Small businesses may offer their clients different payment options in order to get paid faster for their services and attract new business. It is important for businesses to introduce different payment methods that best work with their business model and meet the needs of their customers. Within the payment terms section of your invoice, you must list the payments accepted by your business. This way, you can avoid the confusion with your client that slows down the payment process.
What are the different types of payment methods?
Small businesses can offer from a variety of payment methods to receive payment for their invoices they create. Small business administration (SBA) has a guide on kinds of payments you may accept as a small business. Below are some of the common payment methods listed:
Cash is the most widely used method for a brick-a-mortar store, since there are no transaction fees or processing time associated with it. On the contrary, cash is the least secured payment method. It is vulnerable to theft & loss. Businesses that accept cash are also more likely to have their taxes audited, because there is less of a paper trail associated with cash. If you receive a payment of $10,000 or above, you need to report it to the IRS.
Check remains to be one of the most popular payment methods for small and service based businesses. They are cheap to accept and less vulnerable to theft unlike cash. Checks are not the secure way of getting paid because you never know if the bank account associated with the check has enough funds to make your payment. If a check you cash gets bounced, it can hurt your cash flow and you might owe fees to your bank. Checks may also take several business days to get clear, you might not get access to your money right away.
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Credit card is a convenient way of a payment method that offers a certain level of security protections. To accept payment through a credit card, you need to set up a merchant account in a bank or a payment processing service provider. You will be charged a payment fee every time you accept a credit card payment from a customer.
You can request your clients for a direct transfer from their bank account to your business bank account which is also called an ACH credit transfer. To provide your clients with this type of payment method, you need to provide them with some of your banking information including account number and routing. Bank transfers are simple, easy , quick and free to send. They are secured options for accepting payments from your clients.
You can choose to accept payments from credit or debit cards to let your clients pay you securely and quickly. To accept online payments, you need to first set up an online payment gateway such as PayPal or Stripe. If you use a cloud-based accounting software, you likely have to accept online payments directly through your accounting software. Online payments are quick to process and you may expect it in your bank accounts within a few business hours days. This is also a secured payment method for your clients and your business. You need to pay a transaction fee each time you accept an online transfer payment method.
Mobile payments are an easier payment option for businesses that conduct their work on site, such as landscapers or contractors. For mobile payment methods, you need a mobile payment reader that attaches your smartphone and processes payments through an app such as Square. Mobile payments is the fastest payment option, and you’ll be able to receive it in a few days. You’ll be charged a minimal fee each time you process a payment transaction.
If you have a client who pays a set amount in a set schedule, you can accept automatic recurring payments to get paid faster for your services. Automatic payments sets payment charges for a specific amount on a specific date of each month with the client’s permission. It is an easy option for your client, because they can set a payment schedule and forget about it. You can accept auto payments through your accounting software or online payment gateway.
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How to choose your payment methods:
All the payment options available for small businesses have certain advantages as well some setbacks. You’ll need to evaluate your options to choose options for the payment methods that work best for your business model. Here are some considerations to take into account when choosing your businesses payment methods:
When considering payment methods, evaluate how much it will cost your business to use it. Many of the credit card payments facilities charge a fee for receiving a credit card payment. There are also additional costs associated with payment methods that require hardware, like in person mobile payments and credit card payments.
You should consider how safe the payment method is, both for you and your clients. Cash offers less security, as it is vulnerable to theft and loss. Online payments are highly secured and encrypt to protect your client and ensure you receive the payment.
Think about the convenience of using each payment method. Checks for instance, will require you to go to the bank and deposit the slip which might take several days to initiate the payment. On the contrary, online payments will not require any of these and your money will be transferred quickly and easily.
It is vital to consider your client’s preference when choosing a payment method. You can ask your clients informally about the payment option they consider or send an email or survey to see how they prefer to pay their bills.