6 Best Payment Methods for Small Businesses

When it comes to small business payment options, a smooth, stress-free checkout process is vital for success. So how can you make it easier for your customers to pay? There are numerous online payment methods for small businesses available, from Direct Debit to credit card processors.

Here’s our roundup of the six best payment methods for small businesses, blending practicality with ease of use.

1. Direct Debit

As a streamlined payment method, Direct Debit is hard to beat. It allows UK-based businesses to pull payments directly from their customers’ bank accounts. Bank-to-bank 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 high payment failure rates that come with accepting credit card payments. 

A further benefit is that by using Direct Debit, payments can be automatically scheduled on due dates, eliminating the problem of late payments.  

However, if you are a business that needs to collect payment instantly, be aware that Direct Debit takes at least three working days to clear your account. Although by using a specialist provider, you can combine Direct Debit with Instant Bank Pay which will allow you to accept instant payments - see the case study below.

Another essential feature of Direct Debit is the Direct Debit Guarantee, which protects payers from unauthorised debits and makes Direct Debit a highly secure payment option.

2. Card payments

The overwhelming majority of consumers prefer to pay using a card. In fact, according to a 2020 BRC Payments Survey, 78% of all retail transactions were paid for by debit or credit card. Small business owners could be losing out on valuable sales without accepting cards as a primary payment option. Additional benefits of card payments include a smooth, fast checkout process. Consumers can finance larger transactions on credit, allowing small businesses to reach out to a broader demographic. 

However, there are a few downsides, including relatively high fees, chargebacks, and the potential for a customer to have this payment method declined. It’s also important to be aware that the issue of fraud has plagued card payments, with £376m lost in 2020 alone. New identity checks for cards came into force in Spring 2022 to combat fraud, which will result in more failed payments. Therefore you’ll also need to ensure you’re using a secure payment gateway to protect client details.

3. Digital Wallets

Digital wallets have become the payment method of choice for many small businesses, particularly for service-oriented industries and smaller start-ups. You’ll only need a mobile point-of-sale system to store client details and issue receipts to get started. Digital wallets like 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 several drawbacks for SMEs. 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.

4. Cash & Cheques

The use of cash as a payment method steadily declined before 2020 when the pandemic accelerated the move away from physical money towards digital payments. As cashless payments became more widespread during 2020 - 21, only one in six payments were made with cash, and a HMRC study concluded that this trend would only continue in future years.

Cash payments are still the accepted payment method in certain professions such as hairdressers, mini-cabs, and certain other service businesses. Although the upfront costs of accepting cash are lower than online and card payments, businesses see cashless payments as more convenient from an accounting perspective and, now, from a hygiene perspective too.

The use of cheques has also been declining as digital payment methods become more popular. Indeed cheques accounted for only 6% of UK transactions in 2020, down from 23% in 2019. However, cheques will still be around for some time to come yet. In 2011 the Payments Council dropped a plan to close the cheque clearing system by 2018, and promises were made to keep cheques for as long as needed.

Similar to cash, there are no upfront costs for accepting cheques; however, hidden costs also apply in terms of manual accounting processes and the time required to physically pay cheques into the bank.

5. Online payment gateways

To reach the widest audience, small businesses must accept multiple payment methods. Online payment gateways make it easy to take online payments directly from your website. Be sure to compare your options carefully, as there will be a vast difference in price structure and the type of payments accepted via the gateway. There is also the technical side to consider. You may need to hire a developer to integrate the payment gateway infrastructure into your website.

6. Email invoices

Finally, if you’re an independent contractor like a graphic designer or landscaper, email invoicing is often the easiest payment method to employ. You can embed payment links directly into your email after completing the work, directing the client to a payment page to submit their bank or card details. Use an automated system to create and submit invoices, receive payments, and issue receipts to keep everything in order.

The major problem with sending invoices by email is that your customer will need to take manual action to pay you, leading to the significant issue of late payments. Indeed, new research shows that half of the invoices issued by small businesses in the UK are paid late, causing stress, cash flow issues and restrictions on growth.

GoCardless provides an automated invoice payment collection service that eliminates late payments and gets you paid on time, every time! Learn more about always collecting invoice payments on time.

GoCardless and SME payment options

With a platform like GoCardless, you can easily automate payment collection to reduce time spent on financial admin and ensure that you always get paid on time.

With an array of options out there, there’s a payment method for every type of small business. Which payment methods you use will depend on your business requirements and the preference of your customers.

If you are looking for a payment method that has low transaction fees but high success rates, is easy to set up, reduces manual payment admin, and eliminates late payments, then you may want to learn more about Direct Debit via GoCardless.

Case study: seamlessly combine instant and recurring payments

For many UK SMEs, Direct Debit holds many advantages as a payment collection method:

• affordable transaction fees, 

• a high level of automation which eliminates late payments 

• lower level of time-consuming manual payment admin

• strong consumer protections providing customers peace of mind

However, one sticking point has often been the three-day payment cycle which has been problematic for certain businesses that need to see funds clear that day or the next day.

Gravity, a trampoline park business, used to offer customers both card payments and Direct Debits. However, card payments meant expensive transaction fees, and Direct Debits took too long to clear the first payment, which meant that customers could use the service and then cancel their mandate before a payment went out.

GoCardless was able to offer a combination of Instant Bank Pay and Direct Debit, this allowed Gravity to take an initial payment instantly and then reliably collect future payments through Direct Debit.

As a result of using Instant Bank Pay, Gravity was able to:

• prevent subscription cancellations and subsequent revenue loss

• save 50% on transactions fees

• reduce customer sign-up time by 55%

• get 90% of new customers to use the Direct Debit and Instant Bank Pay combination

• make sign-up easier and quicker for customers

Watch the short video on how Gravity used Direct Debit & Instant Bank Pay: