- The Publication
- How To
- Trade Offers
- Back Issues
How should small businesses be taking payments? Whether it’s credit and debit cards, digital wallets, bank transfer, electronic payment apps, or Pay by Bank app, each payment method boosts their advantages and also has their downfalls. Many factors affect which business payment method is best and most suitable for sole traders, as sole traders have their own individual difficulties, needs and wants, and their own desires to please their customers.
Gary Prince, vice chairman and chief strategy officer for SimplyPayMe explores the pros and cons of five payment options available to sole traders.
Credit and debit cards
Pros: Many people are creatures of habit, and for a long time now one of the most commonly used payment methods for many consumers has been credit or debit cards. This is one of the beneficial aspects of this method as it’s something people are familiar with. They trust their bank and their card use as they are used to it and it feels safe to them.
Credit cards and debit cards are also efficient. As opposed to having to count cash, inserting or swiping your card doesn’t take long for you or the customer, and now with most banks offering contactless payments on their cards, transactions are complete in seconds.
As a sole trader, offering to take these payments can put customers at ease with its familiarity and also get payments done quickly and efficiently without having to count up cash after the day’s takings.
Cons: Although credit and debit cards have many advantages, there are disadvantages too. Firstly, going card-only can cause problems to your customers as a sole trader. Some clients may be used to paying cash for your services and not have access to banking. It’s important to investigate your client base prior to switching your payment system.
Additionally, although the familiarity of credit and debit cards can make customers feel safe, there are many security issues with payment cards not only for the customer, but for you as a sole trader. Credit cards and debit cards can be easily stolen or lost by customers and fraudulent activity following online payments is also a potential threat..
For sole traders, there’s also the risk of clients submitting fraudulent chargebacks stating they didn’t actually get your service or were unhappy and you can lose money that you earned.
Pros: Some consumers wish to use a particular card for specific purposes. They might need to use their cards to purchase food in order to claim those cashback offers, while some may swipe that credit card for points. With e-wallets, clients can use any card they like, and by offering this service as a sole trader it’s likely that customers will be pleased that they have more choice.
Unlike physical wallets, electronic wallets eliminate the risk of being stolen and cards being easily accessed. Digital wallets have layers of protection from fraud, including fingertrip enablement, password protection, personal questions, and using biometrics. With more users feeling comfortable with this type of payment, being able to offer this to clients as a sole trader can be highly beneficial.
Cons: Although this payment method has become increasingly popular, there are always those who are resistant to change. Many people have spent their entire lives using cash as a means of transacting money, which is why they prefer it to more modern forms.
For the sole trader, this means that using this system could alienate other customers that are used to cash payments. This payment method also relies upon having a POS system to accept payments.
Bank Transfers (DD)
Pros: Bank transfers, or direct debit payments are a convenient option for customers and businesses alike. Many people are choosing direct debit as a way of automating recurring payments because it’s convenient for consumers who have to remember to pay their bills on time each month.
By replacing most of the manual work required to process a payment, direct debit payments reduce the risk of human error. Finishing a task manually is far more likely to create mistakes such as incorrect information on the transaction or mishandled data. Payment processing using direct debit is done electronically, with less room for error.
Cons: Direct debit payments are processed in batches, meaning they take longer to process. This can be quite the downfall for sole traders who need cash flow to keep their businesses running.
Additionally, banks may impose limits on how much money can be transferred by direct debit payments. These limits might differ depending on the type of direct debit transaction and may include a daily limit, weekly, monthly, or per-transaction limit.
Electronic Payment Apps
Pros: E-payment apps increase the ideal size of a customer base. The Covid-19 pandemic had a massive effect on cash use, with many businesses and individuals deciding not to use cash to be more hygienic, and people are not not only in the habit of not using cash, but are still deliberately choosing not to as a precaution. Cash-only businesses will become increasingly rare as people carry less cash with them, and using an e-payment app will ensure you don’t lose potential customers.
These days electronic payments can also be processed one hundred times faster than traditional transactions, and if you’re able to make money at a high volume per day then being able to keep the transactions quick will definitely help.
Additionally, e-payment apps also make it easier for sole traders to keep track of payments, which makes things more efficient when it comes to accounting and bookkeeping records.
Cons: With electronic payments, there are additional expenses when opting to use a payment processor. This can either come in the form of a monthly fee or a percentage of each transaction.
Although e-payments are generally secure, they can be rendered insecure if they fail to meet security measures. These systems may not come under attack directly, but phishing techniques can be used to get personal information and steal IDs and passwords. Once any of these details are accessed, hackers will process multiple payments before the owner notices.
Pay by Bank App
Pros: This is the newest system on the list. This method works through your mobile phone and the app allows the processing of credit and debit card payments, as well as instant bank transfers, without needing to log into your online bank account and without needing internet connection.
The major benefits of this form of payment is the reduction of fraud and chargebacks for the merchant as the payment processor is liable for payments being made.
Additionally, for sole traders who are worried about cash flow, payments via Pay by Bank are received almost instantly.
Cons: Pay by Bank does require a fee and payment, however this is a low fixed fee that can be taken anywhere at any time. Another potential downfall of this method is how new this method is compared to others on the list.
As mentioned, some customers who may be reluctant to change may find it hard to switch from other, more familiar forms of payment.
Find the Perfect Payment Option for You
Finding the perfect payment option is vital– but there are more options than ever to make sure you get paid in the right way to fit your business. You can find the right payment service for your business by considering and researching what the individual needs of your business is and weighing the pros and cons of these methods. Choose wisely!
SimplyPayMe is an award-winning global payments company whose mobile based payment and business management solution is specifically designed and engineered to meet the growing demands of the underserved SME community. The product suite has been specifically designed and engineered for this sector and enables seamless payments, invoicing and business management solutions, all through your smartphone. The mobile app is available via both the Google and Apple app stores.