Small Business Payments Study Reveals Criticality of Payments Issues

Conducted in October and November 2006, the 2006/2007 Study of Small Business Payment Preferences included detailed survey responses from 952 small businesses across industries with annual revenues under $5 million.

Among all of the participants, the study found that small businesses receive an average of 259 customer payments each month across all sales channels and that checks and cash represent the majority of these receipts. Checks account for 40 percent of customer payments to small businesses, while cash accounts for 25 percent, credit cards account for 16 percent and PayPal accounts for nine percent. The receipt of PayPal payments was driven by small businesses that sell over the Internet.

Payments are an important issue for small businesses, and 59 percent of them turn to outside sources for help in managing their payments acceptance, most commonly accountants, business colleagues, financial institutions and payments processors.

"There is clearly an opportunity for financial institutions and payment processors to deepen customer relationships and offer specific services for the small business sector," said Laura Fuller, a director with Dove Consulting and the manager of the study.

Across all small businesses, cash and checks are the most widely accepted tender type - 88 percent of all small businesses report that they accept both cash and checks. This was followed by credit cards and signature debit cards, with 54 percent of small businesses reporting that they accept these tender types.

The Study also investigated the options small businesses use to pay bills and expenses and found usage patterns similar to consumers - there is no one form of payment most preferred; they use a mix of different payment options. Survey results indicate that business checks and credit cards are the most predominant form of payment - more than 50 percent of small businesses use these payment instruments.

The most preferred methods of payment differed by type of business expense. Checks are the most preferred form of payment used by small businesses for many common business expenses, including rent/commercial mortgage, utilities, business services, equipment leases and inventory. Credit cards are used more frequently for travel and entertainment expenses, fuel purchases, and office supplies.

Nearly a quarter of all small businesses surveyed reported using a debit card to make payments for their business. However, debit only accounts for five percent of small business payments; cash, checks, credit cards, online bill payment and PayPal were all more widely used.