What Are The Different Types of Payment Methods?

As a small business owner, you must offer your customers different payment methods. That way, the customer can purchase in a way that suits them. So, what are the payment options available, and the advantages and disadvantages of each?

Cash

Despite the popularity of cash payments declining, a large majority of customers will still expect you to offer this type of payment. This is particularly true for customers who make low-value purchases, such as groceries from their local corner shop or a coffee from a cafe. Aside from the expectation to accept cash payments, what other benefits are there as a business owner?

Advantages:

• It is an easy, time-efficient payment method
• There are no fees associated with accepting cash payments
• Customers who don’t have bank accounts can still make purchases

Disadvantages:

• Customers are unlikely to use cash if you’re selling products that are high value
• Storing and transporting large amounts of cash can make you susceptible to theft
• While accepting cash is quick and easy, cashing up and balancing the till takes time
• You may have to pay bank charges to make cash deposits

To accept payment of cash, you will need to set up a till with a coin float. An electronic system is needed to keep a record of all transactions and issue customer receipts. To deposit the cash, you will also need a business bank account.

Card Payments

For both large and small businesses, the ability to process card transactions is becoming a necessity. Investing in a card payment system enables customers to pay with both credit and debit cards and prepaid cards (other card types could include gift cards, corporate cards or store cards). Here is an explanation of each type of card:

Debit Card: When used, a debit card transfers money directly from the customer’s bank account. Visa, Mastercard and Maestro are the three main types of a debit card, and they can all be operated via chip & PIN, contactless, over the phone or online.

Credit Card: When used, a credit card enables customers to purchase goods on credit from their issuer, which they will pay back with interest. Visa, Mastercard and Maestro are the three main types of credit card, and they can all be operated via chip & PIN, contactless, over the phone or online.

Prepaid Card: A prepaid card topped up with credit. Once loaded with monetary value, they operate in the same way as a debit card and operate via chip & PIN, contactless, over the phone or online.

For customers, card payments are the most popular way to pay. But what are the advantages and disadvantages to a small business owner? 

Advantages:

• Customers feel safe to make a higher volume of purchases or ones of higher value 
• Customers are more likely to make impulse purchases 
• Card payments are quicker and more convenient for both customers and retailers
• It enables a more efficient cash flow through the business
• It improves the security of your store as less cash is stored

Disadvantages:

• There are some costs involved, such as transaction fees and rental prices for the payment device
• Some types of charge cards such as American Express require a separate agreement
• You may be held responsible if a customer uses a fake or stolen card to make a purchase
• Transactions made by card can take between 1-3 days to show up in your bank account

To accept card payments there are a few things to consider. You’ll need to set up a merchant account and install the right equipment (a card terminal or integrated till.) This is rented monthly. 

Cheques

Paying by cheque is a less common payment type due to the rising popularity of card payments. While it is rare for customers to request writing a cheque as an alternative payment method, it can still occur. As a small business owner, here is what you should consider when weighing up the benefits of accepting this payment type:

Advantages:

• Some customers may feel more comfortable paying by cheque if they are making a large purchase
• Banks do not charge extra for processing cheques

Disadvantages:

• The cheque may bounce if there are insufficient funds in the customer’s account
• It can be difficult to verify the identity of the person writing the cheque
• There are cheque verification services, but they will require a monthly fee

If you want to accept cheques as a form of payment, make sure you know how to spot fraudulent ones. You will also need a business bank account, to deposit the payable funds. 

Apple and Android Payments

Due to our increasing use of smartphones, customers expect to make mobile payments using e-wallets. Apple Pay, Samsung Pay, and Android Pay are examples of mobile e-wallets, which can be installed on a hand-held or wearable device. An e-wallet stores card information, enabling the consumer to use their device as a contactless debit card. 

Advantages:

• Customers may buy frequently or make larger purchases
• Mobile phone payments are quicker and more convenient than cash or checks
• It reduces the amount of cash you keep in your store
• It reduces the chances of accepting fraudulent cheques or fake cash
• Mobile payments may be more reliable than card-based transactions in certain areas

Disadvantages:

• Transactions made by Apple or Android Pay can take between 1-3 days to show up in your bank account
• You may have to pay transaction fees, which is usually a small percentage of the transaction
• You will need to purchase or rent a device to accept payment (called a point-of-sale device)
• You may be responsible if a customer uses fake or stolen payment information to make a purchase

To accept Apple or Android Pay, businesses need an NFC-enabled credit card reader. NFC stands for Near Field Communication and enables short-range wireless technology and the exchange of data between devices. It is this kind of technology that we refer to as ‘contactless payments.’

Electronic bank transfers

Electronic bank transfers, or, wire transfers, are payments made through an online bank account. Customers can make online payments directly from their bank account, credit or debit card, including all-in-one payments like PayPal or Worldpay Online Payments. Electronic payments enable your customers to pay quickly and easily online and also set up recurring payments. If you want your customers to be able to make online purchases, accepting electronic payments is essential. 

Advantages:

• You can receive large payments without paying bank charges or fees
• It enables customers to make large purchases safely
• Some business owners find it more convenient than accepting cash or cheques
• It can help to reduce the amount of cash kept in your store
• It gives customers who are unable to purchase in person, another type of payment option
• It is a good option if you sell products or services to other businesses

Disadvantages:

• This may be less relevant for brick and mortar retailers
• Electronic transfers take between 1-3 days to show up in your bank account
• This type of transaction may require set up from your bank account and the customer’s bank

To accept electronic payments, you will need to set up a merchant account. A merchant account will enable you to process debit or credit card purchases from customers through a payment gateway. It is the same technology required for card payment terminals. 

As a small business owner, there are many different types of payment methods to consider. It is important to evaluate which ones your customers (and yourself) are most likely to benefit from. For a vast majority of businesses, accepting cash and card payments is essential. 

Payzone can help you choose the right card payment solution for your business through a third party supplier. Get in contact and call 0800 0566 015.