Deciding on a payment system for your business

Posted by Felix Okoli on Friday February 1, 2013 at 9:42:15:

The type of payment system you set up for your business can help determine how profitable the business becomes.

As someone who runs a business, one of the important things to decide on is the payment options to be made available to your customers. How would your customers pay you?

Factors influencing payment systems
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I think payment system a business should adopt would be based on a couple of things such as:

- The type of business in question
- The calibre of customers
- The location
- Government laws
- Accounting system in place

The typical Nigerian small business
For most small businesses in Nigeria, cash is the preferred means of exchange for goods and services and this may be for businesses worth about under N5m. If however you are running a big business, you may have to thing about incorporating other forms of payment that suit your client's need.

Types of payment options available
- Cash
- Point of Sale(P.O.S.)
- Bank transfer
- Cheque

Cash
This is when physical cash is the medium by which your customers pay you for your goods or services. It is a good option if you are collecting little cash but not safe if you are collecting millions in day. Cash is good for accepting petty payments and it needs subsequent banking for safekeeping. It is mostly used by petty traders and smaller companies. An example is a recharge card vending shop

P.O.S.
This is when you also make use of machines that accept debit or credit card payments. The P.O.S. accepts payments on behalf of your business and immediately credits your bank for that transaction. Every P.O.S. is tied to your corporate bank account and can be used to receive card payments from customers and it works a bit like an ATM. This is more common in shopping malls and supermarkets. Nigerian banks have been lately promoting P.O.S. usage by Sales businesses at little or no transaction costs.

Bank payment
This is a more common means of payment by bigger businesses in Nigeria. Rather than handling large volumes of cash per customer, the business accepts bank payments directly from the customer either by a bank transfer or cash deposit. When your bank account gets an alert and you confirm it via internet banking, you would then transfer the goods. A good example is a car sales business.

Cheque
Cheques are more commonly used too in doing some high value transactions in Nigeria. The customer would issue a cheque in his name to the seller who then tries to cash it in a bank using his bank account or personal id. It takes some days to clear bank cheques but it is also a secure form of payment for business. a good example is when you issue a cheque to a stockbrokerage company for the purchase of shares. Cheques are more commonly used for paying for services that have not been completely utilized or goods nor completely transferred before its clearing date. It carries some charges on the issuer's account.

Accepting cash payments for where cheques would be more suitable could slow down your sales. Also accepting cheques and bank payments for large volume transactions would attract more high networth investors to your business.