Which Payment Types Do You Accept?

Understanding Customer Payment Options

    When you run a small business, you need to put some thought into how you will allow your customers to pay. Many business owners have a preference for one or two types of payment and shun the others. But according to the 2013 Federal Reserve Payments Study [PDF], that could be a big mistake. The study shows that of the 122.8 billion noncash transactions completed that year (excluding wire transfers), customers still prefer to pay using a variety of methods. For instance, who would have guessed that in 2013, consumers wrote 18.3 billion checks? Turns out, if you are willing to accept multiple payment options, you’ll open up your business to more consumers — and most likely increase sales. Here’s a rundown of the most popular payment methods.

    Cash

    There has been a lot of speculation in recent years that cash is dead. It may be convenient to accept plastic only, but another recent study by the Federal Reserve [PDF] shows that cash is still the most-used retail payment method. Specifically, the study found that in one month, consumers averaged 59 transactions and 23 of them involved cash. In addition, it showed that cash accounts for 40 percent of overall spending, making it the largest share of transactions. Here are some benefits to accepting cash payments:

    • No credit card or debit fees
    • The money is available immediately
    • You won’t have to deal with fraud, bounced checks, or unauthorized card usage

    You don’t need a lot of expensive equipment to accept cash payments, either. However, if your business takes in a lot of cash payments, it’s a good idea to make frequent bank deposits to avoid theft issues.

    Checks

    The 2013 Federal Reserve study showed that checks made up 7 percent of all transactions. While that may seem insignificant, 7 percent of 122.8 billion shouldn’t be ignored. Accepting checks is a bit more complicated than cash, and the key to success is creating a check acceptance policy that you stick by. Some of the basics of a good check policy are:

    • Don’t take temporary, nonpersonalized, or unnumbered checks.
    • Don’t allow customers to write a check that includes cash back.
    • Don’t accept out-of-state checks.
    • Don’t accept postdated checks.
    • When accepting a check, look to see that the buyer’s name, address, and phone number is on the check, that this data matches the picture ID, and that the signature matches the one on the ID.
    • Consider an electronic check verification system like TeleCheck to decrease your risk of bounced checks.
    • Have a collections policy in place to address bounced checks.

    Credit and Debit Cards

    The 2013 Federal Reserve Payments Study showed that credit and debit card payments make up more than two-thirds of all noncash transactions. Many consumers get cash back and points when using a card, so it’s not uncommon to see someone paying for even the tiniest of purchases with one. If you run a business, you’ll lose a lot of sales if you don’t accept cards, and according to an infographic by Merchant Warehouse, your sales could increase as much as 40 percent once you begin accepting cards. Here are some things you should know:

    • Consumers are known to spend more when paying with a credit card because they don’t feel the “pain” that they do when they part with cash. They are also more prone to make impulse purchases.
    • You no longer have to spend thousands for a merchant card system. With services like GoPayment, you’ll be able to use a smartphone or tablet to accept cards and pay nothing up front.
    • You’ll pay a small processing fee for sales that involve a credit or debit card. To determine the fees your business would pay, use this free merchant account fee calculator.
    • You may be exposed to credit card fraud. To reduce your risk, always ask for an ID and then compare it to the name and signature on the credit card. Also double check the security features by making sure the card is signed, that the hologram changes color when held up to the light, and that the account numbers on the front and back of the card are the same.

    Online Payments

    The Federal Reserve study showed that consumers made online payments to merchants more than 1.8 billion times in 2012. And since an online customer can’t hand you cash, you’ll need to provide a system that will allow them to use a card instead. You can use your own traditional merchant account, provided that they are set up for online payment gateways, or use a third-party provider. Here is what you should know before you make your decision.

    • The cost of setup will be lower with a third party provider, but the transaction fees are typically higher. Some providers offer a sliding scale with lower transaction fees as your sales increase. If you are just starting out, a third party will allow you to test the waters while avoiding a large setup expense.
    • You don’t have to have great credit to quality for a third-party provider, but you typically do to get a merchant account.
    • Chargebacks are common with third-party providers when dealing with online customers because consumers will see the name of the credit card processor rather than your company name. It’s a good idea to make sure the customer understands that during the checkout phase.

    One study showed that online merchants who offered multiple payment options converted 72 percent of visitors, in comparison to 60 percent by those who only offered one way to pay. To expand your online payment options, look to a provider like QuickBooks Payments, which allows you to accept e-checks and ACH bank transfers.

    Mobile Payments

    If you own a service business or one that requires you to be on the go, then you’ll need the ability to accept payments wherever you meet your customers. And today’s consumers expect that. In 2012, 250.6 million mobile payments were made by consumers. Here’s what you need to know to get started.

    • All you need to accept cards is a smartphone or tablet, a card reader, and an app from your provider.
    • You’ll pay fees and transaction fees just as you would with a traditional merchant account.
    • You won’t have to wait weeks for payment. Most mobile merchant providers pay within days.

    Do you need to increase your payment options to attract more business and boost your sales? With today’s technology, it’s easy to provide your customers with every option they need and want.

    Chapter 2.
    Online Payment Options for Your Website4 min
    Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.