Meaning of Payment Methods 2

Which payment methods are suitable for entrepreneurs?

When asked which payment options should be offered in the online shop, it is not always easy to find an answer. These aspects will help you make a decision:

• Amount of fees
• secure checkout
• Customer acceptance
• target group

The amount of the fee

Depending on the payment method, there are very different fee models:

Payment method	Fee model
Paypal	Fixed basic fee as well as variable fee per incoming payment
Purchase on invoice	possible fees for external credit reporting agencies or external payment processors
Credit card	monthly basic fee as well as fee per booking
E-payment provider (Sofortüberweisung; Skrill)	possibly monthly basic fee as well as fee per booking
Direct debit / prepayment / transfer	as a rule, there are no fees here

While the online shop is only about setting up a one-time payment system, things look very different in the local specialist shop. If card payments are to be offered, a corresponding terminal must first be set up. It is also possible that you will incur ongoing maintenance costs for regular updates.

The security question

Whether it is a large order or a new customer, it is not uncommon for a payment default to have a massive impact on your company’s liquidity . Additional expenses for dunning procedures and receivables management also cause you high costs.

In order to keep the risk of non-paying customers as low as possible, you should definitely protect yourself with external credit reports. Cooperation with appropriate payment processors saves you time-consuming claims management .

Does the customer accept the payment options offered?

In order for your customers to feel safe when shopping, it is essential to offer them a selection of well-known payment options. It should always be remembered that not every customer uses every payment method. Giropay and instant transfer, for example, are not as common as PayPal, direct debit or purchase on account. In order to be able to use individual payment options at all, they are initially linked to certain requirements. Your customer may react with uncertainty or forego this additional effort.

On average, there are four payment methods to be found in an online shop. These are mostly prepayment, PayPal, direct debit and purchase on account.

The target group-specific payment method

Depending on whether your company’s products are intended to appeal to younger or older people, you should also choose your payment methods accordingly. For example, younger people prefer modern electronic payment methods, while older people prefer traditional methods.

Advantages and disadvantages of different payment methods

If you look at individual payment methods in detail, you will quickly notice that each one has very different advantages and disadvantages. This overview shows you what exactly these are based on selected payment methods:

Payment method	advantages	disadvantage
Payment in advance	no additional costs Shipping of the goods only after receipt of payment – maximum security for you as an entrepreneur easy handling	longer processing time until the goods reach the customer great risk for customers, as the shipment of the goods is not guaranteed manual assignment of incoming payments and open items is quite time-consuming
Purchase on invoice	no need to enter personal bank details during the ordering process Return of the goods without having to monitor the refund of the amount	high entrepreneurial risk if the goods are not paid for possibly manual assignment of incoming payments and open items
Direct debit	easy and convenient – the payment process is almost automatic no transaction costs for you as an entrepreneur	Risk of incorrectly entered account details, which can lead to a costly chargeback for you easy revocation by the customer is possible
Credit card	internationally preferred payment method Little workload for you as an entrepreneur, as most of the payment processing takes place automatically Automatic checking of relevant data, shopping only possible if the card can be charged	Payment can easily be canceled by the customer Costs per transaction for you as an entrepreneur Payment method can only be used by customers with a credit card Basically, purchases with a stolen credit card are possible
Paypal	Fast confirmation of payment, goods can be prepared directly for shipping recognized worldwide as a payment method no sensitive bank details are transmitted to online retailers free account for private individuals	in the event of password theft, you can shop without knowing your bank details there is no TAN system for security all data is stored and managed on a server in the USA
Surname	Receipt of the goods is guaranteed at the time of payment faster shipping, as there is no need to wait for receipt of payment high security of payment upon acceptance of the package	comparatively expensive, as the customer has to pay an additional cash on delivery fee if the customer is not at home when the delivery is made, the package must be paid for and picked up at the nearest post office

What problems can I encounter with payment processes?

Regardless of which payment methods you ultimately choose, complications can never be ruled out with certainty. Modern payment methods such as Sofort-Überweisung are not yet very well known. Before customers decide to try out a new payment option, this willingness is often associated with initial hurdles. Therefore, customers usually only undertake this effort provided that the respective payment method is already accepted by numerous merchants.

In return, however, many retailers are only ready to include an innovative payment method in their online shop if it is also used by numerous customers.

In the worst case, it happens that both parties wait in vain for the other side to act. In this way, the spread of new types of payment turns out to be quite problematic.

If a customer does not meet his payment obligation, you often have to take cost-intensive measures. First of all, in most cases, a multi-stage dunning procedure follows, which is intended to persuade your defaulting customer to pay his claim. These steps cause additional processing and possibly expenses for paper or sending your documents. If no payment has been received after the last deadline has passed, you are forced to take further legal measures. These are usually extremely expensive and take a long time. Such exceptional situations can quickly lead to significant liquidity bottlenecks, so you should have financial reserves ready at all times for such cases.

In order to keep the risk of missing incoming payments as low as possible, it can be worthwhile to transfer the management of payments to an external company. Alternatively, it pays to obtain various information about new customers before shipping. For example, an address and credit check is useful .

If you are still at the very beginning of your career with your company, it is also conceivable to only offer regular customers purchase on account at the beginning.

Conclusion

With the introduction of innovative payment methods, shopping is to be made easier, especially on the Internet. Each customer can choose the preferred one from the range of four different payment methods on average. Purchase on account and traditional bank transfers are still widespread. However, modern online payment methods and payment via smartphone are becoming increasingly popular. In order to find the safest method for yourself, the individual advantages and disadvantages should be weighed against each other. The more individually you interpret the options for settling your claim, the faster and more reliably your customers will settle their payment obligations.