The Best Payment Methods for Small Businesses

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Discover the top payment methods for small businesses, including direct debit, card payments, digital wallets, and more, to streamline sales and boost growth.

The Best Payment Methods for Small Businesses

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There has never been a wider variety of ways that your customers can pay you, but which payment method is best for the small business? ‘Cash is king’ was a mantra for small businesses for decades, but the world is changing, and with the pandemic, in particular, having altered the spending habits of many, your business must be ahead of the curve in terms of understanding these changes and how they could impact you. 

Understanding Small Business Payment Options

Understanding the payment methods that are available nowadays is the key to finding the methods that work best for both you and your customers. 

Cash Payments

Until relatively recently, cash was the predominant way of making payments, and the appeal to small business owners should be obvious. It’s quick, there are no fees for accepting it, and there are no clearance times while you have to wait for it to arrive in the first place. 

But cash also carries significant disadvantages. Cash-only businesses have significant security issues to have to deal with, from the risk of robbery to the potential for theft. And while cash could be described as automatically cleared funds, it still needs to be deposited at the bank if you’re going to get access through a bank account. 

Cheque Payments

As digital payments have become more commonplace in the 21st century, chequebooks have become an increasingly rare sight. But there may remain a proportion of your customer base who wish to use this payment method because it’s the way they’ve always done things, and while the drawbacks of accepting them have led many merchants to become more reticent to do so, they may still have a place among your payment options. 

But in the 21st century, when we increasingly expect payment to be instantaneous, those drawbacks are significant. Cheques are highly susceptible to fraud and can be stopped by the issuer stopping the cheque afterwards. They can also be slow, taking up to five days to clear into your account. And on top of all that, they still require the accounting and banking that cash requires. 

Card Payments

Payments by debit or credit card have usurped cash and cheques as the most popular ways to make payments, and the key reason for this is convenience. The complex systems which underpin the card payment process are now so finely tuned that the overwhelming majority will go through seamlessly. In the case of payments of under £100, they can even be made contactless. With an array of options available, you can even accept debit or credit card payments on a smartphone, these days. 

But convenience costs money, and for merchants, this comes in the form of fees for handling the payments from the processors. These can be high and will eat into your bottom line. As with cheques, the risk of fraudulent activity is not insignificant, with chargebacks commonplace, while the possibility of a customer having their payment declined (which at the very least will cause a significant delay to your transaction being completed, is also real. Accepting card payments also requires merchants to have systems in place which are compliant with regulations, while there is a risk of reputational damage and a loss of trust from your customers should you become involved in a data breach. 

Online Payments

Online payments aren’t restricted to online businesses. Online purchases can occur in brick-and-mortar stores using digital wallets, or apps that store credit and debit card information on a mobile device. Likely, they will only become more commonplace in the future. For many customers, they’re the most convenient way of paying off all. 

You’ll need to pay fees to accept payments online and there can still be waiting times before you receive payment. But these fees are generally lower than those charged by credit card companies while waiting times tend to be shorter. Again, you’ll need the systems in place to be able to accept them, which will require a secure payment gateway.  

Mobile Payments

Digital wallets have become the payment method of choice for many small businesses, particularly for service-oriented industries, such as hairdressers and taxi drivers. You’ll only need a mobile point-of-sale system to store client details and issue receipts to get started. Digital wallets such as Google Pay and Apple Pay allow customers to pay with a tap of their phone using near-field communication (NFC) technology. 

While convenient for consumers, digital wallets have some of the same drawbacks for small businesses as card or online payments. Relatively high charges are always an issue for businesses, as are the number of different wallets available and the time and expense it takes to integrate them. You’ll also need an up-to-date reader that can handle NFC payments. 

Direct Debit

Amid all the new digital payment methods that have become prevalent over the last two decades, Direct Debits can feel half-forgotten, but they were real trailblazers in terms of security and convenience for both merchants and customers when introduced in the mid-1960s, and they may be suitable for your business. 

Direct Debits allows UK-based businesses to claim payments directly from customer bank accounts. These transfers use the secure BACS network, which helps ensure financial security compliance. As with credit cards or cash payment methods, Direct Debit also enables one-off payments, and you’ll avoid the high transaction fees and payment failure rates that come with accepting credit card payments. 

The Direct Debit is an extremely mature and secure form of payment method, so the technology underpinning it is proven and reliable, while the Direct Debit Guarantee offers peace of mind to customers. Although they’re most commonly used for recurring payments, they can be used for one-off payments as well. 


Invoicing can be a convenient payment method to employ under the right circumstances. You can embed payment links directly into your invoice email after completing the work, directing the client to a payment page to submit their bank or card details. By using an automated system to create and submit invoices, receive payments and issue receipts, you can keep everything in order. There are no fees, and once payment is made by the customer you should receive it quickly. In terms of functionality, it’s a mature system. 

But it’s that dependence on the other party having to remotely make the payment that is the major problem with sending invoices by email. To receive payment your customer has to take manual action to pay you, leading to potentially significant issues with late payments. Research has shown that more than half of the invoices issued by small businesses in the UK are paid late, which can cause cash flow issues and restrictions on growth for merchants. And if an invoice goes unpaid, your options to recover the money may be limited to legal action, which will likely end any repeat custom, as well as being time-consuming and costing you money and with no guarantees of being paid. 

Buy Now Pay Later (BNPL)

This payment method allows customers to purchase items or services now while splitting the purchase into a set number of equal payments. BNPL providers pay the merchant or service provider the entire amount (less any fees) immediately so you don’t have to worry about chasing any further payments or disrupting your cash flow. Customers seem to love this level of convenience, and you may find that you get greater loyalty from them if you start to accept it. They spend more, too. 

But there are challenges to overcome. This is a new form of payment, and issues may arise with it in the future which are unclear at present. Transaction fees are high (because of the risk taken by the BNPL provider), and returns of impulse purchases can be an issue. But if you already have a solid customer base and just want them to buy a bit more, BNPL certainly only looks likely to grow further in the future. 

Bank Transfers

A direct transfer is a type of bank-to-bank payment that moves money from one account to another. This is usually done online, but it can also be initiated over the phone or by physically visiting a bank branch. In most cases, these payments are initiated by the customer in response to an invoice sent by the business. 

Bank transfers are generally secure, but again the timing of the payments is in the hands of the customer, which can lead to delayed or late payments. Although the processes for making bank transfer payments are considerably more streamlined than they used to be, it remains the case that it can require considerable administration at your end to marry up payments with invoices. 

What Small Businesses Need to Consider When Deciding on Which Payment Methods to Accept

As we can see, then, there are pros and cons to all methods of payment. So how do you go about deciding which ones are best for you? Because while convenience and ease of use for the customer are important, the payment methods that you accept have to work for you as well. Here are some of the things that you need to consider:

Price & Fees

The bottom line is at the heart of the majority of business decisions, and there’s no question that some payment methods can eat into yours. Convenience comes at a cost, and some of that cost will be passed onto you. So, how is the pricing set up? Which transactions are chargeable, and at what rate?

You can get an idea of what the cost would be to you by applying some of your previous sales to the pricing structures of payment processors. This will give you an idea of what the actual cost would be to your business. You should also consider the way you accept payments. A merchant who takes a lot of small payments by card, for example, might look for a lower ‘per transaction’ rate but have greater flexibility over any percentage of sales to be paid, but someone who accepts a smaller number of higher value payments may look for the exact opposite.  


To get the best value for money, you should consider what is important about a payment method to your business. This requires you to understand your business. You may find that it’s worth paying a little more to get features that would otherwise be unavailable, or you may find that you can trade comfortably with a minimum of them. There may be trade-offs to be made, but knowing your business should allow you to focus on the payment methods that best suit you, as well as your customers.  


It’s reasonable to say that some payment methods upscale better than others. Card payments will cost you money, but no matter how rapidly your business grows you should be able to upscale in line with it seamlessly. However, while more ‘traditional’ methods of payment, up to and including cash, don’t cost you anything to process, they do require a degree of manual intervention and this will cost you resources, whether it’s your time or paying someone else to do your accounting for you. 


How much choice do you want to offer your customers? All of the payment methods listed above come with downsides, and some may be considerable for your situation. But this doesn’t always have to be the case. So few people use cheques these days that it may be worthwhile for you to accept them without advertising the fact. You have no obligation to offer all payment methods, and there’s nothing wrong with having a personal preference on top of a business case. But every payment method that you don’t accept can only diminish the size of your potential customer base. 


How all of this works matters. People with disabilities, for example, may not be able to get to a bank to pay in cash or cheques. Sole traders may not have the set-up costs for complex security structures. And then there’s the matter of integration. For example, how much disruption may there be from offering a completely new online shopfront and secure payment gateway for online payments? How seamlessly can any new technology or systems be integrated into what you already have? 


Security is critical to the well-being of your business. Wherever there is money changing hands, you’re likely to find bad actors nearby, and this has always been the case; all counter staff in shops are trained in the art of spotting counterfeit banknotes. But the rise of the internet has enabled those bad actors to lurk deeper in the shadows, and the result of this has been that financial fraud has proliferated. 

For cash, security may be about having a safe, or about having strict guidelines for how to get the money to the bank. For card payments, it’s about minimising chargebacks and stopping fraudulent transactions. Every payment method has its own set of challenges, and you’ll need to meet them. 

Customer Experience

Making the customer experience as good as possible has numerous benefits, including encouraging repeat business and loyalty. There are limits to this. Offering every single thing that a customer could ever conceivably ask for is unrealistic, whether on cost or logistical grounds. But you should consider what will give your customers the best experience. You may, for example, want to stay cash only, but how much might that cost you in a world in which a growing number of people simply never carry it?

How Can Small Businesses Avoid High Transaction Fees When Accepting Payments?

By ensuring that your security is up to date, monitoring the fees that you incur, paying special attention to fraud and other malpractice, and taking other pre-emptive actions, you can avoid the high transaction fees that come with some payment methods.   

Regular Statement Reviews

You must understand what you are paying out each month, quarter or year in transaction fees. By the time everybody’s taken their cut, you may find that you have changed how you accept payment to protect your bottom line. 

Review Processors and Switch if Needed

If your payment processing isn’t working for you, you’ll need to have the ability to switch. Some payment processors may tie you into a contract; bear that in mind before you sign on the dotted line. Alternatively, you may find that changes to your practices will save you money in resources.  

Consider Adding Surcharges

If a particular payment method is costing you a lot of money or inconvenience, you may wish to consider adding a percentage or fixed amount surcharge to the payment. This has become increasingly common in recent years, with margins being squeezed increasingly tight by processing fees. 

Set Minimum Amounts for Card Payments

Similarly, merchants who deal in card payments will find that they receive very little back for smaller transactions after processing fees have been applied. You can require a minimum payment to mitigate this, but be as upfront as possible about it with your customers. 

Accept Cards Only In Person

The majority of credit and debit card fraud takes place online or by phone nowadays. In-person card payments are the most secure way of taking a card payment, and you may wish to make it the only way in which people can pay you by card.  

Offer Discounts for Using Cash

If you want to remain a cash-only business but don’t want to lose your customers, incentivising them to use cash by offering them a discount may end up costing you less than having you pay by card. The customer experience, security and convenience are all important, but none of them are as important as your bottom line. 

Maintain a Low Chargeback Rate

Chargebacks are one of the banes of the lives of those who accept card payments, but it remains the case that they’re not always cases of fraud. The main reason given by customers for charging back a payment made by card is that they didn’t recognise the transaction on their statement, so be clear on your statement descriptor who you are. Refund suspected fraudulent transactions promptly, and be transparent about what you’re charging, and what you’re charging for.  

Ensure You Keep an Eye Out for Fraud

Fraud has become increasingly common in recent years, and there’s nothing wrong with questioning customers if something doesn’t feel right. A genuine customer should be happy to answer any questions that you might have, so long as you explain the reasons for them. And make sure that your staff are well-trained in the art of identifying potentially fraudulent transactions. If they’re not, it’s entirely plausible that your business could end up being targeted as somewhere with a reputation for waving fraudulent purchases through, and you certainly don't want that

Choosing which payment methods to accept and which to prioritise is ultimately a balancing act. It’s a matter of what your stomach for cost is, how to keep your customer experience excellent, and what integrates best with how you do business. Cash may no longer be king, but even that increasingly comes with hidden costs these days, and broadening your range of payment methods for customers can ultimately only grow your potential customer base, in the long-term. By taking a holistic view of your business and balancing that against the needs of your customers, you can move confidently into the modern era of convenience being king. 

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