6 Types Of Payment Methods Your Business Should Consider
Today's customers use a wider range of payment methods than ever before. That means business owners need to choose options that suit both their operational needs and their customers' preferences. Understanding the pros and cons of the different payment methods will help you decide which ones are the best fit.
Even in our digital age, many people still prefer to use paper bills and coins, especially for small purchases under $25. Cash also remains the fastest way to get paid—there's no waiting for a check to clear or for credit card funds to be deposited.
However, businesses that accept high volumes of cash tend to be more likely targets for theft. Besides, transferring cash into your account typically requires a trip to the bank. Also, to combat money laundering, the IRS requires you to file a special form if you receive more than $10,000 in cash in a single transaction or related ones.
Although cash comes with some inconveniences, you could lose business if you have a physical storefront and don't accept it. Some cities and states even mandate that businesses accept cash.
Consumer use of checks has been on the decline. However, many people still use them, especially to pay household bills like insurance payments and rent. Many businesses also use checks to pay their vendors.
Checks' main downside is their lengthy timeline. They can take days to arrive in the mail and then several more days to process. You'll have to wait to get paid even longer if a check bounces due to insufficient funds in the customer's account. You may even need to pay a financial institution a fee for a bounced check.
Nonetheless, accepting checks may make sense if the customers and businesses you work with prefer them. On the upside, you don't need to buy special equipment to accept checks, and there aren't usually fees to deposit them into a checking account. Many banks now offer the time-saving benefit of online or mobile check deposit.
3 Credit and debit cards
Credit and debit cards are so widely used in the marketplace today that not accepting these quick payments can impact your bottom line. According to 2019 data from the Federal Reserve, credit and debit cards together make up about 50% of all transactions in the US.
However, card payments have costs that can be prohibitive for some smaller businesses. In addition to paying for payment processing hardware and software, you'll pay transaction fees for each credit or debit card sale. There are also regulations to contend with—you must take steps to protect your customers' credit and debit card data.
If you sell goods online, accepting credit and debit cards is essential. Because of their popularity, it's also a good decision to accept them if your business can absorb the fees.
4 ACH transfers
You can use Automated Clearing House, or ACH, transfers to pull money directly from a payer's checking account. It's the equivalent of an electronic check, which is why it's sometimes called eCheck. Transactions are processed securely, quickly and typically at a lower cost than credit and debit cards.
ACH requires customers to share some banking information, which can be a point of friction. However, customers may appreciate that you can automatically withdraw one-time or recurring payments from their accounts. ACH is also a convenient option for people who don't have credit or debit cards.
Using the ACH network, which connects all US financial institutions, is particularly useful for businesses that bill domestic customers at regular intervals, like gyms and parts suppliers.
5 Wire transfers
Wire transfers are a great option when you need someone to pay you quickly because you can receive same-day available funds from domestic senders. These electronic transfers are also secure, and once the payment is credited to your account, it's hard for the payer to take it back. Another benefit is that you can send wire transfers internationally.
Notably, both the sender and the recipient usually pay transaction fees. As a result, companies often use wire transfers for large, time-sensitive transactions.
6 Mobile payments
When people link their credit and debit cards to mobile payments like Apple Pay and Google Pay, they can use their devices to make purchases in apps, on websites and contactless in stores.
The digital payments can make checkout faster, and the actual credit and debit card numbers aren't shared with merchants. There are no additional fees to accept Apple Pay or Google Pay, and using mobile payments can help expand your customer base. If you have a storefront, you'll need a payment reader that can accept contactless payments.
These six types of payment methods are among the choices that could benefit both your business and customers. After working so hard to make a sale, you don't want to lose it just because your checkout options come up short.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.