing software work with your company?

Security

Does the provider provide any fraud protection? Are the payments safe?

Some online payment Methods

Let's take a look at some of the best online payment processors for small businesses. You may compare and contrast some of the most popular options to discover who they're ideal for.

PayPal

With over 346 million clients, PayPal is one of the most well-known names in online payments. Its enviable reputation has gained it the trust of organizations and consumers alike regarding security and risk management.

Payments in QuickBooks

QuickBooks Payments is one of the most flexible online payment options available to small businesses. It can save you time by simplifying a range of accounting operations.

Venmo

Venmo is recognized for its peer-to-peer (P2P) payment processing, but it also has a commercial component. Because members can view, like, and comment on each other's purchases, their social commerce platform may boost brand recognition.

Selecting The Most Appropriate Payment Method for Your Small Business

Finally, your business strategy and the kind of clients you have will determine the payment methods you take at your business. The ideal payment options for your small business should be both cost-effective and compatible with your accounting software.

Providing consumers with a choice of payment alternatives will help you increase your cash flow.