How to take payments from your customers

Every business needs to take in money. Whether you’re doing business in person, online, or on a piece-by-piece basis, you need a way to collect money from customers in a safe and efficient manner. The good news is that it’s not difficult to make that happen - read on to find out how.

How to accept payments in person

If you’re running a shop or an in-person business, you need a way to accept customer payments. However, not all methods are suitable: sending your customers to a website or asking for a bank transfer is awkward and slow and tends to disrupt the flow of business. 

This means you need to be prepared to accept cash or card payments – and preferably both.

Methods of accepting card payments in person

Half of all payments in the UK are made by debit cards, and 19% by credit cards. Card payments have become by far the most prevalent method of paying for something. The security of modern cards means they are also one of the safest payment methods for both customers and merchants.

Arming your business with a method for accepting card payments is the best way to ensure frictionless transactions for all parties.

There are several options available:

• Electronic point of sale (EPOS): These fully featured systems combine hardware, software and payment processing into a single system. EPOS is the most professional method of taking card payments, and extra functions like bar code scanning and inventory management can help your business run more smoothly. But it also tends to be the costliest approach.

• Countertop reader: A less complex fixed card reader may suffice if you need to accept card payments but do not need the full range of capabilities of an EPOS system. A countertop reader’s static nature makes this kind of terminal suitable for shops and other retail locales with a dedicated sales point.  

• Portable reader: Restaurants and other mobile retail environments may benefit from portable card readers, which can be carried to where they’re needed. These rely on a wireless signal, either Wi-Fi or cellular, which means you need the relevant infrastructure to operate them reliably.

• Mobile phone card reader: Some card readers connect to a mobile phone or tablet, allowing you to accept contactless or Chip and PIN payments using your existing device as an EPOS system. While this method can suit fixed businesses, it is most relevant for merchants on the move.

• Mobile phone software: Some recent phone models contain card readers, enabling them to act as payment terminals without additional hardware. This method is limited to contactless payments but is highly convenient and perfect for micro-merchants – or anyone needing to accept payment at a moment’s notice.

Do I need to accept Chip and PIN?

There is no legal requirement to accept Chip and PIN payments. However, it may be in your best interest to provide the facility. Despite 87% of people making contactless payments at least once a month, many do not, and there are times when contactless payments are not applicable. These include:

• Payments greater than the contactless limit (currently £100)

• The first use of a new card

• Following a certain number of contactless payments

If any of these apply, you will need Chip and PIN hardware to accept a payment. That said, contactless payments made using a virtual card stored on a customer’s phone – using Google Pay, Apple Pay or similar – may be able to bypass such limits due to their increased level of security, but this is not guaranteed.

How do I set up a payment system for my business?

Depending on the method you choose, adding the facility to accept card payments can be very straightforward. Several providers now provide card payment solutions to anyone who needs them. 

You only need to sign up for a relevant service, pay a small fee for card reading hardware if applicable, link your card payment method to your business bank account, and you’ll be ready to go. 

Is there a charge?

Charges vary between providers – there are no free card readers out there. You will need to pay one or more of the following to maintain your facility to accept card payments:

• A monthly standing charge

• A rental fee for card reading equipment

• A percentage of each transaction value

• A small set fee per transaction

When selecting a provider, consider all the options, then pick the one whose charges best match your transaction frequency.

What about accepting cash?

While the statistics suggest that cash may no longer be king, giving customers the option to pay with notes and coins gives your business valuable flexibility. You don’t need special hardware or software to accept cash – a lockable cash box may be enough – though investing in a higher-tier EPOS system with a cash facility can help things run without a hitch.

Be careful to record any cash income properly for tax purposes. Accepting card payments will leave you with a clear ledger of transactions, but cash might not.

How to accept payments online

If you’re doing business on the web, you’ll need to offer your customers a convenient way to pay. The public expects online transactions to be as seamless and easy as possible; any obstacle could result in them walking away before checking out – and a lost sale for you.

Methods of accepting payments online

There are three primary ways to get paid online:

• Dedicated service provider. Many companies – including PayPal and Stripe – offer the facility to accept payments directly. In certain cases, you may be able to use the same service provider for in-person payments and online payments, which will simplify your bookkeeping and reduce fees.

• Website-integrated service provider. Selling through sites like Etsy and eBay removes the burden of setting up a payment collection method – you simply input your account details and agree to pay a small transaction fee. Hosting your own website through a service like Shopify or Squarespace means payment facilities will be readily available as part of the package.

• Bank transfer. For larger payments, you may wish to ask customers to perform a BACS transfer. These are cumbersome and not generally suited to website payments but can be performed entirely online and usually incur only a minimal transaction fee.

How do I set up online payments?

In most cases, setting up online payments is not difficult. Sign up with a service provider, enter your bank details, agree to the terms and conditions, and you can be ready to accept payments in minutes. However, depending on your website, integrating payment facilities may be more difficult. You may not need to dig into the code, but some manual configuration may be required.

What do I need to consider when selecting a payment provider?

Not all providers are created equal. Consider the following to ensure your customers get the most seamless payment process possible and their data remains safe.

• Google Pay / Apple Pay compatibility. Many customers shop from their phones. A payment processor compatible with the two main mobile payment tools helps reduce friction and means customers will not even need to enter their card details to make a purchase.

• Data security. Opting for a reputable provider with proven security credentials is essential. Creating your own payment system might be tempting, but in the worst-case scenario, it could expose customer data to criminals; using a third-party system reduces the security burden placed on you.

• Fees. Online payment services are not free, but some are more expensive than others. Prioritise your selection based on the system that best fits your business, but don’t forget to check how much you’ll be charged.

How to accept one-off payments

Some businesses do not need the immediacy of an online payment service or the physical presence of a card payment machine. Freelancers, contractors and other non-retail businesses tend to use a different system that prioritises purchase orders, invoices and single payments. 

How to collect payments through invoicing

Invoicing is, on the surface, relatively simple. Prepare a document detailing the work done, the cost to the customer, the date the payment is due and details of the account into which the money should be paid. Send this to the customer – or the customer’s accounts department – and wait for the money to be paid.

Of course, things aren’t always that simple. Consider the following if you want to make the process a little easier:

• Get a business bank account. Many business accounts include invoicing tools as part of their package – even if they don’t, they provide a professional avenue for customers to pay your fees

• Use accounting software. Whether online or installed on your computer, accounting software can prepare your invoices for you, ensuring all relevant information is included. It also helps track the status of invoices and can highlight those that are overdue

• Get the details correct. Depending on your business and customer, you may be issued a purchase order or work on a less formal agreement. Whatever the case, ensure every detail of your invoice is correct. If it does not match the customer’s expectations, it could lead to a delayed payment

What if the customer doesn’t pay?

This is one of the most difficult and awkward aspects of running an invoice-paid business – sometimes customers drag their feet, and sometimes they don’t pay at all. 

Ultimately, there is no polite way to collect overdue debts – you simply need to push. If an invoice has not been paid by the end of the agreed payment period, issue a reminder. Continue to remind your customer about the outstanding invoice until they pay up. If they don’t, consider legal action.

Certain kinds of business insurance can insure against unpaid invoices.

What if I’m waiting for money that I need?

If your business needs money to operate and you are waiting for an invoice to be paid, you could consider invoice finance. This option allows you to borrow money using unpaid invoices as security. Some may view this as an extreme option, but it can help you secure a healthy cash flow or kickstart a growth opportunity.