An explanation of the most common forms of receiving invoice payments, along with the pros and cons of each option.
Any business wants to get paid as soon as possible and, while issuing invoices promptly is the first step, making paying easy for customers is also essential to good invoice management. There are a variety of popular payment methods available to business owners, that we run through below.
Checks and cash
Despite increased use of digital payments, some customers still prefer paying with checks or cash. This approach has the merit of largely avoiding transaction fees. However, payments in hard currency or by check involve more admin, are inflexible, and can be slow and unpredictable. Late payers can also go unnoticed without automated notifications of overdue invoices.
Customers instruct their bank to pay you a fixed sum via standing order on a set date, giving them control over how much they pay and when, plus the opportunity to cancel arrangements should they so wish.
It’s a cheap or free way for businesses to take payments, but lacks flexibility and can involve a lot of paperwork. It also brings an increased risk of late payments, with no notifications if invoices aren’t settled as expected.
Credit and debit cards
Card payments are commonplace and easy for your customers to use. They supply their card number online, by phone or in person, which is then linked to their bank account by card networks and settlement banks to take the money owing.
It’s a useful way of making one-off transactions or subscribing for regular payments, but can be expensive for merchants as costs are high both per payment and in monthly fees.
Failed payments are also reasonably common due to cards being rejected, expiring or getting lost or stolen.
Direct Debit - also known as ACH Debit or bank debit - can help you automate payments, taking money from your customers’ bank accounts when payments are due, varying the frequency and amount as required, but without having to seek the permission of your customer each time.
Direct Debit carries a low cost per payment for the merchant and failure rates are very low. It’s a flexible way to take payments, with minimal hassle involved.
Bank transfers come in a couple of different major types - wire transfer and ACH transfer. Each is essentially a service which enables payments directly from one bank account into another. Learn more in our guide to wire transfers vs. ACH transfers.
While bank transfer is a payment method commonly used for regular payments in some industries, it can also work for one-off transactions.
Bank transfers are popular due to low transaction fees and a low failure rate. Again, they carry the risk companies will not be alerted if payments fail. They are also inflexible, only allowing customers to pay the right amount at a specified time.