Payment Methods: Which Payment Tools Should You Use?

Make it easy for clients to pay you. As a small business owner, these are the best payment methods you should accept – from PayPal to Square.

Is there one payment method that is better than others? Should you just ask people to pay with PayPal so you can avoid fees? There are so many questions people have when they open their small business, and I’m here to answer them for you. Read on and learn the pros and cons of all the different payment methods and discover which one is the smartest for you to accept.

Woman holding a credit card as a small business owner

Payment Methods For Small Business Owners

Whether you are selling products or services, you will need to have a reliable way to accept payments. Chances are you are also looking for something that isn’t going to cost you very much.

All of the most popular options have their pros and cons. Let’s look closer at each of them so you can make a well-informed decision.

PayPal For Small Business

I know it’s tempting, but don’t force customers to pay you via PayPal just because of its convenience.  If you force customers to use PayPal it will alienate those that want to use their credit cards with all of its bonuses and reward perks. Also, it’s just not possible to avoid fees in PayPal. If they pay you for a good or service, PayPal will automatically charge you a fee.

You also don’t want to completely avoid PayPal either. There are millions of people that use it for online transactions. Accepting PayPal will give you the opportunity to accept their money.

Remember, PayPal is not an accounting tool.  They are very limited in this regard. At the end of the year, you will get a 1099 with a list of the payments you received for goods and services. It’s basic and helpful, but there are many better accounting tools you can use. Don’t rely solely on PayPal.

PayPal has lots to offer small business owners. They are really easy to use for invoicing, small business loans, and they even have a MasterCard you can use for business transactions.

This review goes into much more detail about PayPal for small businesses. The biggest drawback is the fees and the fact that they aren’t a full-service accounting software.

Square Small Business

Man taking a credit card payment on an ipad app

Another popular payment method for small business owners is Square. Lots of places use Square card readers. It’s a robust and effective way to accept credit card payments.

You need to understand what it was created for and use it as such. It’s a payment tool, a really effective way to accept money from customers. It is NOT an accounting tool. It won’t create P&L statements that you can send to your CPA for taxes.

Square is an easy-to-use point of sale system. They even have a device that plugs right into your phone that you can use to scan credit cards. It’s so handy.

Square charges credit card processing fees based on how many transactions you run.  No matter what, there is a set fee for manual credit card entry. Square charges 3.5% of the transaction value plus $0.15 for each transaction. Manually entering credit cards is the costliest option with Square.

If you want a breakdown of the prices of Square for small businesses, this review is extremely thorough.

The biggest pro of Square is how easy it is to set up and use. The biggest con is that the pricing is complicated.


My favorite option of all is Freshbooks. Through FreshBooks, you can accept credit card and ACH payments. Plus, FreshBooks is also an invoicing and accounting tool. You can get P&L statements for your CPA come tax time.

Another benefit of FreshBooks over the other options is that they charge a flat fee for credit card payments. Their pricing structure is so easy to understand. They are also very affordable. For 50 billable clients, you are still only paying $25 per month. It pays for itself, literally.

They also have some fantastic personalization features. Your invoices don’t look like everyone else’s, you can add your logo and colors to them.

I wrote an in-depth comparison of FreshBooks vs QuickBooks if you want to check it out. In my experience, FreshBooks is a lot easier to use and has the best prices too.


Cash is my least favorite payment method of all. There are so many reasons I don’t like cash.

Cash is the most difficult to keep track of. It involves more steps in your accounting. After you accept the payment, you’ll need to create a receipt and then manually input the payment into your accounting software.

I always advise people not to accept cash if they can avoid it. The only positive thing about accepting cash is that you avoid the credit card fees.


Accepting checks as a payment method is by far the worst option you can choose. There is always the risk that they’re writing you a check that will bounce, which will cost you money. If you deposit a bad check, you’re the one on the hook for it. Plus, your bank will almost always charge you a fee for the bounced check!

In addition, if someone writes you a bad check it’s likely that they will not (or cannot) afford to replace the money, meaning you’re out the money you should have received in the first place!

As if that wasn’t enough, there are also lots of tax implications involved when you accept cash payments – and yes, checks are another form of paying cash.

Just like cash, when someone pays you with a check, you will have to create a receipt for them and then manually enter the information in your accounting software. Plus, you’ll need to make a trip out to your bank to deposit the check. The entire process is a hassle.

The only positive aspects of accepting cash or checks are that you are avoiding transaction fees, and not everyone has access to PayPal or a credit card. However, the number of people is very small – I would think twice about accepting cash and checks.

Credit Cards

Woman making an online payment with a credit card

My favorite payment method is via credit card of some sort. When people pay you via credit cards it’s easier to keep track of these payments. You don’t have to run to the bank to deposit the money. Plus, most customers will prefer to pay you with credit cards as checkbooks and carrying cash are not the norm.

The only drawback to accepting credit card payments is that there are processing fees associated with them. The processing fees for American Express are slightly higher than Visa/MasterCard. Know this ahead of time and build the fees into your prices, then it won’t hurt your bottom line at all.

When you accept credit cards, you will still need accounting software. That’s why I love FreshBooks so much! It’s robust, affordable, and super easy to use.

Payment Methods: Final Thoughts

When you set up your small business, one of the first things you need to decide is what kind of payment methods you are going to accept. As you can see, cash and checks are by far the worst option. Avoid them if you can. Credit cards, debit cards, and online transactions via PayPal are going to be easier to track and most customers enjoy paying this way too.

After you decide which payment method to accept, you need to set up accounting software. FreshBooks is both an accounting software and a way to accept payment. When you are setting everything up, this is going to be the easiest choice for you.

For even more information about payment methods for independent contractors,  check out this post about the hassle of paying by cash or check.

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