As business owners, it’s important for you to accept multiple payment methods from your customers, giving them the option to pay for goods or services in their preferred payment method.
This does mean, however, that you will have to keep up with both traditional and modern payment systems. To help you select the payment methods best suited for your business, this post lists 8 different modes of payment and the pros and cons associated with each.
Preparing your business to accept payments
In addition to legally creating your business and opening a business bank account, you will need to decide how you want to accept payments. If you are just starting out and only want to accept cash, you can easily track sales on paper or in a spreadsheet. In today’s day in age businesses usually need a little bit more technology for tracking inventory and sales. And customers often prefer to pay with cards or digital payment methods, so if you only accept cash, you may be missing out on lucrative sales.
What should you consider when choosing a payment option?
Just like your customers, payment methods come in all shapes and sizes. Different payment types have various benefits, drawbacks, and in most cases, fees. Needless to say, deciding on which modes of payments to accept will depend on your specific business and customers.
Here’s a rundown of the common payment modes that you should consider.Learn More
Pros and cons of different payment types
1. Credit Cards
Credit cards offer a quick and convenient way to make financial transactions both large and small. With a credit card, clients use a set credit limit from the company issuing the card to make offline and online purchases. Some companies like American Express and Mastercard offer contactless credit cards that use radio-frequency identification to authenticate card information, saving customers the trouble of swiping their cards against a card reader and making the process more secure.
If customers pay back their credit card balances regularly, they can build up a good credit line. However, if they have trouble meeting their payment due dates, they can be charged interest and their credit card rating can go down. To provide your clients with the best options for paying with credit cards, contact Stax to learn about the most secure ways to incorporate credit card payments into your business model.
2. Debit Cards
Debit cards withdraw money directly from an attached bank account. A debit card payment usually doesn’t come with annual fees and does not charge payees interest, which can encourage use. However, they also come with limited fraud protection and don’t build a client’s credit score, causing some customers to prefer using credit cards.
To accept debit card payments, you’ll need to comply with all the regulatory requirements in your industry. You’ll also need to choose a payment process to facilitate payment card transactions. In-store, the equipment you need to process debit cards are the same as the ones for credit cards. Online retailers, be sure to set up your payments web page to accept financial transactions from debit cards and optimize this page for mobile devices so clients can enter their debit card information through their smartphones.
3. Automated Clearing House (ACH)
Automated Clearing House (ACH) transfers are electronic, bank-to-bank money transfers that provide a fast and convenient way for businesses to pay vendors (including payroll via direct deposit) and receive payments from their clients. These ACH payments are also sometimes called direct debit payments or bank payments, and they allow customers to pay directly from their bank account to another bank account. Bank transfers and wire transfers are usually used for larger and more frequent payments where cash is not a good fit.
This mode of payment is helpful for businesses like mortgage and utility companies since their customers can set up automatic recurring transfers to pay their bills. However, some banks do impose limits on how much money can be sent through an ACH transfer and multiple ACH transfers can trigger an excess withdrawal penalty for savings accounts. Since there can be delays in ACH transfers, some clients may be hit with late fees if their transfer completes after the due date.
To accept ACH transfers, you’ll need to sign up with payments provider that supports ACH. This gives your business access to the ACH network and allows direct withdrawals from customer bank accounts. You’ll also need to request authorization from your customers and collect their payment details, making sure to verify this information.
Exchanging cash remains a simple (albeit cumbersome) payment option used by both local markets and major companies. It’s particularly popular among older customers and clients who are less tech-savvy and prefer to use physical currency.
That said, paying in cash is difficult if a client needs to make multiple expensive purchases. Cash users also need to carry the currency of the country where the transaction is being made. Finally, unless you keep careful records, cash transactions carry a higher risk of accounting errors.
5. Paper Checks
Paying via paper check is a convenient way to make large financial transactions. The payer can also cancel the payment until the payee presents the check to the bank, adding extra security. However, it takes time for a check to clear, making this an inconvenient mode of payment if you make several day-to-day transactions.
Businesses that accept checks as payment should create a check acceptance policy for their clients. This policy should detail the types of ID clients who pay by check should display, the dollar limits for the checks, and the information on the check—such as the payer name, bank ID, and signature— that needs to be verified.
eCheck payments are conducted online. In the U.S., businesses use the ACH merchant network to withdraw money from the payer’s checking account and deposit the funds directly into the payee’s checking account. Customers validate their eCheck payments by authorizing the transaction on a website or signing a contract.
This mode of payment can be processed faster than a paper check and may offer lower processing fees than certain credit cards. However, there is the potential that online hackers can gain access to customer banking information and computer glitches can lead to faulty withdrawals.
To accept eChecks, businesses use an ACH-supported merchant account to withdraw customer funds online. They also need their customer’s banking information, including routing and checking account numbers.
7. Digital Payments
Beyond credit and debit cards, digital payments include paying by PayPal, Venmo, and Zelle as well as through digital mobile wallets like cell phones and smartwatches. According to McKinsey, 82% of Americans already use digital payments.
All of these payments enable money to be transferred from one account to another electronically. Customers appreciate these payment options for their fast transaction speed and the reduced dependency on cash.
Businesses that choose to accept digital payment need to invest in a Point of Sale (POS) system that can handle multiple types of digital payment methods. You’ll also need to consider your return on investment (ROI) when factoring in the setup fees, per purchase fees, and flat monthly usage fees that come with processing digital payments.
Digital wallets are available in various payment modes such as credit and debit. A wallet typically needs to verify customers’ identities (such as address, email address and phone number), to pay. These often use biometric verification like a fingerprint or face recognition software (ex: Apple Pay and Google Pay).
8. Money Orders
Usually issued by a government or banking institution, money orders are certificates that allow your business to receive cash on demand. Since money orders do not include personal information like bank routing numbers, they are considered safer than paper checks. Money orders can also be cashed in other countries, making them useful in international business dealings. However, you may need to pay a fee to cash a money order and the lack of personal information makes them hard to track.
If your business accepts money orders, you should endorse each certificate with your business name, your name, and your job title. Be prepared to present personal identification as well as proof of your position in your company. Having a business checking account also makes it easier to deposit the funds.
Electronic Funds Transfers (EFTs) and Other Options
Electronic Funds Transfer is a term you may also hear, but this is an umbrella term for all types of digital payments, including credit card payments, debit card payments, mobile payments, PIN transactions, and online purchases.
Wire transfers are usually used for larger and more frequent payments where cash does not fit. In most cases, payments by manufacturers to suppliers are made via wire transfers, especially for domestic transactions. The ACH is commonly employed for direct deposits in payrolls by a business. Although both electronic transfers exist, the differences are between ACH and wire transfers. ACHs only operate in the United States. Sometimes they require a couple of days to fully process them.
Choose the right payment strategy for your markets and channels
Providing a variety of payment options to customers is easy if the payment API integrates with your existing system. Using the API, payments can be seamlessly integrated into your other applications. With Stax, our innovative technology easily and quickly connects you and your customers to your chosen online payment methods or offline payment method.
Payment Methods: Final Words
Providing your customers with multiple modes of payment improves your customer service experience and facilitates stronger relationships with your clients. Given the number of payment options today, it’s important to invest in a secure payment platform like Stax that provides you and your clients with the best-in-class service.
Stax doesn’t have any hidden fees, contracts, or markups. Its integrated payment system is also designed to work with multiple software applications and provide your business with a number one rated payment processor that saves you time and money. Make sure you’re accepting the right payment methods. Our specialists are standing by.
Get in touch to learn more about the different modes of payment that Stax supports and how to leverage them in your business.