Topic overview

Credit cards and other payment options

A woman is paying for her groceries using a debit card

As a business, you want to be able to accept payments and to do so in the ways that your customers prefer to pay. You need to understand the costs and risks of different payment methods, and what your business needs to do to be ready to accept these payments. Here’s our overview of the main payment options used for retail, online and business-to-business sales.

Cash payments

If you run a shop, hospitality business or any other business where you are selling to the public, you’ll probably want to be able to accept payment by cash. Although you are not legally obliged to accept cash and many customers now prefer contactless payments, cash is still widely used, particularly by older consumers and people who don’t have bank or credit cards.

Cash has advantages, particularly when you are selling to someone you don’t know. Once you have the cash, you are safe in the knowledge that you’ve been paid. But there are issues you need to manage:

  • You need some sort of physical till and a ‘float’ of cash for giving customers change. You’ll want to count the money and balance the till on a daily basis.
  • Employees need to understand how to use the till and work out the correct change. You’ll also want to be able to detect any forgeries.
  • Cash puts you at greater risk of theft by staff or robbers. You should make sure your insurance covers this.
  • You’ll need somewhere local that you can bank your cash, and a safe procedure for getting cash there – for example, never carrying large amounts of cash alone.
  • Bank charges for dealing with cash are higher than for electronic payments.

Payment by cheque

Cheques have largely been replaced by cards and online payments, but remain a preferred payment method for some customers.

Cheque payment may suit you if you make a small number of relatively high-value sales, as bank charges for handling cheques are generally a single flat fee per cheque rather than a percentage of the value.

Unlike cash, however, cheques do not guarantee payment. A bank can refuse to honour a cheque up to six days after the cheque has been paid into your account – for example, if it turns out that the cheque is a forgery or the customer doesn’t have enough money in their account.

Bank payments

As a supplier, bank payments are probably the best payment method. Rather than writing a cheque, the customer instructs their bank to make a payment direct to your bank account. Bank fees for receiving payments like this are low or zero, and payments typically reach your account very quickly (once the customer instructs their bank).

If you sell to other businesses, there is very little you need to do to accept this kind of payment, other than making it easy for your customer by including your bank account details on the invoice. Some accounting software packages now allow you to send invoices that have automatic payment links built in.

Accepting card payments

Most consumers now pay using debit or credit cards, or modern alternatives such as contactless payments using a smartphone. Contactless payments can be particularly quick and easy for payments up to £100, as these don’t usually require the card holder to key in a PIN number.

If you sell to consumers, you probably want to be able to accept card payments – but you’ll need to invest time and money in getting set up.

The best option for most smaller businesses is to work with an all-in-one payment services provider. A company such as Square can provide the equipment you need (for example, a card reader),  take care of processing payments made using any of the major credit or debit cards, and collect the payments for you. You typically pay a one-off cost for equipment and then transaction fees as a percentage of the amount.

If your business expects a higher level of card payments – at least £100,000 per year – it may be worth looking at other options. Opening your own ‘merchant account’ (rather than using an all-in-one provider’s account to collect payments on your behalf) can be a more cost-effective solution. As well as meeting turnover requirements, you’ll usually need to have a good credit rating.

It’s important to understand that card payments are not guaranteed. A payment can later be reversed (a chargeback) if the customer disputes it or it turns out to be fraudulent (for example, made with a stolen card).

Accepting payments online

Most online payments are made using cards. As with face-to-face payments, you can use a payment services provider to handle the payments. You may want to consider options such as PayPal Checkout, which allows customers to pay with PayPal as well as with their debit or credit card.

Again, if you expect a high value of online sales, you may want to shop around for different solutions. Before committing to any solution, make sure you understand what is involved in integrating the payment solution into your website.

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