Small businesses need to adapt and focus on customers. Customers increasingly expect flexibility and convenience in how they pay for goods and services, so businesses should offer a wide range of payment methods. Global transaction value from digital payments is projected to reach nearly $11.6 trillion USD in 2024, for example.

Below, we’ll cover what to know about small business payment options: what’s available, what’s popular, and how to determine which payment methods are best for your business.

What’s in this article?

• Benefits of online payment methods for small businesses
  
• Popular payment options for small businesses
  
• What are the best online payment methods for small businesses?
  
• How to choose the right payment methods for your small business
  

Benefits of online payment methods for small businesses

Here’s how online payment methods can help your small business.

• Checkout process: Online payment methods make the checkout process faster and more convenient. Ease of use can directly increase the likelihood of impulse buys and repeat business. Customers might appreciate the flexibility and speed of completing transactions on their terms, whether from their mobile devices or computers.

• Market reach: Online payments allow small businesses to operate outside geographic boundaries. Businesses can easily sell to customers across the country or around the world. Niche businesses especially benefit from this reach, as their customer base might be limited locally but broader globally.

• Cash flow: Online payments have faster processing times compared to traditional methods such as cheques and money orders. This means quicker access to funds, which can help businesses maintain liquidity to cover operating costs, invest in inventory, or expand their operations.

• Overhead costs: Online payments reduce the need for physical point-of-sale (POS) systems and the labour required to handle cash transactions and physical checks. This can lower overhead costs.

• Security: Reputable online payment systems have strong security measures to protect sensitive financial information. Encryption and compliance with standards – such as the Payment Card Industry Data Security Standard (PCI DSS) – help protect both the business and its customers from fraud, preserving business reputation, and building customer trust.

• Customer insight: Online payment platforms often provide valuable insight into customer behaviour, sales trends, and financial health through their analytical tools. This insight can inform marketing strategies, inventory management, and business growth plans – making the small business more responsive to market demands and operational challenges.

• Automated processes: Businesses can integrate online payment methods with other business tools such as accounting software, customer relationship management (CRM) systems, and inventory management systems. Integration helps automate the information flow across various business functions, reducing errors and administrative workload.

Popular payment options for small businesses

Here are some of the most popular payment options for small businesses.

• Traditional payment methods: Popular traditional payment methods include cash, cheques, credit and debit cards, and money orders or cashier’s cheques.

• Digital payment methods: Popular digital payment methods include digital wallets, bank transfers, and peer-to-peer (P2P) payments such as Venmo and Zelle. Freelancers and service providers might also use payment links to request payment via email or text message.

• Emerging payment methods: Popular emerging payment methods include buy now, pay later (BNPL) services, cryptocurrencies, and contactless cards and wearables.

What are the best online payment methods for small businesses?

Here’s how these popular payment methods can benefit small businesses.

• Credit and debit cards: Credit and debit cards are among the most common online payment methods due to their convenience and widespread acceptance. They have fast transaction speeds and strong security measures such as fraud protection and chargeback capabilities. However, they require POS terminals for in-person payments and have processing fees.

• Bank transfers: Bank transfers are cost-effective, particularly for larger transactions. For example, Automated Clearing House (ACH) payments in the US and Single Euro Payments Area (SEPA) Direct Debits in Europe are suited for recurring payments due to their lower fees, but they can take several days to process. Wire transfers are suited for larger, one-time payments that need to be processed quickly.

• Digital wallets: Digital wallets such as Apple Pay and Google Pay provide a secure way for customers to pay without entering their card details on multiple websites. They have strong security with tokenisation and biometric authentication, and they speed up the checkout process. However, they require near-field communication (NFC) terminals to process payments.

• Mobile payments: With the increasing use of smartphones, mobile payment solutions are a convenient way for customers to pay directly from their phones. They often integrate with digital wallets and provide a fast, easy payment experience that’s ideal for on-the-go transactions.

• Cryptocurrency: Accepting cryptocurrencies such as Bitcoin and Ethereum can attract customers who prefer modern payment methods. They have low transaction fees, no chargebacks, and access to a global market. However, they also involve some volatility and regulatory risks.

• BNPL services: Services such as Afterpay and Klarna allow customers to purchase items and pay in instalments, often interest-free. This can increase purchase sizes and conversion rates by making products more financially accessible.

• Direct debit: Direct debit is ideal for subscription-based businesses that require regular payments. It reduces the trouble of chasing payments and ensures steady cash flow.

• QR codes: QR code payments are becoming popular, particularly in areas with high smartphone penetration. They’re a contactless, secure, and quick way to handle transactions without physical cards or cash. Businesses can also use them for in-store promotions.

• Invoice payments: For business-to-business (B2B) transactions or services rendered, invoices that can be paid online through a link or a payment gateway can simplify the payment process and improve efficiency.

• Prepaid cards and gift cards: Prepaid cards and gift cards can target customers who might not have bank accounts or credit cards. They also help build brand loyalty and can drive repeat business.

How to choose the right payment methods for your small business

To choose the right payment methods for your small business, first assess your business needs, customer preferences, and market trends. Here are some steps to get started.

Understand your customer base

• Demographics: Consider your customers’ age, location, and familiarity with tech. Younger, more tech-oriented customers might prefer mobile payments and digital wallets, while older demographics might lean toward traditional credit cards or bank transfers.

• Preferences: Survey your customers and analyse their current payment behaviours to understand their preferred methods. This can help you prioritise which options to implement.

Assess your business type and needs

• Business model: Your business type – whether that’s an e-commerce website, a brick-and-mortar store, or a service-based enterprise – affects your choice. E-commerce businesses can benefit more from mobile payments and digital wallets, while physical stores need stronger POS systems for card processing.

• Transaction size and frequency: Businesses with high-cost items or services can benefit from credit cards and bank transfers. For frequent, smaller transactions, businesses might prefer quick methods such as mobile payments.

Consider the costs

• Fees: Each payment method has its own fee structures, including transaction fees, monthly fees, or setup costs. Evaluate these costs against each method’s benefits.

• Cash flow: Some methods, such as credit cards, offer immediate payments. Meanwhile others, such as checks and certain invoicing systems, might delay funds.

Evaluate security and compliance needs

• Security: Ensure your chosen payment methods adhere to security standards such as the PCI DSS for card payments. Consider the security features each method has to protect your business and customers from fraud.

• Compliance: Understand the legal implications of your chosen payment methods. This is especially important if you operate in multiple countries and need to comply with financial regulations across jurisdictions.

Integrate technology

• Integration: Check how easily the payment methods can integrate with your existing systems such as accounting software, CRM systems, and e-commerce platforms. Easy integration can save time and reduce errors.

• Scale: Choose payment solutions that can grow with your business. Consider if a method can handle increased transaction volumes without major upgrades or cost increases.

Look at competitors’ practices

• Market standards: Observe what payment methods your competitors use. Matching these can prevent customers from choosing a competitor based solely on payment convenience.

• Innovative practices: Consider any innovative payment methods your competitors don’t accept. Offering these options alongside more traditional payment methods could set you apart.

Future-proof your payment options

• Trends: Stay up-to-date with trends such as the rise of blockchain technology or the growing popularity of biometric payments. Early adoption of emerging technologies can give you a competitive edge.

• Flexibility: Ensure that the payment methods you choose can adapt to future changes in technology and customer behaviour.