Small businesses pour their heart and soul into perfecting their products and services. But all that effort can unravel at a critical moment: when it's time to get paid.
A seamless payment process should be a no-brainer, yet too often, it becomes a source of friction - risking revenue, loyalty, and trust.
Xero's research, I Want to Pay That Way, reveals a disconnect between how consumers want to pay and what businesses offer. This gap isn't just a missed opportunity; it's a direct threat to cash flow and long-term growth.
Even worse, it can damage the customer relationships small businesses work so hard to nurture.
For many small businesses, the challenge is keeping up with rapidly evolving payment preferences while juggling countless other priorities.
The good news? Meeting these shifting expectations isn't an impossible task - it's a strategic opportunity. Businesses that close the gap between consumer preferences and payment options can transform payments from a pain point into a competitive edge.
Let's dig into why this disconnect exists, why it matters, and how small businesses can bridge the divide.
The payments disconnect and why it matters
Our research uncovered a troubling reality: while nearly nine in ten consumers (86%) rely on credit or debit cards for everyday purchases, one in three small businesses still don't accept them.
This isn't just a missed opportunity - it's a clear disconnect that risks both immediate sales and long-term customer relationships.
When customers face barriers at the point of payment, they will delay payment, impacting the businesses' cashflow, or may consider taking their business elsewhere.
In fact, one in four consumers told us they would abandon a purchase and look for another business that offers more payment options if one of their preferred ways to pay isn't available.
But the disconnect doesn't stop at cards. The rise of new digital payment methods like Buy Now, Pay Later (BNPL) adds another layer of complexity.
Three in four small businesses don't offer BNPL - a payment option increasingly valued for its financial flexibility. This gap is especially critical because "not having funds on hand" is one of the main reasons consumers delay or abandon purchases.
Payment preferences aren't one-size-fits-all. For instance, many consumers still rely on physical bank cards when shopping in person, but mobile payments are on the rise, especially among younger generations.
In some industries like trades and hairdressing, cash is still important, even if it is becoming less common overall. Online, credit or debit cards are king for most categories, but bank transfers are common for trades, and direct debit for bills.
And for direct contactless payments for small businesses, Xero's new Tap to Pay functionality enables customers to accept on the spot payments with just their phone, the Xero Accounting App & a Stripe account.
Generational preferences also play a role. Baby Boomers tend to stick with traditional payment methods like credit cards, while Millennials and Gen Z are driving the shift toward mobile-first, digital payments. Small businesses that fail to adapt risk alienating key customer segments.
Why this disconnect exists
There are a few reasons for this mismatch - high processing fees and security concerns are among the biggest roadblocks. For small businesses operating on tight margins, absorbing transaction fees can feel like a steep price to pay.
But for consumers, transparency is non-negotiable. Hidden fees erode trust, while building them into your pricing structure can enhance clarity and goodwill.
As businesses adopt new payment methods, robust security measures must be a top priority. Consumers want to know their data is safe, and businesses that are upfront about their security practices can alleviate concerns and build confidence.
Another barrier is perceived value. One in four small businesses feel digital payments are not relevant or offer no clear value or advantage to cash payments. But this perception couldn't be further from the truth.
Digital payments offer a compelling value proposition for both businesses and customers - faster payments translate to improved cash flow, giving businesses greater financial flexibility and control.
Automated payment reminders and reconciliation features within digital platforms save valuable staff time and reduce the stress of chasing payments.
This allows small business owners to focus on what truly matters: growing their business and nurturing customer relationships, rather than getting bogged down in administrative tasks.
Practical steps for small businesses
Navigating the payments landscape doesn't have to be overwhelming and incremental steps can make a big difference:
- Listen to your customers: What payment methods do your customers prefer? Gather data through surveys, analyse transaction data, and seek feedback to tailor your approach
- Offer a range of options: Go beyond what's convenient for your business and provide options your customers value. Consider your customer demographics and industry to determine the most relevant options, whether that's credit cards, BNPL, mobile wallets, or bank transfers
- Be upfront about costs: Build trust by being transparent about payment costs. Eliminate hidden fees and clearly communicate any transaction charges to avoid eroding trust and potentially losing customers
- Prioritise security: Invest in secure systems and educate customers about your data protection measures. Transparency builds confidence and loyalty
- Work smarter, not harder: Embrace technology to streamline your operations. Integrate payment processors with your accounting software to simplify reconciliation, automate payment reminders, and gain valuable cash-flow insights.
Evolution in the payments landscape is showing no signs of slowing down, driven by technological advances and shifting consumer demands.
For small businesses, the challenge isn't just keeping up, it's turning payments from a potential pain point into a competitive advantage.
By aligning payment offerings with customer preferences, small businesses can reduce friction, strengthen cash flow, and foster loyalty.
Payments are more than just transactions - they're touchpoints. And when you get them right, you open the door to long-term growth and trust.
