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Which Payment Method Is Best For Your Business?

Team 365 finance

Written by Team 365 finance

Finance

Advances in financial technology mean that there are a staggering number of payment methods available to both SMEs and customers.

From traditional cash payments to A2A transfers, it’s important for small business owners to recognise a number of both common and alternative payment methods. The more you recognise and understand, the better placed you are to ensure customers have a fast, easy way to pay for goods and services.

In this article, we’ll discuss the pros and cons of a wide variety of payment methods and provide a broad overview of why some payment methods are better than others. Read on to learn more.

 

Why Are Some Payment Methods Better For My Business Than Others?

The payment methods you use will depend on the needs of your business. For example, if you run an ecommerce website, you’ll lean towards online-friendly methods, like digital wallets and card payments. If you have a brick-and-mortar location, you may find that cash payments are more convenient.

Another consideration to bear in mind is the speed at which you need to receive payments. If your cash flow is set up so that customers can take their time in sending payment, then you don’t need to worry about things like settlement speeds — invoicing customers is sufficient. However, small retail businesses may prefer a card payment setup that allows for next-day settlement.

Finally, there are processing fees to think about. One of the big reasons small businesses prefer cash is that it doesn’t cost them anything to complete a cash transaction. However, the payment service provider a business uses will charge a small fee on every card transaction a business makes.

 

Why It’s Still Important To Accept Multiple Payment Methods

While we’ll be measuring the pros and cons of different payment methods, it’s important to remember there’s not a single ‘best’ payment method that you should be using. While there are certainly options that you should focus more on (usually because they are more common), you should be prepared to facilitate a variety of payment methods.

You should accept multiple payment methods because it’s better for customers. If they visit your store and are forced to use a specific payment that may be inconvenient (or impossible) for them, they could leave your business to purchase from one of your competitors instead.

 

Best Payment Methods For Small Business

The main reason that the payment methods listed below are the “best” is that they are commonly used by customers and accepted by most small businesses today. As such, not being able to accept these payment types puts you at a competitive disadvantage.

Cash

Although cash payments may seem old fashioned (given the number of technological alternatives), cash is still highly popular among small, local businesses.

  • Benefits: A cash transaction means you immediately have access to funds. Additionally, accepting cash transactions is free, whereas accepting card payments requires you to pay a fee per transaction.
  • Drawbacks: Cash is typically owned by the bearer, which means dealing in a large number of cash transactions increases the risk of theft significantly. As such, you’ll need to take into consideration how you’ll store and transport your cash securely.

 

Debit cards

Debit cards are the most popular payment method in the UK, so finding a way to facilitate debit card payments should be a priority for any UK-based small business. But remember: processing a debit card payment does incur a fee.

  • Benefits: As debit cards are an immensely popular payment method in the UK, facilitating them means being able to accept sales from a wide audience.
  • Drawbacks: Your payment service provider will charge you a fee for each debit card transaction you accept. Additionally, the fraud protections on debit cards are somewhat limited compared to those on credit cards.

 

Credit cards

Credit cards are another well-established payment method, but like debit cards, they require the business to pay a small fee each time they are used. These fees can be a percentage of the transaction amount or a fixed fee for each payment.

  • Benefits: Credit card transactions are highly traceable and contacting credit card issuers is usually very simple, making for a very transparent record of sales.
  • Drawbacks: Credit cards typically have higher processing fees compared to debit cards, although this varies between payment service providers.

 

Digital Wallets

Digital wallets are a technology that allows users to store their card details on devices like smartphones or tablets — allowing them to make contactless payments with the device. Commonly used examples include Apple Pay and Google Pay.

  • Benefits: Digital wallet payments are fast and simple, and due to the double layer of security (card encryption as well as the biometric security of the smartphone) they are typically very secure.
  • Drawbacks: Accepting contactless payments might be more expensive than only accepting card payments, as you’ll need a machine capable of accepting those transactions.

Bank Transfers

Bank transfers may not be appropriate for every business, but they are a fast and secure option for contractor businesses that would send invoices when they finish a job. They’re also a good example of an online payment method for small businesses.

  • Benefits: Bank transfers are likely the most secure form of payment we’ve listed. While there may be some processing fees, they will be very low because payment is travelling directly from one bank to another without intermediaries.
  • Drawbacks: Businesses must rely on a customer to initiate a bank transfer, which could lead to significant delays and cash flow disruption if you’re not prepared. As payment initiation is up to the customer, there is also an increased chance of errors and a loss of control.

 

Alternative Payment Methods

While the payment types listed so far are widely accepted by SMEs, these next ones are less common. However, that doesn’t mean they should be overlooked.

 

BNPL

Buy Now, Pay Later (BNPL) allows consumers to make purchases and defer the payment over time. Instead of through one lump sum, they’ll pay back smaller monthly instalments. BNPL is actually fairly common but typically only in larger ecommerce retailers. Small businesses would need to work with a BNPL provider (such as Klarna) and pay to set up the payment option on their website.

  • Benefits: BNPL can be immensely convenient for customers, as it allows them to spread out repayments over time. Additionally, this could mean customers will spend more than they usually would with your business, because there’s no pressure to make an immediate large payment.
  • Drawbacks: It can be costly to set up BNPL — as well as setup fees, there is a fee-per-transaction like with card payments. Additionally, it’s not usable for everyone, as customers will need to pass a soft credit check if they want to use BNPL.

 

A2A Payments

Instant account-to-account (A2A) payments mean transferring money directly between accounts without using cards or intermediaries — much like a bank transfer, but without the need to directly interact with the bank. A2A payments have emerged due to the growing popularity of open banking, which has removed many customers’ reliance on traditional financial institutions.

  • Benefits: A2A payments are incredibly fast. Where standard bank transfers could take up to a day, A2A payments are typically sent within five to 30 seconds. Also, the rarity of this payment method means offering it could provide an advantage over your competitors that do not yet accept A2A payments.
  • Drawbacks: The newness of A2A payments means that many customers may not be particularly familiar with how they work.

 

Fund New Payment Infrastructures With 365 finance

While offering a variety of payment methods for your customers comes with a cost, it’s far from impossible for a small business to diversify the payment types they accept. Funding from 365 finance can help you.

365 finance offers fast funding through Rev&U, which is a low risk and highly accessible finance option. There are no spending stipulations with Rev&U, and no massive end-of-month bills — instead, repayments change alongside your income, so low-sales months mean smaller, more manageable payments.
At 365 finance, we can provide both long and short-term financial solutions, with revenue-based funding available from £10,000 to £400,000 in capital. Apply for Rev&U today without affecting your credit score, or speak to our team to find out how we can help your business. To find out more, head to our website.