The Essential Guide to Forms of Payments Accepted for Small Business Owners

As a small business owner, choosing the right forms of acceptable payments can significantly impact your sales and customer satisfaction. With the rapidly changing landscape of payment technology, staying informed about the options available to you and your customers is essential.

Multiple payment options can make new customers feel at ease. But which ones are the best for your business?

In this comprehensive guide, you can evaluate which payment methods to adopt for your small business to achieve optimal success. By addressing small business owners' most common questions when setting up payment systems, you can self-identify where you’re at in the process to establishing effective payment acceptance for your business.

Plus, we look at some of the key considerations for all small business owners when making decisions about which forms of payments to accept.

The Pros & Cons of 7 Common Payment Methods

Depending on your business model, products and services, and customer base, you may choose to provide some common forms of payment acceptance while foregoing others. There are pros and cons for each of the top payment methods.

Form 1 - Cash

Accepting cash is a no-brainer for many small businesses. Why wouldn’t you accept physical cash? Well, the answer varies.

Cash is great for small, local businesses where customers often expect the option of paying with cash, like cafés or farmers' markets. Cash is also a quick and convenient way to accept payment. But for other small businesses wanting traceable customer insights regarding purchases and consolidated online transaction tracking, it may not be the best option.

Pros:

• Instant transactions: Cash transactions are immediate and don’t require processing fees.
• No chargebacks: There’s no risk of chargebacks (a refund request in the case of fraudulent or disputed transactions) with cash payments, providing a sense of security.

Cons:

• Inconvenience: In our cashless society today, customers often have little to no cash, making it less viable for larger purchases.
• Security risks: Handling cash can expose you to theft or loss.

Form 2 - Recurring Payments

For subscription-based businesses like gyms, spas, and any service with repeat value, recurring payments are a great form of payment to accept. It all depends on how your payment software is configured. But with the correct setup, small businesses could allow linked bank accounts for direct debit or just link a credit or debit card for recurring billing.

At Axos, the software for recurring billing is easy to set up and fully integrated with your small business banking account.

Pros:

• Stable cash flow: Recurring payment options like subscriptions or memberships can provide consistent revenue.
• Customer loyalty: Encourages long-term relationships with customers to increase customer retention.

Cons:

• Management complexity: You need to manage subscriptions and ensure services are delivered consistently.
• Cancellation risks: Customers may cancel at any time, affecting revenue.

Form 3 - Buy Now, Pay Later (BNPL)

Retailers and businesses with more expensive items can offer a type of payment acceptance known as Buy Now, Pay Later (BNPL). It’s an increasingly accessible financing option that’s available through third-party platform integrations.

Payment installment providers like Klarna, Afterpay, PayPal, and others offer consumers pay-later options, which can improve the checkout experience. Unlike recurring payments, installment payments are a way to break a large purchase into smaller pieces over a set time.

Pros:

• Customer attraction: It can attract customers who may not have the funds available at the time of purchase.
• Increased sales: It often leads to larger purchases. According to Chargeafter, BNPL options can increase the likelihood of a sale by 20 to 30% and raise the average transaction size by up to 50%.

Cons:

• Fees and risks: You may face fees from the BNPL provider, and customers may struggle with debt if they overextend themselves.
• Management: You must understand the terms and integrate the service into your sales process.

Form 4 - Credit and Debit Cards

Credit and debit cards are the proverbial gold standard for nearly all types of businesses. Offering credit and debit card payment acceptance is non-negotiable, especially for retail and service providers. But there are important factors to consider, such as hidden fees, additional charges, and which card issuers to accept or not accept.

This form of payment acceptance is one of the most convenient options for any transaction amount — both large and small transactions. Plus, you can process gift cards, prepaid cards, and any eligible cards through most point-of-sale systems.

Credit and debit cards are one of the safest methods for avoiding fraudulent transactions, protecting customers’ banking information, and avoiding insufficient funds at checkout.

Pros:

• Wide acceptance: Many customers prefer to pay with cards, and accepting them can boost your sales.
• Convenience: Cards are quick and easy for customers to use.

Cons:

• Processing fees: Each transaction has fees that can add up, especially for small purchases.
• Chargebacks: There’s a risk of chargebacks, which can impact your bottom line.

Form 5 - Mobile Payments

Offering payment via a mobile device is a great way to appeal to more tech-savvy consumers. For small businesses in urban areas or tech-centric target markets where mobile payments are widely used, this is a top form of payment accepted. It’s also contactless, which appeals to many consumers.

Mobile wallet payments are a great digital payment method for small businesses that want to offer an alternative to paying with a credit or debit card. Plus, the tap-and-pay contactless payment is a faster checkout process and could increase the number of transactions you can process in a day.

Pros:

• Tech-savvy customers: With the rise of mobile or digital wallets like Apple Pay and Google Pay, offering mobile payment options can attract tech-focused customers.
• Speed: Electronic payment methods are often faster than traditional card swipes.

Cons:

• Technology requirements: You may need updated hardware or software to accept digital payment methods like mobile pay.
• Potential for confusion: Some customers may be unfamiliar with mobile payments.

Form 6 - Online Payments

Businesses with an online presence or those looking to expand their e-commerce platforms need to offer online purchases and payments. Some of the biggest challenges with accepting online transactions are ensuring safety and security for your customers.

Thankfully, many e-commerce platforms offer increasingly advanced security features for secure payment pages. With small business banking at Axos, integration with an online payment platform is seamless.

Pros:

• E-commerce ready: If you have an online store, accepting various online payment options, such as PayPal, Stripe, or Square, is essential.
• Customer preference: Many customers prefer online transactions for convenience.

Cons:

• Fees: Like credit cards, online payment platforms typically charge transaction fees.
• Setup: Setting up an online payment system can be more complex than in-person methods.

Form 7 - Cryptocurrency

Cryptocurrency is a digital currency that is encrypted and decentralized, making it hard to counterfeit or duplicate transactions. But there are also some regulatory risks and cybersecurity risks.

Tech-oriented businesses or those looking to appeal to a specific demographic interested in cryptocurrency could benefit from providing it as a form of payment. But many businesses, especially small businesses, are not using it at this time.

Pros:

• Innovation: Accepting cryptocurrency can attract tech-savvy customers.
• Lower fees: Depending on the platform, transaction fees can be lower than traditional payment methods.

Cons:

• Volatility: The value of cryptocurrencies can fluctuate widely, which can complicate pricing.
• Limited use: Still not widely adopted, making it a niche option.

There are some other methods we left out that you could consider accepting. Many of these are not as common for small businesses. And some are becoming an outdated form of payment acceptance at brick-and-mortar and online businesses:

• Electronic Funds Transfer (EFT), including ACH payments and other digital and wire transfers
• Paper checks or personal checks
• Cashier’s checks
• Money orders
• Multiple currencies (requires knowing currency conversion rates)
• QR code payments
• Cross-border payments or international money transfers

FAQs About Which Payment Forms to Accept

Some of the most common questions small business owners ask when determining which payment forms to accept involve their own need for security and access to funds. All while balancing the need for a smooth customer checkout process that doesn’t turn customers away.

Here are some frequently asked questions by small business owners when deciding what forms of payment to accept:

1. What payment methods are most popular with customers?

Pull as much historical transaction data as you can to make decisions about your customer's preferences. What’s best for your customers is also what’s best for business. This can help determine which payment options to prioritize.

2. What are the costs associated with each payment method?

Gather all the transaction fees, annual fees, and any other associated fees or hidden costs involved to accept new forms of payment. Seek out lower transaction fees, and cut costs where you can to stay competitive in the market.

3. How quickly will I receive my funds?

Confirm the standard processing time for fee availability is acceptable for your business; it can range between 1-3 business days. Understand the ins and outs of payment processing and funds availability. This is crucial for cash flow management and will help you choose the right payment service providers.

4. What security measures are in place to protect my business and customers?

Make sure you understand fraud protection, chargeback policies, and compliance with data security standards. These are the main types of security measures you need to know before accepting new forms of payment.

5. Is the payment method easy to integrate with my existing systems?

Gather all your concerns about compatibility with POS systems, accounting software, and online platforms. Working with a dedicated merchant services account manager is key to gathering all the information before signing up for something new.

6. What is the process for handling chargebacks or disputes?

Understand the steps involved in managing chargebacks, refunds, and customer disputes so you can be ready to offer the best customer experience. In these situations, an investigation into a claim starts a longer process of evaluating legitimacy, looking into the details of the transaction, and submitting an official request for refund.

8. Can I accept payments online and in-store with the same provider?

Make sure your in-store and online buying experiences are seamless — both from an accounting perspective (back end) and a customer-experience (front end) perspective.

9. Are there regulatory requirements I need to consider?

Cover all your bases when it comes to compliance with local, state, and federal regulations related to payment processing.

10. How scalable are the payment solutions I’m considering?

Think into the future when deciding what payment solutions to offer. Write out an estimated five-year business plan to determine if the infrastructure you put in place now will suit your business needs in the future.

For more FAQs, check out our small business merchant services knowledge base with anytime access to a relationship manager.

Choosing the Right Payment Forms to Accept for Your Small Business

When choosing which payment methods to accept, consider your target audience, business type, and transaction size. Also consider your competitors, what they’re doing, and how to stay ahead while offering a customer-friendly purchase experience.

A combination of the payment options listed above will likely serve you best, allowing you to cater to diverse customer preferences and enhance your overall sales potential.

Consider these factors when determining what forms of payment to accept:

• Customer preferences
• Transaction costs
• Business type and size
• Technology and infrastructure
• Security and fraud prevention
• Speed and convenience
• Regulatory compliance
• Scalability
• Customer experience
• Competitive analysis

By carefully evaluating these factors, you can choose the right payment methods that align with your goals, enhance customer experience, and support long-term growth. By taking time to select the right payment options, you’ll not only streamline operations but also create a more positive experience for your customers.

For more small business banking, payment acceptance, and selling tips, check out the Axos small business blog and visit our other online resources like our Money Evolved podcast.

The Essential Guide to Forms of Payments Accepted for Small Business Owners

This blog post was published by Axos Bank on August 22, 2024, and last updated on August 22, 2024.