Get Paid: Payment Options for Small Business Merchants
The past 20 years or so have ushered in a revolution for small business payment options. Even just a couple decades ago, when credit card payments had become common for most large merchants, many small businesses were cash-only operations because of onerous credit card processing fees and the high cost of implementing credit systems.
Fast-forward to today, and the options available to small businesses have exploded. Even tiny mom-‘n’-pop shops are able to accept payment for goods and services in ways that make them just as accessible to consumers as large retailers.
But each choice in this wealth of payment options has its ups and downs. The following is a look at some of the most important methods of accepting payment, and the pros and cons of each:
Cash
Cash Pros
- It’s free. If you want to accept cash, you don’t have to pay any processing fees, buy expensive systems or negotiate contracts with a processor. As long as you can count change, you can accept cash.
- You also have access to your funds immediately. Credit transactions can take one to two days to process, and as a small business, even that difference can matter.
Cash Cons
- A huge disparity between what Americans think about cash, and how they actually spend. Consider two different data points. The first is a YouGov survey of American adults. When asked to select from a variety of payment forms that they use (they were allowed to pick multiple types), 67% of respondents said they use cash. That dwarfed any other payment form. (Second place — “debit cards, using chip” — was just 42%.) The second is an eMarketer forecast of retail payment methods. According to the forecast, Americans are expected to spend roughly $1.9 trillion using cash and checks across 2024. That comes in behind both debit cards (~$2.9 trillion) and credit cards (~$3.6 trillion).
- Accounting can be more complicated. Cash can get lost. Also, cash leaves far less of a paper trail than credit cards.
- There’s a higher risk of theft. If you carry large amounts of cash on hand, you could become a target for criminals.
- You can’t use it online.
Credit/Debit Cards
Card Pros
- Plastic is the dominant payment method du jour. If you look at the YouGov survey, you’ll find that if you combine “using chip,” “swipe” and “contactless” options, debit cards jump to 94%, and credit cards improve to 78%. (Of course, it’s possible that people use some or all of these methods; we just don’t know.) But the point is, Americans (and the world, for that matter) still widely use credit cards.
- They can be used online.
- Card use encourages impulse buys.
- Accepting them generally puts you on even ground with rival businesses.
Card Cons
- There are numerous expenses involved. The average processing cost for Visa, Mastercard and Discover swipes is around 1.7% to 2.1%. Those could be difficult margins to accept for some small businesses with little financial flexibility. Whoever provides the technology to allow you to accept credit cards will charge fees, too. There are other small fees and assessments, too, that add up to hefty costs.
- You could be liable for credit card fraud.
- You could suffer chargebacks for dissatisfied customers that challenge their transaction.
Mobile Payments Apps
App Pros
- They’re extremely convenient for users. Users can use these apps online and in person via mobile devices.
- They’re popular. According to Forrester, in 2023, 69% of U.S. “online” adults reported using a digital payment method to purchase something within a three-month period.
App Cons
- It can be costly. Similar to accepting credit cards, programming your website for digital payments apps, and accepting them in person, involves a range of setup costs, as well as service and usage fees, which vary widely depending on the provider.
- It’s a fragmented market. YouGov data shows that 37% of Americans prefer PayPal, followed by Zelle (17%), Venmo (15%), Apple Pay (14%) and Google Wallet (10%). (Note: 25% said they didn’t use mobile payments or apps)
What Payments Options Are Best for You?
The payments world was already tricky to navigate, but the wide-open world of digital payments are creating real headaches for small business owners trying to decide what to accept. Just look at this abbreviated list of payment options out there: Apple Pay, Google Pay, Samsung Pay, Square, PayPal, Venmo, Square Cash, Zelle, and even Facebook Messenger.
If that sounds confusing, it’s because it is. Business payments is in perhaps more flux than it ever has, which means small businesses have a lot of decisions to make going forward. McManamon & Co. can help. We’re a full-service accounting, tax, fraud, forensic and consulting firm that provides services to small and mid-size businesses — and that includes helping you make decisions about how you you’ll get paid.
Let us help you with your money matters. Call us at 440.892.8900 or contact us online.
Tags: McManamon, payment options, small business | Posted in accounting, McManamon & Co., small business