Wondering what types of payment your business should accept? Should you accept credit cards? Take checks? Only take cash? What about ACH transfers, mobile payments, money orders, or even Bitcoin? Here are some factors to help you determine what’s best for your business.
Most business owners would say that the most important thing they do is accept money. Without money, every other business activity is irrelevant because money is the lifeblood that keeps the business open. Of course, building relationships is important and essential but unless your business has a healthy stream of capital rolling in, you’re destined to close your doors.
You’ve probably heard that if you want your customers to do something you should make it as easy as possible for them to do it. If you want them to sign up for your e-mail list, give them more than one way to give you their information. If you want them to visit your store, make sure there’s plenty of parking, you’re open at convenient hours, and your location is as central as practical.
How you collect money follows the same rules. The easier it is for your customers to pay you, the better it is for you. But here’s the problem: the easier it is for you to get paid, the more you’ll likely have to pay for that convenience.
Which of the many payments should you accept and why?
It depends on the type of business, its size, the amount of employees and customers, the average cost of transactions, and more. But don’t worry; we can give you some general guidelines.
If, for example, your business only works with other larger businesses rather than retail customers, you probably don’t need to accept cash. Unless the business is exceedingly small, its accounts payable department isn’t going to pay anything in cash. You won’t need a layaway plan either.
A retail small business that deals largely with the general public on mostly low-dollar purchases probably won’t deal with purchase orders. That business may not accept them because they don’t have an accounts receivable department to track the PO and collect payment.
Should You Accept These Payments?
There’s plenty of ways to pay. Which should you accept?
Cash– Unless you’re a business that deals in high-dollar invoices and works with only commercial customers, you should accept cash payments. If you’re a retail business that has a self-service model, you may not accept cash either. Some gas stations that don’t have a store now only accept credit cards, for example.
Checks- If your business works with other businesses, you probably don’t have a choice but to accept checks. If you’re a retailer, you have a choice. Whole Foods has stopped accepting checks at many of its locations and many other retailers have as well. If you do accept checks, have a means of verifying the check before taking it as payment. There are now websites that will help you with this.
Credit Card– With 8 out of 10 US adults reporting that they have a credit card, you should accept credit cards regardless of the business you’re in. Put simply, if you don’t accept credit cards, customers who want to charge their purchases will buy from one of your competitors instead of you.
Mobile Payments- According to an eMarketer report, about 64 million people in the United States (29% of smartphone owners) were expected to make a proximity mobile purchase in 2019. (A proximity mobile purchase is when someone uses their phone and a service like Apple Pay to communicate with a point of sale device by touching or coming near it.) Even more people, 69.2%, were expected to make Peer to Peer (P2P) payments using their smartphones. (P2P payments allow individuals to use their smartphones to transfer money from their bank account directly to someone else. Zelle is one example of a P2P payment service.) Given the number of people who are now using their phones to make payments, if you’re not yet using Apple Pay or one of its competitors, it may be time to consider adding these forms of payment as additional options.
Money Order- You might consider cashing money orders if your business works with a large number of low-income consumers who may not be eligible for a credit card or checking account and don’t want to carry cash. If you accept money orders, verify their authenticity.
ACH- ACH, or automatic clearing house, uses your bank account to transfer funds to you. Employers often use this payment type to pay their employees. If you’re a freelancer, ask the business you’re working with if they make ACH transfers. If they do, you’ll likely get paid faster than through other means.
Payment Plan- Avoid this, if possible. Small businesses don’t usually have credit departments and you don’t want to get into the business of tracking down late payments and everything else that comes with setting up payment plans. If they want a payment plan, they should use a credit card.
Layaway- Just like a payment plan, unless you’re a large business, you probably want to bring inventory in and sell it as fast as possible. If you’re offering a special price, you might work out a deal to honor the price and order the item once they have the money to pay if you’re out of stock.
Bitcoin– While there are risks to accepting any virtual currency as payment, such as fluctuating value and security concerns, for some businesses, it may be the right choice. Before you begin letting customers pay with Bitcoin, educate yourself on the pros and cons.
Make it as easy as possible for your customers to pay you but consider your safety and the cost of maintaining various systems. Ask others in your industry which types of payments they accept and why.