Payment Options

As a small business owner, you’ll need to decide what types of payment you’ll
accept from customers.

You might offer customers the choice to pay with:

Cash
Checks
Debit cards
Credit cards
Mobile payments
Electronic bank transfers
Payment Options
Offering more than one option could help you attract a wider variety of customers
and allow your customers to make larger purchases. However, there are advantages,
disadvantages and costs associated with each payment type.

Pros and cons of different payment types

Where you open your business and the types of items you sell could play an
important role in deciding which payments systems to offer customers.

If you expect to make a large portion of your sales online, accepting electronic
payments will be a must. Similarly, if your products or services are expensive,
customers might not feel comfortable carrying that much cash to your store to make
a purchase — checks, cards or mobile payment could be better options.

On the other hand, if you sell inexpensive items from a physical store, your
customers may prefer to pay with cash. Customers may also expect you to accept cash
if you open a shop in an area where many people don’t have bank accounts or where
card processing networks, the companies that send and verify information when
someone makes a purchase with a card, frequently go offline.

No matter which payment type(s) you offer, there will be advantages and
disadvantages to each. Here are some of the pros and cons of the main payment
types:

Payment Type
Advantages
Disadvantages
Cash One of the most common and easiest forms of payment.

Many customers will expect you to accept cash.

You won’t have to pay any fees to accept cash. Customers might not want to make
large purchases with cash.

Storing cash at your place of business or home, or transporting it to the bank, can
be dangerous.

Ensuring your register is stocked with bills to make change can tie up money you
could use for other business purposes.

Counting money at the end of each day is time-consuming.

Checks May lead customers to make more frequent or larger purchases.

Allows customers to safely make large purchases.

You won’t have to keep as much cash in your store.

You won’t have to pay any fees to accept checks. After depositing a check,
you’ll need to wait for the bank to process the check and put the money in your
account.

There’s a risk that someone will try to pay with a fake check, or that a check will
“bounce” if the customer doesn't have enough money and you won’t receive the
payment.
Debit, Credit and Prepaid Cards May lead customers to make more frequent or
larger purchases.

Allows customers to safely make large purchases.

Can be quicker and more convenient for customers at checkout than cash or checks.

You won’t have to keep as much cash in your store.

You don’t have to worry about bad checks or fake cash.

Allows foreign travelers to more easily make purchases. You’ll have to wait for
the transaction to process before getting money in your account. This usually takes
between one and three days.

You may have to pay transaction fees, a small percentage of the transaction. Debit
cards generally have lower fees.

You will need to purchase or rent a device to accept payment (called a point-of-
sale device).

You may be responsible if a customer uses a fake or stolen card to make a purchase.

If a customer disputes a charge (i.e., initiates a “chargeback”), the transaction

may be reversed and you won’t receive a payment.
Mobile Payments May lead customers to make more frequent or larger purchases.

Allows customers to safely make large purchases.

Can be quicker and more convenient than accepting cash or checks.

You won’t have to keep as much cash in your store.

You don’t have to worry about bad checks or fake cash.

Mobile payments may be more reliable than card-based transactions in some areas.

If you sell items at markets, conferences or trade shows, you can bring your mobile
payment system with you.

Allows foreign travelers to more easily make purchases. You’ll have to wait for
the transaction to process before getting money in your account. This usually takes
between one and three days.

You may have to pay transaction fees, which is usually a small percentage of the
transaction.

You will need to purchase or rent a device to accept payment (called a point-of-
sale device).

You may be responsible if a customer uses a fake or stolen payment information to

make a purchase.
If a customer disputes a charge (i.e., initiates a “chargeback”), the transaction
may be reversed and you won’t receive a payment.
Electronic Bank Transfers Allow you to receive large payments without paying
fees.

Allows customers to safely make large purchases.

Can be quicker and more convenient than accepting cash or checks.

You won’t have to keep as much cash in your store.

You don’t have to worry about bad checks or fake cash.

Could be a good option if you sell products or services to other businesses. Non-
business customers might not feel comfortable transferring money directly from
their bank account to your business.

You’ll have to wait for the transaction to process before getting money in your
account.

You may need to set up this type of transaction with your bank and the customer’s
bank, which isn’t always easy.
Mobile Wallet Mobile Wallet payments allow customers to pay without using a
physical card

Often more secure to customers than using a physical card as the data is encrypted
and cannot be seen

All smartphones are now equipped with a mobile wallet

Quick, efficient checkout process can encourage customers to make more frequent
purchases Requires you to rent or own a device to process the “tap” to complete
the transaction
QR “Quick Response” Codes Contactless payment option for customers who want a
hands-off experience

Enabled in all smartphones and does not require a specific app for customers to
access

Does not require a POS or payment terminal to complete transactions Requires a

strong wifi connection

May require customers to input credit or debit card information more than once
since information is not automatically stored
AutoPay AutoPay is very easy to set up for customers

Beneficial for subscription services or recurring payments

Ensures on-time payments that aren’t reliant on customers being reminded to submit
payment

Less time spent following up with customers to remind them to submit payments
Overdraft payments occur more often with AutoPay resulting in reverse
transactions

Customers may forget about the AutoPay they’ve set up and request refunds after the
fact
Email Invoicing If your business is providing services, email invoicing
immediately following the service allows customers to pay and receive a receipt
automatically

Allows you to streamline your reporting and manage data securely, connecting with
your CRM and accounting systems

>More efficient and environmentally friendly

Quicker transactions and less follow up required to collect payment Primarily

for service providers and less useful for retail, consumer goods or online
businesses

Potential for lost emails or being flagged as "junk mail"

As a small business owner, especially if you hire employees, you’ll also want to
consider the time and effort associated with each type of payment.

For example, employees might need less training to accept cash sales than credit
card sales, but you’ll need a safe place to store the cash and may need to
regularly make trips to the bank. Additionally, you might want to create a system
to make sure employees are accurately adding up the cash and aren’t stealing from
your business.

On the other hand, it might take more time to train employees to accept cards, but
once they’re trained, there may be fewer math errors and it will be much easier to
add up and record your sales for the day.

Also, consider other forms of payment and whether they could work for your
business. Perhaps you could benefit from selling gift cards that your customers can
give to their friends or family. Or, you might be able to stand out from your
competitors by letting your customers pay with digital payment methods.

Preparing your business to accept payments

The amount of time and effort that goes into running your business’s payment system
can depend on the types of payments you’ll accept and how closely you want to
monitor your business.

If you only accept cash and don’t have a lot of inventory to track, getting started
could be as simple as buying a cash register and paper sales book. However, most
small business owners want (or need) a more detailed process for tracking their
inventory and sales. Many see the benefit of letting customers pay with cards or
digital payments.

Legally create your business

If you haven’t already gone through the steps to legally create and register your
business, that’s generally where you’ll want to start. The process will also help
you get the required documents and information you need to open a business bank
account, such as an Employer Identification Number (EIN), which is like a Social
Security number for your business.

Open a business bank account

A business bank account could be a requirement if you accept non-cash payments, and
is a safe place to store the cash your business receives from customers. Separating
your personal and business accounts can also help you stay organized and make
filing taxes easier.

Business checking accounts may have different fees than personal bank accounts,
such as a fee based on the number of transactions you have each month. Compare your
options carefully before opening an account. You may also want to start saving
money, which you could do with a business savings account.
Get set up to accept non-cash payments
You may need to sign up for several services before you can accept cards or mobile
payments. The process can be confusing, so here’s a quick overview of what you
might need:

Merchant services. A merchant services provider will set you up with a payment
processor and a merchant account.

Payment processors, such as Worldpay Inc. and Square Inc., are companies that can
send all the information back and forth when a customer pays with a card. A
merchant account is a special type of bank account that allows your customers’
money to flow through the card processing system and get deposited into your
business bank account.

You might be able to set up merchant services with your bank, an independent sales
organization (ISO) or an all-in-one payment services provider.

Compare your options and try to negotiate the length of your contract (a shorter
contract might give you more options in the future) and the fees you’ll have to pay
with each option. There’s generally a fee to get set up, along with monthly and
annual fees. You’ll also have to pay a fee for each transaction.
A point-of-sales device. This is the device where customers will swipe, insert or
tap their card (or smartphone) when making a purchase. Your merchant services
provider may sell or rent you a POS device. Some are small handheld devices, others
are built into larger cash registers. There are also options that plug into mobile
devices or let you enter the card information into an online form. If you have a
POS software system, you’ll want a POS device that can connect to the system, which
will then record your sales.
An all-in-one payment services provider (PSP). Rather than setting up your own
merchant account and finding a credit card processor, you may want an easier
option. Payment service providers often bundle credit card processing, offer you a
point of sale system and let you use their merchant account. It’s generally easier
to understand the fees you’ll pay and set your business up to accept non-cash
payments with a PSP, but the fees could wind up being higher than what you’d pay
with a merchant services account.
Selling online? You’ll need a payment gateway. If your business plans to accept
payments online, you’ll also need a website with a shopping cart and payment
gateway. The shopping cart lets customers choose and purchase products. The payment
gateway will take your customer’s payment information and either accept or decline
the transaction. Some payment gateways can also let you accept electronic bank
transfers. Your merchant services account or PSP might come with a payment gateway
(sometimes for an added fee), or you could shop around and find a different
solution online.
Stay compliant
When you’re using a merchant services account, a PSP or a payment gateway, if you
plan on accepting debit and credit cards, you should make sure the company and your
business practices comply with the latest laws and credit card companies’
regulations.

The Payment Card Industry Data Security Standards (PCI DSS) is an important
standard related to accepting, sending and storing customers’ data. Many merchant
services, PSPs and payment gateways stay up to date with this standard and may
charge you a monthly or annual PCI compliance fee.

Your business is also responsible for meeting the PCI DSS. If it doesn’t, you could
be responsible for the costs associated with a data breach or theft of your
customers’ information. You might also have to pay a PCI noncompliance fee to the
company you’re working with to accept card payments.
The PCI Security Standards Council creates and promotes the standards. Visit its
website to learn more about training, staying certified and preventing data
breaches.

Choosing a point of sale system

A point of sale (POS) system can be an essential tool for managing your business’s
sales and keeping accurate records. Most POS systems consist of hardware and
software.

The hardware may be a cash register, tablet or dongle, a small card reader that you
can plug into a mobile device. Some hardware options can work with a variety of POS
systems. Or, you may be able to accept non-cash payments with a POS device without
attaching it to a more complex POS system.

The POS software can help you record, store and analyze all your business’s
information, saving you time and making you a more effective business leader. You
may be able to choose between different features or functions depending on the
complexity of your POS system.

There are hundreds of POS systems to choose from, including specialty options for
certain types of businesses (a restaurant has different needs than a clothing
store) and customizable systems. Here are four things to consider as you compare
your options:

Cost
Consider the upfront and ongoing costs for the system.

You may need to purchase or rent the hardware, such as a cash register or POS
device. Then, depending on your choice, you may need to purchase the POS software
or pay a monthly (or annual) subscription fee.

Additionally, POS systems may charge different fees for processing debit card and
credit card and transactions. Compare processing costs between POS systems, and see
if the system allows you to change to a different third-party processing company
later if you want more flexibility.

Features
Your needs may change as your business grows, so consider which features you need
today and may want in the future. Here are some of the things that POS systems can
do:

Accept EMV chip (a small chip in cards that can help keep the cardholder’s
information secure) debit card and credit cards
Accept contactless cards (cards that can be tapped rather than swiped or inserted)
and mobile payments
Store cash in a secure drawer
Scan products’ barcodes
Track your business’s inventory
Create sales reports
Manage employees shifts and timesheets
Manage a customer loyalty program
Connect with your bookkeeping software
Print physical receipts or send digital receipts
Simplicity
Some systems might take hours or days to set up, or require you to hire a
consultant to get started. Others may be much simpler. The setup is only part of
the process, though. Consider how easy the system will be to use every day, and how
easy it will be to train new employees to use your POS system.