Small Business Payment Options: Ways to Accept and Make Payments

Card payments: convenient, with a fee

Credit and debit cards let customers pay instantly, but processors charge a fee on each sale. Cards usually raise sales, so the fee is often worth it.

Card processing involves a processor, a merchant account or a payment facilitator, and fees that vary by card type and how the card is accepted. In-person chip transactions typically cost less than keyed-in or online ones because of fraud risk.

What to compare when choosing a processor:

• Percentage and per-transaction fees
• Monthly fees, equipment costs and contract length
• How many days until funds reach your bank
• Chargeback handling and fees

Read how to accept credit card payments and debit card processing fees for a closer look. For a larger overview, see our guide on merchant accounts.

ACH and bank transfers: lowest cost

ACH moves money directly between bank accounts at low or no cost per transaction. It is slower than cards and works best for recurring or large invoices.

ACH payments suit subscriptions, rent, payroll and invoices to other businesses. They cost far less per transaction than cards, and a business can set up recurring billing with customer authorization.

The tradeoffs are timing and returns. A payment may take one to three business days to settle, and a payment can be returned if the account lacks funds. Same-day ACH exists at many banks for an extra fee.

Our post on ACH transactions covers authorization rules and what to do if a payment fails.

Checks, cash and mobile wallets

Checks and cash still matter in many trades. Mobile wallets and peer-to-peer apps are fast but come with limits and fee rules you should read before using them for business.

• Checks. Cheap to accept but slow, and they can bounce. Deposit by mobile capture and note the date you deposited.
• Cash. Immediate, but you must record it, deposit it and protect it. Skipping deposits creates tax and bookkeeping trouble.
• Mobile wallets such as Apple Pay and Google Pay. These run through your card processor, so fees match card rates.
• Peer-to-peer apps. Many have business account rules and fees. Using a personal account for business sales can trigger account freezes or tax reporting questions, so read the terms.

Whatever you accept, deposit it into a business account so your records stay clean. See why to separate business and personal finances.

Invoicing and payment terms

If you bill customers later, clear terms and easy ways to pay shorten the wait. Net 15 or net 30 terms with online payment links get you paid sooner than a mailed invoice.

When you invoice, include the due date, accepted payment methods, late fee policy and a direct payment link. Send invoices the day work is done, not at month end.

Consider offering a small early-payment discount if your customers tend to pay late. For example, a 2 percent discount for paying within 10 days costs $20 on a $1,000 invoice but can pull cash in weeks sooner.

Software can automate reminders. See our overview of invoicing software and the difference between an invoice and a bill.

Paying vendors and employees

Pay vendors by ACH or card to keep records clean, and use payroll software for employees. Time payments to match when your own customers pay you.

Your outgoing payments need rules too. Pay recurring vendors by ACH, use a business card for small purchases to earn rewards if you can pay it off, and pay employees through a payroll service that handles withholding.

Match timing to cash. If your customers pay in 30 days, ask your suppliers for 30-day terms rather than paying on receipt. Use the full term, but never pay late on payroll taxes.

A business card can help float short gaps but carries high interest if balances roll over. Compare it with other tools in line of credit vs. credit card.

How payment choices affect cash flow

Faster payment methods shorten the gap between a sale and cash in the bank. Slow methods and long terms can force you to borrow to cover bills.

Here is an illustrative example. A contractor invoices $30,000 on net 45 terms and has $20,000 in material and labor costs due in 14 days. That leaves a gap of about 31 days. Taking a deposit by card, billing in milestones and offering an ACH discount may close most of the gap without any borrowing.

If gaps remain, financing can bridge them. ROI Funder places working capital and a business line of credit for businesses with 6+ months in business, $20,000+ monthly revenue and 500+ FICO. A line of credit works well for repeating gaps because you draw, repay and redraw. Always compare the cost of borrowing with what a faster collection process would save.