The Top Payment Methods For Small Businesses

Question: what’s the best way for your business to get paid while satisfying your customer’s need for varied payment options and convenience?

Answer: know the top modes of payment your customers prefer, and ensure you accept them.

In this guide, we’ll help you do just that by exploring all the major payment methods for small business. We’ll highlight the pros and cons of each payment medium to help you narrow down the right options for your company.

TL;DR

You get to choose from traditional payment methods like cash and checks, online payment methods like digital wallets and ACH transfers, and emerging payment methods like BNPL services and cryptocurrencies.
Choosing to accept payment methods outside the preferences of your customers could mean losing business to competitors and getting it right will mean happy customers, increased revenues, and more sales opportunities.
You also need a payment services provider that supports your chosen payment methods, but that provider’s platform must integrate seamlessly with your existing CRM, ERP, payroll, CMS, and accounting software systems.

10 Top Payment Methods for Small Businesses

Credit and debit card payments

Card payments (credit cards and debit cards) account for 50% of the total number of small business transactions and remain the primary way customers make purchases on-site and online.

With credit cards, customers pay for goods and services using a line of credit provided by their card issuer who lends them funds up to a limit determined by their creditworthiness (credit history). This allows them to finance large purchases, which is good for you since they will buy more goods and services from your business.

In contrast, debit card payments are withdrawn directly from the customer’s bank account and are mainly used by buyers who want to control their spending.

Card payments are convenient, secure, and a major positive for your cash flow, with funds being deposited to your account within hours to a few days.

You will need POS terminals to accept and process in-person card payments. Your payment processing company will also charge processing fees on each transaction which can negatively impact your earnings unless the expense is passed onto customers.

In a similar vein, you will need to embed or integrate a payment gateway with your website, online app, or SaaS platform to process online credit card payments.

The payment gateway will let you accept all forms of electronic payments, including credit cards, debit cards, eChecks, direct debit payments, and much more. Its role is to encrypt and securely transfer your customer’s payment data to your payment processor.

Benefits of card payments

It’s the preferred mode of payment for many customers
Card payments are often processed quickly, which can help your business’s cash flow
It can be a major source of actionable data and insights into customer behavioral patterns if you have a payments platform with robust data analytics features

Drawbacks of card payments

It comes with interchange fees that typically range from 1.23% to 3.15% of the transaction amount plus additional charges imposed by your payment services provider
There is always the risk of a disputed payment which can lead to costly chargebacks and associated fees
It comes with the risk of fraudulent transactions, with more than $12.5 billion lost to fraud in 2024 alone

Mobile and contactless payments

Mobile and contactless payments are powered by NFC (Near-field communication) technology. They let buyers initiate payments by placing their mobile phone near a compatible payment terminal.

The payment method is facilitated by digital wallets like Apple Pay, Google Pay, and Samsung Pay.

With mobile payments, digital wallets typically come in the form of an app on your customer’s smartphone that holds the buyer’s pre-stored card information. It will use magnetic secure transmission (MST) to transmit the relevant data when the smartphone is held at close range (a few centimeters usually) or tapped to your card reader.

All the data transfer between the digital wallet and your payment terminal are encrypted and the system also uses tokenization to ensure iron-clad data security.

Its convenience has made it very popular with customers, with 78% of customers globally already using the payment method. And with a big chunk of shoppers choosing this payment method, small businesses should strongly consider contactless payments to stay competitive.

Accepting mobile payments requires a payment processor that offers NFC terminals and supports all the popular digital wallet options used by your customers.

It’s possible your current terminal already supports NFC payments and you should reach out to your provider for confirmation.

Benefits of contactless payments

It gives your customers more flexibility and speeds up the checkout process
Encryption and tokenization are defining features of NFC payments, helping to drastically reduce the risk of fraud
It can be an additional payment method that will increase your market reach and attract more customers

Drawbacks of contactless payments

You may need to invest in new NFC-compatible payment hardware
Contactless payments above $100 can sometimes require some form of verification (PIN or two-factor authentication), which defeats the benefit of speed that makes the payment method attractive in the first place
Lost phones and compromised payment terminals can lead to data theft

ACH and bank transfers

Bank transfers encompass all forms of direct bank-to-bank transactions, including ACH transfers and wire transfers.

An ACH transfer is an electronic movement of funds from one bank account to another via the ACH (automated clearing house) network, while a wire transfer uses a secure network like SWIFT (Society for Worldwide Interbank Financial Telecommunication) or Fedwire (Federal Reserve Wire Network) to initiate the movement of funds.

Both are used to transfer funds directly from one bank account to another, unlike credit card payments that involve multiple third-party financial institutions.

ACH transfers are particularly popular among businesses that deal in high transaction volumes because of much lower processing fees than card payments. It’s a good fit for payroll processing and large bill payments between B2B businesses. It’s also perfect for businesses with a subscription-based (recurring payments) sales model.

But while ACH transfers are cost-effective, long processing times that typically take 1-3 business days may make it unsuitable for certain transactions.

Luckily, the other alternative form of bank transfers, wire transfers, are much faster, with payments typically being processed in real time. That said, wire transfers are usually more expensive than ACH transfers and are used for time-sensitive domestic and international transactions.

We should add that ACH transfers are limited to domestic transactions within the United States, while wire transfers cover both national and cross-border payments. ACH payments are also reversible, while wire transfers can’t be reversed once completed.

Benefits of ACH payments

It attracts much lower processing fees than card payments
High-ticket transactions are perfectly suited for this cost-effective payment method
It works just as well for recurring payments

Drawbacks of ACH payments

It can take days for funds to be credited to your business bank account
The need to provide sensitive information like routing and account numbers may turn off some customers
It’s far less convenient than card payments for most customers

Buy Now, Pay Later (BNPL) options

BNPL services provide interest-free short-term financing to customers to help them pay for goods and services to be repaid in installments over a defined period.

You will get full payment for your items at checkout from the BNPL service provider and repayment of the short-term loan is to be settled between the customer and the BNPL services company.

The beauty of it all is that the credit facilities they offer can make your products and services much more financially accessible to customers, which could lead to more sales.

BNPL services are offered by companies like Afterpay, Klarna, PayPal, and Affirm, and here is a breakdown of how the BNPL process works:

Your customer selects the BNPL payment option on your checkout page
The BNPL service provider evaluates the customer’s creditworthiness (credit scores) to see if the buyer is capable of repaying the short-term loan
Upon approval, the customer will select one of the available repayment plans and then authorize the payment
The BNPL service provider will instantly transfer the full payment to your business account and begin the countdown to recovering its funds from the customer in bi-weekly or monthly installments

Deciding whether to support BNPL payments depends on the nature of your business and the preferences of your target customers.

Benefits of BNPL payments

It can attract new customers to your business because breaking payments into smaller installments helps cater to wider range of budgets
Real-time credit checks mean customers get to know immediately whether they can access the payment method or not, which can boost the customer experience
It can encourage customers to purchase more goods and services at once because the short-term financing option can artificially increase the purchasing power of each buyer

Drawbacks of BNPL payments

It can impose fees (interest) than the average credit card transaction
Ease of access to short-term loans can result in customers financially over-extending themselves

Cryptocurrency payments

Cryptocurrency payments involve the use of digital currencies like Bitcoin and Ethereum to pay for your goods and services.

The payment method is outside the control of a centralized authority like the central banks that issue and guarantee traditional legal tender (money). Digital currencies are instead based on a decentralized system and no single entity controls their supply.

Each digital currency is created through a process called “mining” where powerful computers generate blocks of code that represent the currency to be stored on a public ledger called a blockchain.

The ledger isn’t based on a single server but replicated across a decentralized network of individual computers. This ensures that no single individual can make alterations to data on the ledger because they would have to modify each replicated information on a vast global network of computers.

Whenever a digital currency holder initiates a transaction, all the members of the network will compare their ledgers, and if they all agree to validate the transaction, the currency transfer will be effected.

This peer-to-peer network of computers, and the cryptographic techniques used to encode each transaction, make digital currency transactions secure.

It is also global and without the processing fees and chargeback fees that come with traditional payment methods.

However, cryptocurrencies aren’t without their drawbacks. Digital currencies continue to experience extreme price volatility. And the fact that we don’t have established local and international regulations managing their usage means people have little legal recourse if things go wrong.

This explains why cryptocurrency payments are still not widely utilized by the general populace and are mostly limited to tech-savvy customers.

With that in mind, if you do serve tech-savvy customers, you need to obtain a digital wallet to accept crypto payments. Platforms like Bitpay and Crypto.com provide all the tools you need to accept cryptocurrencies.

There are also cryptocurrency gateways like CoinGate and BitPay that let you accept crypto payments and receive legal tender (money) in exchange. Such gateways present a more risk-averse way for you to accept cryptocurrency payments.

Benefits of cryptocurrency payments

It imposes lower fees than traditional currency transactions and may even be cheaper than ACH transfers
The ease with which cross-border transactions can be effected using digital currencies can open up a wider global market to your business
It offers high levels of privacy for customers who wish to keep their activities private

Drawbacks of cryptocurrencies

It’s impossible to reverse a completed cryptocurrency payment, which can make handling customer refunds very complicated
All cryptocurrency is viewed as “property” by the IRS, which means you must pay taxes on the digital currencies you received as payment based on its value on the day the transaction was completed
It’s hard to keep track of the constantly evolving regulations that seek to manage digital currencies, and it’s made worse by the fact that these regulations differ from one geographical location to another.

Invoice payments

For a service business like an HVAC company or a landscape company, invoicing is the most effective way to get paid.

An invoice is a document that outlines the nature and quantity of services and goods provided to a customer as well as the associated costs and other relevant details. The document is prepared by the service provider and sent to the customer after completing the work or delivering the product/service.

There is an invoice payment when the customer transfers funds to the service provider according to the exact amount specified in the invoice.

This process can involve a paper-based invoice settled by a physical cash payment or it can be done through a payment link within an email invoice that leads to a payment gateway.

You will need invoice management software like Stax Bill to be able to add payment links with integrated payment gateways to your email invoices.

If the service/product is being provided on a continuous basis, then sending invoices manually or by email each month is not an efficient approach.

A good invoice management software will let you set up recurring payments which involves putting the monthly payment for your services on auto-pilot.

Automated payments mean less manual work for you and your customers. You can view and manage upcoming invoices, paid invoices, and unpaid invoices in real time from the dashboard of your invoice management software.

The software will send upcoming payment alerts to each customer, reducing the risk of late payments, which will only help your cash flow.

Benefits of invoice payments

It’s a document that carries your brand’s visual identity (logo, business name, colors, etc.), which makes it a very effective means of spreading brand awareness
It’s a very accessible payment method that can be effected anywhere; at the working site, in a coffee shop, or in your office via an email sent from your device

Drawbacks of invoice payments

It can be susceptible to delayed payments due to lost, inaccurate, or ignored invoices, which will have a negative impact on your cash flow.
You will need all your invoices, come audit and tax season, and manual record-keeping systems can lead to lost documents and inaccurate data entry which will only cause headaches

SMS payments

SMS payments or Text-to-pay involves letting customers pay for goods and services through a text message sent to their mobile device, removing the need to log into a separate online portal.

The payment method is beneficial to both you and your customers. Its convenience and speed save customers time, while you also save money that would have been spent on physical terminals for processing card payments.

Here is a breakdown of how the SMS payment process works:

The customer agrees to opt into your SMS payments system by providing active contact details
You send a text message to the customer that payment is due along with information about the relevant purchase
A payment link will then be sent to the customer via text that will lead the customer to a secure payment gateway
The customer clicks on the link which redirects them to your payment portal now opened on the browser of their mobile device
The customer will enter relevant payment details and click the “Pay” button
A confirmation message will be sent to the customer to confirm that the payment was initiated by that customer, and with a go-ahead order from the customer, your payment services provider will process the payment and send the relevant funds to your business account
A digital receipt will be sent to you, the business owner, for record-keeping, and a final confirmation message will also be sent to the customer

We recommend supporting SMS payments if you’re confident it will lead to more sales and a better customer experience for your buyers.

The payment method is ideal for businesses in the retail, transportation, rental property, restaurant, and utilities industries.

You will need to sign up with an SMS payment provider like Twilio or VoiceSage to start accepting SMS payments.

There are other SMS service providers, but you must ensure that any provider you’re opting for is PCI-compliant.

It is also possible that your current payment services provider supports SMS payments, and you can easily find out by reaching out to the company’s customer support staff.

Benefits of SMS payments

It’s well established that text messages have a 98% open rate, which means SMS payments generally means timely payments, which is good for your cash flow
Little to no requirements for a physical payments infrastructure make SMS payments more cost-effective than most other alternative payment methods
It’s a more flexible payment method that can broaden your market reach

Drawbacks of SMS payments

It can be vulnerable to fraudulent actors, especially phishing scams
Customers may ignore your payment SMS if they are already bombarded by too many spam messages
It may not be the preferred payment method of your target audience

Cash payments

Cash payments involve the use of paper bills and coins (physical currency) to pay for your goods and services.

The emergence of digital payments hasn’t completely stifled cash-based payments, and they still account for 16% of all transactions.

We recommend cash payments for very small businesses because of the significant processing fees imposed on other alternative payment methods, especially card payments.

Benefits of cash payments

It is a widely accepted method of payment that does not require any special equipment
Accepting cash payments means you get your funds immediately
It removes the need for digital devices and internet connectivity to accept and process payments

Drawbacks of cash payments

It comes with the very real risk of theft and misappropriation of funds by dishonest staff
You may miss out on customers that only have credit and debit cards for payment
It is not an ideal payment method for transactions involving large sums

Check payments

Just like cash payments, customers continue to use paper checks to pay for goods and services. In fact, checks account for 21% of the value of non-cash payments in the United States, and 75% of businesses still use this traditional payment method.

A check is a dated and signed instrument that authorizes a bank to pay a specific sum from the funds in a bank account to the bearer of the instrument.

Your customer can give out a cashier check or a certified check. Both types of checks will let you withdraw funds at the bank counter, but cashier checks are believed to be safer since they are backed by the bank’s own account.

We recommend check payments for business owners in industries like property rental where guaranteed payment is crucial.

Also, eChecks (electronic checks) have emerged as the digital equivalent of paper checks.

eCheck payments are done through the ACH network, and instead of physically tabling a check at the bank, you will provide the relevant checking account number, routing number, bank account type, transaction amount, and payment authorization (verbally or in writing) online via an eCheck authorization form.

Benefits of check payments

It is a more secure payment medium than cash payments
You will create a paper trail that provides adequate proof of payment
It involves much lower fees than card payments

Drawbacks of check payments

It takes longer to secure funds from check payments than cash payments
Checks can bounce, and when they do, you may have to go through the arduous process of hiring a collection agency to obtain your funds

Direct debit payments

A direct debit payment entails a customer authorizing your business to withdraw specified sums from their bank account at pre-determined intervals.

For subscription-based businesses, there’s no better payment method than direct debits. When automated, funds will be paid automatically into your business bank account at scheduled intervals ensuring steady cash flow.

Of course, direct debit payments can also be used for one-off transactions, but it comes with the disadvantage of taking three working days to clear.

You will need a SEPA Direct Debit Mandate to effect direct debit payments. It’s a document containing the written consent of your customer that the bank should transfer funds from the customer’s account to your business account on the specified date or at the specified intervals.

Benefits of direct debit payments

It’s suitable for recurring payments like utility bills, loan payments, health insurance premiums, SaaS platform subscription payments, etc.
Direct debits facilitate timely payments for goods and services, which ensures a steady cash flow
It is a secure and reliable payment method with global reach

Drawbacks of direct debit payments

It involves a 3 working day delay period that makes it unsuitable for many types of business transactions
Your customers may be hesitant to share the sensitive bank details required to facilitate the payment method if they don’t trust your business

How to Select the Right Payment Methods for Your Business

We covered 10 different payment methods in this blog, and one thing that should be clear by now is that most businesses will require a combination of payment methods.

For example, a high-end fashion brand with both brick-and-mortar store locations and an eCommerce store may want to offer a combination of card payments, contactless payments, cash payments, and BNPL payments as its payment options.

Essentially, each business must strive to offer all the payment options that will be needed to meet customer preferences and the goals of the company.

Below is a step-by-step process to help you arrive at the right combination of payment methods for your own business.

Step 1: Analyze customer preferences and demographics

This mainly involves looking into the age, location, spending power, average creditworthiness, and tech savviness of your ideal customers to determine their preferences.

For example, younger customers tend to be more tech-savvy, so they will likely prefer digital payment options like contactless payments, digital wallets, SMS payments, and cryptocurrency payments.

You may also want to introduce BNPL payments as a way to get price-sensitive younger buyers to opt for your products, especially if you sell luxury items.

In contrast, older customers may be more comfortable with traditional payment methods like cash payments, ACH transfers, card payments, invoice payments, and eChecks.

Step 2: Consider your business type and needs

Your industry, especially your business type—whether you are a brick-and-mortar retailer, online business, traditional B2B business, or SaaS business—can help determine the most suitable payment methods for your business.

A brick-and-mortar store will want to support cash payments, card payments, and contactless payments. An online business will support card payments, ACH transfers, BNPL payments, and possibly cryptocurrency payments.

B2B businesses may support ACH payments, SMS payments, card payments, and depending on the industry (service-based), invoice payments.

For SaaS businesses that often use a subscription-based model, direct debit payments, card payments, ACH transfers, and possibly cryptocurrency payments should be considered.

Step 3: Calculate transaction fees and other associated processing costs

Your choice of payment methods shouldn’t come with too much overhead costs that they stifle your business.

Be sure to evaluate the fees associated with each payment method to narrow down the payment options that won’t be a burden to your finances.

A good example is a large business processing large transaction volumes in physical stores. The business can save costs by opting for payment methods with negotiable processing fees like card payments.

In contrast, a very small business with low transaction volumes like a coffee shop will save money by limiting itself to cash payments that don’t attract any processing fees or by using credit card surcharging to offset payment processing costs.

You should also keep an eye out for hidden fees that may be imposed by payment service providers.

Step 4: Weigh the speed of fund availability

Some payment methods like wire transfers will instantly credit your account once payment is made, while others, like card payments, take longer.

Robust cash flow is crucial for the health of every business, but certain businesses need instant cash payouts to survive.

A good example is a transportation company that constantly needs to keep its vehicles gassed up to stay on the road. The company can have its businesses disrupted if there is any significant delay in the payout of funds.

If you own a cash-sensitive business, we recommend opting for payment methods with instant bank payment options.

Step 5: Evaluate security and fraud protection

The required level of vigilance will depend on the applicable regulations in your industry.

A SaaS company that handles sensitive customer data in the process of accepting online card payments must comply with stringent regulations like PCI DSS (Payment Card Industry Data Security Standard) and GDPR (General Data Protection Regulation).

In contrast, a small convenience store that mostly handles cash payments has few regulations to worry about.

Step 6: Confirm seamless integration with your existing business tools

This involves taking your time to select the right payment services provider for your business.

You need a payment services provider that supports your chosen payment methods, but that provider’s platform must integrate seamlessly with your existing CRM, ERP, payroll, CMS, and accounting software systems.

The payment platform must also meet the requirement of scalability. It must have robust features that ensure the platform can meet the needs of your business as it grows.

Stay Pay is an excellent example of a payment services provider that offers an all-in-one integrated payments system that supports major payment methods while also integrating seamlessly with all the popular business software apps.

Step 7: Make your final decision

You can accept payments using traditional payment methods like cash and checks, online payment methods like digital wallets and ACH transfers, and emerging payment methods like BNPL services and cryptocurrencies.

Each payment type has its pros and cons and the steps above should help you narrow down the combination of payment options that will best meet the needs of your business.

This final step is about ensuring you don’t overly focus on payment methods that meet the needs of today while ignoring emerging payment methods that are increasingly being demanded by a growing segment of your customers.

It’s Time You Settled On The Right Combination of Payment Methods for Your Business

Offering the right mix of payment methods isn’t just about getting paid—it’s about meeting your customers where they are. By choosing flexible, secure, and convenient options tailored to your audience and operations, you’re not only streamlining your cash flow but also building loyalty and driving growth. Ready to future-proof your business? Start by aligning your payment strategy with what your customers want.

Stax can help you do just that by enabling you to support the right payment methods. Get in touch to learn more.

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