Over the last few years, we have seen an increase in new and innovative payment methods. No longer is cash-only accepted, but that is not to say that cash-only business is illegal. Many businesses, small, medium, and large, have adopted some form of electronic payment method. However, when selecting the right payment methods, it is essential to consider whether those methods will assist your business. In this article, we explain what and how to choose the payment methods your business should accept.
What are the different types of payment methods?
Cash payment is one of the most common methods used by small businesses. It is useful for low-value purchases or when other methods are unreliable such as an Internet failure. The best way to track your sales is to use a cash register.
Credit card and debit card
This method allows customers to pay by creating debt using a credit card, or deduct from their bank account using a debit card. You will need to set up a merchant account and select a payment gateway. For information, see here.
Electronic Funds Transfer at Point Of Sale (EFTPOS) is a privately-run debit card payment method that has been in Australia for almost four decades. It allows customers to pay directly into your business bank account.
Direct debit is an automatic transaction that transfers money from your account to another. It is useful for paying bills regularly such as a gym membership, subscription, or phone bill. As a result, your customers won’t need to remember to pay the bill or risk late fees. The only issues are:
- after canceling a direct debit payment, money continues to fall out of the customer’s account;
- the customer does not have enough money in their account, so the payment fails; or
- the service provider is unreliable.
Online payments allow your customers to pay using your websites. They can be convenient, but you must use encryption to protect your customer’s information. Other online payment methods include the ‘buy now, pay later’ option such as Afterpay. For more information on this, see here.
Cheques are less common nowadays due to electronic payment methods. However, they are still relevant to law firms and the legal profession. Cheques require more work to process, and it takes a minimum of 3 business days to be cleared. Obtaining special clearance will still take up to 1 business day and will incur additional fees.
Gift cards, vouchers, and coupons
Businesses use these when celebrating special occasions such as Christmas, New Year, the End of the Financial Year, or an anniversary sale. Gift cards, vouchers, and coupons are also useful in promoting a business’ brand to gain new customers. These often expire after a certain period.
Bitcoins and digital currency
Digital currencies are similar to money. Customers can use them to purchase items in exchange markets. Yet, most small to medium businesses don’t usually accept digital currencies or bitcoins.
How to choose the right payment methods for your business?
To determine the right payment methods for your business, we suggest three tips.
1. Consider your customers
Consider the nature of your business, who are your customers, and how they usually pay for your goods or services. For example, suppose you are an online clothing business. In that case, you will have a smaller number of customers paying cash as opposed to credit or debit card payments. On the other hand, if you are a gym, you may want to consider both. While methods such as direct debit are useful for your business, you may have customers who prefer to pay in cash. This may be due to online privacy concerns or a declined card.
2. Check the costs involved
Some payment methods incur additional costs. For instance, EFTPOS and credit card providers charge service fees. These rates may vary depending on how much your business makes. Banks may also charge a cost for every transaction (transaction fees). As a result, we recommend that you evaluate the potential losses to your business when selecting a particular payment method. We also recommend understanding the potential risks using each method, such as cyber theft.
3. Check its reliability
As mentioned earlier, some payment methods are more reliable than others in certain situations. For instance, when there is an Internet failure or a customer cannot use his card, cash may be the best alternative. However, there are always pros and cons to this. If you rely heavily on cash, then you will need to regularly bank it to avoid storing large sums in the cash register and to reduce the risk of on-site theft.
Remember, no one type of payment is best – it will depend on the needs of your business. Make sure you understand how the different methods work, what best suits your business, and the risks involved. If you require further assistance, we recommend seeking advice from our lawyers.