Whether your business sells coffee by the cup or facilitates project management solutions, there are a variety of payment options and providers to consider. Below, we’ll go over the main payment methods available to small businesses and our recommended payment providers.
Small business payment methods
Cash payments in the form of paper bills and coins have been used in the US for over 300 years. Many retail business owners continue the use of cash payments for immediate exchange of goods and currency. Cash payments are a secure, immediate method of payment that requires very little overhead to conduct business. Effective bookkeeping is enough to track incoming and outgoing payments.
When it comes to vendor payments, businesses should be cautious of anyone requiring cash payment. This can be a sign that the business is operating in a way to avoid paying taxes. Alternatively, if accepting cash payments as a vendor, be aware that large cash deposits to banks can be a bit of a red flag for illegal activity. Further, some business owners are encouraged to deposit in smaller amounts to avoid the attention of the bank who is required to file a Currency Transaction Report for any deposits more than $10,000. However, this practice of “structuring” deposits is illegal and will draw the attention of the IRS.
Digital payments made using the Automated Clearing House are known as ACH payments. Direct deposit, tax refunds, government benefits payments—these examples of ACH payments demonstrate the security and efficiency of this payment option. ACH payments occur within small windows of time without the need for a trip to the bank or printing out checks. What is a benefit can also be a drawback. While ACH payments make pre-authorized, automated and batch payments a possibility, they do open the door to overpayment or overdraft fees. ACH payments are also subject to transaction fees. Learn more about setting up ACH payments for your business.
“Wire” is an archaism from a time when transactions between banks required the use of telegraphs. A wire transfer is an electronic funds transfer (EFT) that enables a business owner to move or receive funds from their bank to another. Examples of this are Western Union or SWIFT that offer timely and international payment solutions. Wire transfers are subject to fees, sometimes upwards of $50 per transaction. Also, wire transfers can get lost and while, for a fee, these can be recovered, there is also the possibility that the funds are lost indefinitely. Learn more about the benefits and drawbacks of wire transfers and how they compare to ACH.
A credit card is a rectangular piece of plastic that represents a line of credit that a bank has agreed to provide the holder of the card. In exchange, the holder of the card has agreed to terms for repayment including any interest that may apply. Businesses that accept credit card payments need a Point of Sale (POS) solution in place to process these card-present payments. Cost and upkeep of hardware can be barriers to making this a payment solution.
While payments made with a credit card simplify tracking dates, amounts, and recipients, credit cards are subject to credit limits and at times high annual percentage rates that can quickly turn into blocked payments and additional fees with your financial institution. Additionally, credit cards may be subject to interchange fees and/or monthly processing fees. To compensate for these fees, products or services may include a markup. Visa, Mastercard, and American Express are the most widely used and accepted credit card companies.
A check is a piece of paper that includes features that identify the payer and payee and is used to initiate a transfer of funds at a financial institution. All checks include similar information: date, payee name, the amount the check is for both in numeric and written out, and a signature for validation. Checks often have a “memo” line where a PO or reference number can be written. Checks can’t be cashed by just anyone and may include advanced security options like holograms, watermarks, or a security coating. Checks also provide a paper trail and with the advent of online banking, payees may even be able to see scanned copies of checks they have paid within their bank account. Unfortunately, not everyone will accept a check, especially for payments that are already late or coming due soon because they take time to clear.
Sometimes referred to as tap-and-go payment, contactless payment options make use of radio frequency identification (RFID) and near-field communication (NFC) technology to enable a payer to “tap” their credit or debit card for payment rather than swiping, entering a PIN number, or signing for a transaction. While this technology is highly beneficial at point of sale, there are still risks of fraud through the use of skimming devices and smartphone software that can record data from the magnetic strip of a card.
Best payment providers for small businesses
Intuit QuickBooks Online
Quickbooks and accounting have nearly become synonymous in the world of business. That’s not surprising considering that the versatile and scalable accounting software is used by over 29 million small businesses in the US. Since 2018, QuickBooks has made vendor payments available through their software. With QuickBooks Online, small business owners are able to choose a plan that fits their business including options for inventory tracking and additional users as the business scales.
PayPal began providing small business solutions in the late 1990s and has become a very familiar online payment gateway. With minimal set-up required to start a small business account, payments to vendors can be initiated immediately. Small businesses enjoy the security shield of not having to share private banking information with multiple vendors for direct payments. PayPal also offers POS systems that can be used for merchants that operate at a brick and mortar as well as online. These may include terminals, mobile card readers, and receipt printers.
As a small business grows, business-related payments made by employees need solutions that don’t cost the company an arm and a leg in fees or overuse. Ramp provides virtual corporate card solutions that have been making waves in the business community since 2016. With the ability to set limits on each card, virtual cards that work from mobile devices, as well as cash back opportunities on purchases, business owners enjoy security and benefits all in one.
Sometimes the best solution for vendor payments is as simple as your own bank. While not every bank is small business friendly, consider a solution like Mercury Bank that exists for the primary purpose of providing banking for technology start-ups. They have options for both small and high-yield businesses, providing access to checking accounts, debit cards, and international wire transfers. Mercury Bank is both FDIC insured and has stringent security measures in place.
Whether paying vendors or receiving payments for services or projects, B2B payments shouldn’t be a hassle. Routable software is a seamless, user-friendly payment solution that makes on-boarding new vendors a painless task. No more back and forth with suppliers to get routing information. Vendors can feel safe knowing they are entering their private information in a secure, one-time setting and will receive initiated payments within a matter of days rather than waiting weeks for a check.
Why selecting a payment provider is important
Business needs change over time. Not every payment provider is going to be the most effective in fulfilling a small business' needs. Some merchant services use specific hardware or physical terminals, and while their customer service may offer initial set-up support, long-term support can be limited. Alternatively, many payment providers offer virtual terminals that can be integrated into websites for online sales and payments. Pay attention to fees that apply to transactions, lead times for direct deposits, and security barriers—these factors could make or break successful business relationships. For example, Payment Card Industry Data Security Standards (PCI DSS) are requirements for any company that processes credit card data. Some payment providers fulfill these requirements while others pass this onto the user. In fact, your business may be subject to fees for non-PCI compliance.
Knowing the options for payment providers ensures that a small business owner has a landscape of tools for current business needs as well as opportunities for future growth.
Gone are the days that cash or check were the only ways to pay or get paid, and while navigating monthly fees, merchant services, and website integration can feel daunting, by understanding the payment method landscape, a business owner can make the right choice for their business.