Choice is good, and technology continues to provide new variations on the standard cash, check or credit. Whether your customers are offered one payment option or several, each comes with costs and advantages.
Cash
If you’re a brick-and-mortar business—and your name isn’t Amazon—accepting payment in cash is not a choice, but a certainty. The percentage of customers desiring to pay with cash will vary with your business model and customer demographic. For convenience stores and others with a high volume and low average ticket, cash is still the most popular form of payment. Even businesses where cash is not the norm—those selling large ticket items or services, for example—will occasionally have customers desiring to pay with hard currency. For some buyers, the issue with cash is privacy or security; for others, cash may be the only option.
For the business owner, accepting cash payments has its pros and cons. The funds are at your disposal immediately and come to you without processing, setup or transaction fees. The downsides to cash include security—how you handle it and where you store it, the need to reconcile it and the necessity of transporting it to the bank. If your business is handling cash on even a semi-regular basis, you should have systems in place that assure accuracy and accountability. Particular attention should be paid to large cash payments. Those over $10,000 must be reported to the IRS.
Paper checks
While the percentage of people writing them continues to decline, paper checks are still the payment method of choice for some customers. Many businesses, for example, prefer the paper trail attendant with checks and use them for their B2B transactions. While accepting paper checks will make it easier for some customers to do business with you, the decision to accept them comes with the risk of fraud and the addition of special procedures.
For businesses that receive a lot of checks, companies like United TranzActions and CrossCheck offer tools such as check verification and guarantee, as well as Remote Deposit Capture (RDC). Although difficult to measure, fees for these services may be offset by the security and efficiency they provide.
ACH
Remember those brick-and-mortar customers who like to write checks? ACH (Automated Clearing House) transactions are the virtual equivalent of those paper instruments. Offering ACH as a payment option will make it easier for the same customers to do business with you on line. The process, also known as EFT (electronic funds transfer), requires the payer to provide bank account and routing numbers. Funds are then transferred from their bank to yours. Fees for ACH transactions vary but tend to be less than credit card fees.
ACH payments are particularly useful in setting up recurring billing. It’s a win-win because the automated system needs to be set up just once, saving both you and your customer time and effort. Companies like PaySimple and Bill.com provide the necessary software to provide this convenient option to your customers.
The percentage of customers desiring to pay with cash will vary with your business model and customer demographic.
Credit cards
Credit cards are the most popular form of payment, but the mechanism for processing them can look vastly different, depending on your business model. Brick-and-mortar establishments have two choices not available to online businesses; both involve reading the card’s microchip. In addition to the standard and most widely used method—having the chip inserted into a reader—technology has brought us contactless payment.
Enabled by a Near Field Communication (NFC) antenna imbedded in the card, contactless payment is currently most popular in high-volume, low-ticket applications, where the increased checkout speed is key to maintaining customer service levels. Think coffee shops and fast food.
Compared to overseas consumers, Americans have been slow to adopt contactless payment despite it being every bit as secure as the old chip method, but that is changing. Offering contactless payment will demonstrate your desire to provide the best and most current customer experience. Either method will garner lower transaction fees, due to the reduced risk of fraud when the card is present.
[Read: Cashless vs.Contactless Payments:Understanding the Difference]
E-businesses are not without alternatives when it comes to accepting credit card payments. Options include working directly with credit card companies and banks to establish a merchant account or making use of a payment gateway. Third-party providers such as PayPal, Square and Stripe will handle the banking relationship for you and are easily integrated into a website.
In addition to processing payments, many third-party providers offer services like recurring or subscription billing. They will invoice your customer and track down failed transactions. While these add-on services come with add-on fees, for some businesses the up charge may be worth it. A consistent, timely billing procedure will improve cash flow and free up your team to concentrate on other aspects of the business.
[Read: A Guide to Understanding Credit Card Processing]
Ultimately, choosing a payment method—or a whole range of them—should be about more than cost and efficiency for a business. Settling the bill is often the last point of customer contact. It’s your final opportunity to provide a superior experience.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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