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Accounting stress levels
October 27, 2020

How to Choose the Right Payment Method for Your Small Business

By Rachel Ott

What’s the best payment method for small businesses? Some say cash is king, while others swear by ACH. But ultimately, the best small business payment method will depend on a variety of factors.

In light of the recent Coronavirus Pandemic, small businesses have had to go through a variety of challenges: working remotely, maintaining departmental efficiency, keeping-up with technologies, managing cash flow, and making sure that payments are made and received on time in the most secure way possible. As you think about the best method, consider the size of your transactions, who’s handling the money, and your accounting system.

It’s important that businesses select payment methods that work for their specific business model and meet the needs of their customers. Let’s explore the different payment options that may fit your company.

Types of small business payment methods

The first thing you’ll need to decide is which types of payment is best for your business. And, while there are a variety of payment methods to choose from, here are three of the payment methods we think are best for small business accounts payable:

  • Check payments
  • Electronic payments (ACH)
  • AP Card payments

Check Payments

Check payments have been around for centuries, with the first forms of check payments in the United States dating back to the 17th century. While checks require the sometimes tedious process of gathering approval signatures before printing, it is important to note that more than 50 percent of business payments are still made by check. Why? Paper Checks offer a tried and trusted workflow process where the payment is not valid until one or more authorized signatures are provided. Many business owners feel that checks provide them better cash flow controls than with electronic payments.

It is sometimes difficult to explain why checks remain so popular, especially in today’s business environment that finds many people working remotely, resulting in less face-to-face contact between accountants and their clients. Yet, new technology break-throughs have made checks the new payment of choice—again.

Mobile applications now enable businesses to view payments and bills, secure approvals, schedule payments, and even to collect check signatures, all done remotely and right from our phones. Many companies are also now opting for the service of printing and mailing of their checks in self-sealing envelopes. Modernized check payments have the advantages of traditional, same-day approval processes and cash flow management, combined with the paper-free benefits of electronic payments.

Electronic Payments or ACH Payments

Electronic checks (ACH) have their appeal, because of reduced paper use, less labor to process, and sometimes lower costs than alternative methods of payment. For many businesses, e-payments are a simple and comfortable process.

However, ACH payments have their drawbacks. ACH requires prefunding, so cash is tied-up for as long as 3-4 days before payments are actually due. Bank account information for the payee needs to be provided in advance of making any payment. ACH payments can also experience other delays. If the payee’s bank information is not collected and verified, then most electronic payments are converted to paper checks and processed 7 days later. ACH has been experiencing increasing rates of fraud (see discussion on fraud, below). A recent survey found that, of small businesses that still use paper checks, 42 percent of them stated that security concerns are the reason why they have not migrated to e-payments.

AP Card Payments

Another alternative for AP payments is the Virtual Card payment or AP Card. There are many benefits to the issuer for using payment cards. One advantage is that the cost is either zero for them, or in some cases rewards are earned. Another attraction is that, like other credit card payments, virtual card payments come with a built-in float, and at times a credit to the issuer.

The main drawback to this virtual form of payment is that the advantages to the payor become disadvantages to the payee. For example, if the payee chooses to convert their payment into cash, they incur a cost for doing so. There is the hassle for the payee of having to process the card payment, or to make purchases with the card in order to actually use the payment. For these reasons, it is rare that a company can successfully convince all of their vendors to accept virtual card payments.

Choosing the right payment method: Why fraud and security matter

This is a complex subject on its own, but fraud is certainly one of the strongest considerations for companies moving from ACH to check payments. ACH requires that bank account information exists for both parties prior to a successful transaction. A very successful and common fraud scheme involving ACH and wire transfers is for a bad actor (criminal) to notify the paying company that the vendor’s bank account number has changed. This communication can come from a simple email, or a text message. The payor too often makes the ensuing payment successfully, and unfortunately to a fraudster’s bank account.

Check payments have a long history of combating check fraud and modern innovations now make it even more difficult for thieves to successfully modify or forge checks. It is much easier to accomplish ACH fraud, so that is where most criminals put their attention. Banks provide a very powerful fraud tool called Positive Pay in which banks will not pay presented checks unless they match exactly with payment data provided by the issuer.

Choosing a combination of payment methods

For many companies, using a combination of payment types is the best solution. Larger payments are traditionally best suited as payments by check. In addition to multiple layers of authentication, businesses can delay approving and issuing the payment until the same day the payment is due. With the modernization of checks, smaller payments can also be made to vendors that do not want to accept card payments or that have not provided banking information necessary for ACH payments.

he second level of payments can be via cards to vendors that will accept them. There are no costs and rewards might be available. These payments are typically smaller in value, and they can be made rapidly. A third alternative is to use ACH for non-check payments, instead of card payments.

In the long-run, each payment mechanism has its advantages and disadvantages that can be considered by each business, depending on their needs and comfort levels.

Comparing the payment methods: Which is better?

Check Payment Advantages

  • No pre-funding required
  • Real time / same day approvals and release of payment
  • Remittance data delivered as part of check
  • Traditional approval processes via mobile apps, no paper needed
  • Strong fraud tools
  • Delays of mail system
  • Accepted by all vendors
  • Workflow controls

Check Payment Disadvantages:

  • Printing and mailing costs higher than ACH and card transaction fees
  • Delays of mail system
  • More labor intensive than e-payments

ACH Payment Advantages:

  • Less expensive transaction fee than check
  • No paper required

ACH Payment Disadvantages:

  • Prefunding requirements
  • Payee bank information collection required
  • Lack of remittance data defining what the payment is for
  • New targeted fraud attacks
  • More expensive than AP Cards

AP Card Payment Advantages:

  • No costs / some credits for paying by card
  • Float payments or built-in credit

ACH Payment Disadvantages:

  • Limited acceptance by vendors
  • Costs pushed to vendors who want cash
  • Time to receive initial payments

Check Payment Solutions

Checkrun is one of the most dynamic online check payment methods for small businesses. It’s capable of streamlining a variety of accounting processes to save you time and improve the efficiency and mobility of the entire payment approval process.

We simplify payment management, eliminate obstacles of current bookkeeping processes, and give you the ability to take your business remote – all while saving time and money. From our mobile app that lets you approve, sign, and send checks from your phone, to our automated check print and mail service that handles everything while keeping your business protected.

Checkrun offers a solution for small businesses in every industry, at prices that are tailored to fit your needs.

Small Business Payment Methods: The bottom line

There are many payment options available for businesses today. Do your research and find the best solution or solutions that fix your payment needs.

Leveraging a check writing software like Checkrun, will allow you to access the most secure paper check solutions available today and includes print and mail services so all you need to do is approve the payment and we take it from there. If you are interested in learning more about Checkrun, click here for a free demo.

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