What Types of Payment Should You Accept at Your Small Business?

Many small business owners agree that the most valuable activity they do is accept money. Without it, all other marketing activities are irrelevant. It is the lifeblood that keeps your business open. Building relationships is essential, but if your business doesn’t have a healthy stream of capital rolling in, you’re destined to close your doors.

The use of cash machines and debit and credit cards has exploded across the national financial and retail landscape over the past decade. With the recent development of e-commerce, you might think that plastic is the currency of choice, but that’s not the case entirely. Cash still accounts for the majority of all sales and is the most commonly accepted and reliable form of payment for a business. Despite the explosion of online commerce and electronic banking, paper checks are a close second to cash. In fact, paper checks account for nearly three-quarters of all noncash transactions in small businesses.

However, checks can present challenges, such as delaying payments because they have to be processed through at least two banks before funds are available. Also, paper checks lower productivity because they require paperwork, and they can be, and often are, fraudulent. Of course, this cut profits and increases costs.

Accepting Cash and Checks

Businesses and financial institutions have worked to merge paper checks with the electronic payment process, resulting in electronic checks. Both businesses and financial institutions find that electronic checks are highly beneficial for profits and productivity. While you can choose to accept any form of payment that works best for you, some factors to consider include:

• Electronic Check Acceptance (ECA) – ECA turns a paper check into an electronic transaction and moves funds from the check writer’s account to the merchant’s account securely. ECA eliminates returned checks and returned check fees because the responsibility shifts to the check conversion company.

• Accepting Large Sums of Cash – Be wary if someone wants to pay cash for a large transaction. If cash is the only alternative, arrange to meet the buyer at a bank and let the teller deposit the funds into your account, or change the cash into a cashier’s check or money order. That way the teller can accurately and legally handle this transaction and check the bills for counterfeits.

• Personal Checks – If you decide to accept paper checks, try to confirm that the funds are available before handing over the merchandise. Some financial institutions will verify the validity of an account. The most reliable method is to cash the check at the institution on which it’s drawn, but if you don’t have an account there, you might be assessed a fee. If you deposit a check, funds are usually available within two weeks.

• Bank Checks and Money Orders – If a money order or bank check is for a large sale, contact the issuing institution to verify that it is authentic. Some businesses will provide that service, even if you’re not their customer. After you deposit it, contact the institution after five days to verify payment. Don’t rely on the contact information listed on the check because it might be fake. Look for contact information online.

The methods you choose to collect money reflect a simple rule: The easier it is for your customers to pay you, the better it is for the success of your business.

It All Depends

Choosing to accept cash and checks depends on the type and size of your business, the number of customers and employees, and the average cost of transactions. For instance, you probably won’t need to accept cash if you primarily work with large companies instead of retail customers. Likewise, a small business that sells low-dollar purchases mainly to the general public probably won’t need to accept purchase orders because they most likely don’t have an accounts receivable department.

Legal Disclaimer

The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.