What payment methods do you accept? Part One
Will that be cash or credit?
It’s not such a straightforward question anymore. Technology in the payment solutions arena continues to evolve in Canada, offering consumers more and more ways to pay for goods and services. As a business owner, finding the right balance between what forms of payment to accept versus the costs associated with doing so can become somewhat of a daunting task.
So, what forms of payment do you accept? In this series of posts I wanted to cover the traditional forms first, and then the newer alternative forms of payment. Let’s start with the traditional forms.
- Cash – Self-explanatory. Cash is easy to accept, but comes with the need to have appropriate controls in place. There are generally no high processing fees associated with accepting cash.
- Cheques – As more payments in Canada move towards electronic methods, less physical cheques pass through the system. Cheques are low in cost to accept. However, the vendor is assuming more risk in the event the cheque bounces.
- Debit – or Interac as it’s known in Canada. Via the Interac website I found reference to a study outlining that the cost of accepting this form of payment is around 12 cents per transaction.# To accept debit payments your business also needs to enter into a contract with a payment processing company in order to obtain the equipment necessary. Monthly fees are involved and vary by provider, which is a cost you’ll have to consider as a business owner.
- Credit Card – I’ve been following the news over the past few months around credit card fees charged to the businesses using them. The Canadian Federation of Independent Business (CFIB) recently released a report comparing many high cost versus low cost credit cards. Similar to debit cards above, you will need payment processing equipment to accept credit cards and various options are available – from telephone and Internet processing to wireless and mobile payment devices. Credit cards also require the business owner to pay processing fees, which according to the Canadian Federation of Independant Business (CFIB) amounts to 2 - 3 per cent of a customer’s purchase. As a result, small business owners must consider whether offering credit is worth this additional cost.
- Barter – Does your local market offer a barter for services organization? Barter agencies, like Barter Network Toronto, match members together to facilitate cashless transactions that either credit or debit your barter account. There is usually a fee to join and a commission paid to the barter organization by the vendor on each sale. Some businesses find that offering barter can provide an incremental boost to sales.
- Invoice – More common in business to business sales and service. The seller is assuming a degree of risk in extending credit, which can be managed to some extent. Consider adopting a process whereby bank references and/or credit checks are performed on new and existing customers to whom you grant a significant amount of credit. Offering favourable terms for speedy payment can speed up your cash flow and reduce your overall costs.
Most of these traditional forms have been around for quite some time, and each holds benefits and drawbacks. While credit and debit are convenient for the customer, for example, they carry associated costs for the business owner that not everyone realizes. It’s therefore important to consider the type of business you do, and who your customers are, to determine the worth of offering each method of payment.
In my next post, I’ll explore some of the not so traditional payment options out there along with some future technologies that are on the way. As always your comments are welcome.