How Offering Alternative Payment Methods at Your Small Business Can Improve Collections

By Dean Kaplan

The global pandemic meant severe and often costly disruption for countless small to midsize businesses and professional practices. Many were forced to retool the way they delivered goods or services and the way they got paid for them.

Though it wasn’t always easy to turn on a dime, many companies and practices are noticing that the changes they made have paid unexpected dividends. For example, if your organization started accepting alternative methods of payment, or AMOP, your accounts receivable may look healthier than ever before—and with less effort on the part of your billing team.

AMOP encompasses everything from credit and debit card payments to digital wallet programs (Google Pay, Apple Pay, and others) and popular apps such as Venmo and Zelle. Loyalty program points are yet another form of alternative payment, as are cryptocurrencies such as Bitcoin.

Alternative methods of payment boomed during the pandemic

As in-person purchasing became a health risk, millions of U.S. consumers began buying a larger share of everyday necessities online. In fact, e-commerce sales jumped by 43% in 2020 alone, according to the U.S. Census Bureau’s Annual Retail Trade Survey. Growth in e-commerce spiked in several retail sectors, from food and beverages to sporting goods and building materials, driving healthy growth in online payments.

But the rush to adopt AMOP didn’t begin and end with retail. As service providers of all kinds moved online, a larger share of their revenues came through alternative payment channels as well.

For example, as telehealth became a widely accepted option, millions of people made virtual visits to healthcare providers, remitting copays and other fees online. Attorneys, accountants, and other professionals found it impractical to accept checks, since this meant sending staff to empty offices to retrieve mailed payments and prepare bank deposits. ACH payment options, and even consumer-oriented platforms such as PayPal or Zelle, made a lot more sense for these firms, as well as other service providers in dozens of B2B and consumer sectors.

Advantages of alternative payment channels

Alternative payment channels have clear advantages for businesses and professional practices of all sizes:

• Payments are fast, convenient and secure (for both payor and payee).
• They can be verified quickly and easily, 24/7.
• Funds are available for immediate use, improving cash flow.
• That old lie—“the check is in the mail”—is gone forever, along with the time needed to investigate what REALLY happened to that missing payment.

Increasing the share of revenues you collect through alternative payment channels is likely to improve the health of your receivables. This is especially true if you require payment at point of sale or time of service. If you offer credit terms to carefully selected clients, offering alternative payment channels will reduce the friction that can lead to collection problems.

Customers who tell you they can’t pay through any of the alternatives you offer them are signaling you that cash flow is the real problem. This in itself is useful, since identifying non-payment risks early is the best way to prevent financial losses. You can flag these accounts, monitor them closely and take decisive action to collect past-due amounts in the timeliest way possible.

The riskier side of alternative payments

Buy Now Pay Later (BNPL) options mushroomed right along with e-commerce throughout the pandemic. This gave online retailers and service providers the chance to find new customers by offering what looked like generous, friendly payment terms. No doubt this helped many organizations boost sales, but now quite a few are paying for it in the form of lost revenues.

BNPL systems are, of course, simply installment loans. People attracted to these arrangements often have poor credit to begin with. Default rates can be very high, so if you’re considering offering a BNPL option for your customers, think very carefully before signing on.

Choosing alternative payment options to benefit your business

Consumers and B2B clients will continue to look for convenience, security, and seamless processes in 2023 and beyond. If you’re not offering alternative payment options yet, now is the time to consider which ones fit your business model.

Here are questions to ask as you evaluate AMOP options and select new payment platforms that may benefit you and your customers.

• What is the amount of our average sale, invoice or statement?
• What transaction volume do we typically see in a day, week, or month?
• Given these basic facts, what will we pay per transaction to use this platform?
• Are these fees reasonable, especially if they prevent payment fraud and reduce past-due amounts sent to collections?
• Which payment platforms align with who we are and who our customers are? (For example, the youthful patrons of a Pilates studio might favor Apple Pay, but long-standing clients of a law firm may prefer regularly scheduled ACH payments handled through their business checking account.)

Whatever their needs and preferences, virtually all customers will appreciate having a range of payment options. Choosing payment platforms that offer them the right blend of security and convenience is a great way to retain their business. Improved cash flow and fewer collections struggles are the extra dividends that just might help make 2023 your best year yet.

FAQs on alternative means of payment

Here we have summarized the important questions and answers on the subject:

About the Author

Post by: Dean Kaplan

Dean Kaplan is president of The Kaplan Group, a commercial collection agency specializing in large claims and international transactions. With more than 35 years of successful experience in manufacturing, international business leadership, and customer service he provides business planning, training and consultation services for a wide range of global companies.

Company: The Kaplan Group
Website: www.kaplancollectionagency.com