SMBs: How do you choose the right payment service?

With rapid evolution in digital payments and with more businesses relying on e-commerce, small businesses are confronted with questions and challenges about how to select the most suitable payment service(s). With over $32 billion invested into payment startups in 2021, the market is flooded with choices in payment technologies — many with unique features targeting specific segments of small businesses, others more broadly focused. There are some basic criteria and questions that a business owner and their accountant should consider as they decide which service to use:

• Is the business a freelancer/solopreneur, a very small business, or a more established entity?
• Does the business have industry-specific needs for how they accept payments from customers or send payments to suppliers?
• How many payments does the business need to make per month?
• Does the business have customers or suppliers outside of their home country?
• How much can the business afford to pay in monthly subscription and transaction fees, and are these fees worth it?

The answer to each of these questions will help differentiate service providers in a manner that will help the business focus on the ones that should serve them well, and the ones that won’t. In addition to examining some helpful ideas around how a business should approach selecting a suitable payments partner, let’s explore a few helpful ideas for how businesses can improve upon their ability to get paid more quickly, make it easy and efficient to pay their bills. Ultimately, this will save time and money by streamlining workflows that can otherwise be challenging to manage.

Getting ahead of invoicing is key for any business, especially for freelancers and solopreneurs that could experience some consequential cash flow gaps if they have customers who are consistently paying late. Requiring payment or a deposit upfront can reduce the risk for the business. Making it easy for customers to pay their invoice or deposit is also crucial and accepting payments online is a great step. Data from Xero, the global small business platform, reveals that payments are received twice as fast if the business accepts online payments (by card or ACH). For any business concerned about potential delays in receiving payments, it is wise to investigate the processing and funds availability timeline from their payment services provider.

When it comes to paying bills, the assumption is often that bigger businesses will have more sophisticated bill payment needs as they have bigger bills and a greater diversity of both suppliers to pay. Smaller businesses are more frequently relying on international suppliers and can have a fairly high volume of bills to pay while having no internal finance staff — or they solely rely on their accountant to manage their payables. As a cost effective substitute for an AP department, small businesses of any size with complex payment needs can benefit from a payment automation platform so they can easily manage their bill payment schedule and method — a timesaver for the business owner and their accountant. Providers offering multi-currency features and FX are an asset since they help by reducing losses and identifying opportunities for gains from fluctuations in exchange rates, can lower foreign exchange transaction fees, and can help simplify the accounting, reconciliation, and reporting that is often complicated by multi-currency payments.

While navigating the payments technology ecosystem can be challenging for any business owner, small business platforms that run accounting software, like Xero, have been instrumental in helping small businesses identify, integrate with, and maximize the value from whichever one they choose in this growing number of choices. Providing small businesses with access to an ecosystem of potential partners ensures that business owners have suitable resources that help them get paid more quickly, make their payments more efficiently, and reduce expenses by streamlining workflows. The increase in competition in this space has led to many positive outcomes for businesses, including lower or no-cost subscription prices from disruptors in the space, broader services offered by legacy providers, and fee waivers on certain transactions. As the industry continues to evolve and potentially into a period of consolidation, it will be important to see how this impacts business owners the resources they are coming to rely on.

John Getchell oversees all financial service partnerships in the United States for Xero and also manages non-banking financial services relationships across payments, invoicing and lending. He previously spent four years leading strategy and development at Plynty, an emerging fintech in the financial advice, planning, and financial wellness space. Prior to Plynty, he spent over 10 years partnering with and advising many of the leading banks in the US on analytical, customer experience, and product strategies.