The type of payments you accept will be directly related to where you sell your merchandise.  Accepting the right type of payment for your marketplace will greatly increase your sales.  But with all payment types, there is some risk. 

What?  All payment types carry risk?  What about cash?  If you just sell to friends, cash  will do nicely.  Some small stores like to pay with cash taken from the till.  Again this is great, but make sure you both have receipts.  Of course, all brick and mortar sales venues accept cash.  However, I sell on the internet - the last thing I want is someone sending cash through the mail.  It could be very tricky if I didn't receive that envelope carrying cash.

Wherever you sell, checks will make up a percentage of your business.  They are a very small percentage of my business - I receive an average of 1 check a month and have about 300 transactions a month, but again I sell on the net where people want instant turn around.  Checks will make up a larger percentage of your take if you sell in the brick and mortar world.  A note for internet sellers: I consider it very bad form to hold an order until the check clears the bank.  There are two reasons for this opinion: (1) The customer will wonder if you're ever going to ship and (2) you can't possibly hold the order until it is certain that the check has cleared.  When you deposit a check into your account, it is typically converted to cash funds within a day or two of it's deposit.  However, those funds are not necessarily yours to keep.  The check can still be returned by the issuing bank as late as 3 to 4 weeks after your deposit.  People who shop on the web can call the issuing bank to see if there are sufficient funds in the account to cover the check before shipping.  Designers who take down payments on a custom piece or order can likewise verify the money is in the bank. Store keepers can subscribe to an on demand system that will either accept or deny the checks. Then there are others who just have to take the risk - people who sell at jewelry shows, art fares, etc. will lose a lot of sales if they only accept cash.    However, they really have no way to verify a check is good before handing over the merchandise.  It is important to note that account verification doesn't mean the funds will be there when your check hits the account.   There are things you can do to collect on a bad check - you can keep calling the issuing bank until the funds are there and then rush the check to the bank.  The Better Business Bureau will handle this task for their members.  Those of you new to business should know that banks charge the depositor a fee when a check bounces.  I've heard of bounced check fees of up to 35.00.  You have to add this bank fee to the face value of your check to calculate your loss on the sale. 

Warning: do not ever accept an international check or there will also be bank fees.  People who sell internationally should ask for international money orders drawn up in US Funds.  Some other mail order customers will want to pay by money order.  But this takes work on the part of a buyer - they have to go to the post office (or bank) to stand in line to pay for the money order, then mail it off.  Still other mail order customers will want to Western Union you the money - no costs to the seller, but a high cost to the customer. 

There are also niche payment types for niche markets.  I can't imagine anyone selling on ebay and not accepting paypal.  I know some people do it, but I won't bid if I've got to mail out a check.  Some website customers want to pay with paypal, but the majority of customers both off and on the web want to pay by credit or debit cards.  Knowing this, paypal (http://www.paypal.com) has recently started to try to expand their hold on the internet marketplace.  People can now use paypal to pay with major credit cards  without having to open a paypal account.  While paypal does charge the seller a transaction fee of .30 a transaction and between 2.9 and 3.9% of the transaction amount, there are no set up costs and no monthly fees.  Paypal is now a viable alternative for small retail websites.

Accepting credit cards directly  will cause your sales to shoot up overnight.   But accepting credit cards (called establishing a merchant account) is also costly.  Initial outlay for credit card processing equipment or software can run you anywhere from 85.00 to several hundred dollars.  There is credit card equipment for every venue: we're all familiar with point of sale retail credit card machines.  Now there's wireless credit card processors which work like cell phones for those who sell at shows.  And there are many software solutions for those like me who sell and process their credit cards on the internet.  While I know nothing about their services, http://www.merchantwarehouse.com offers a great overview of different types of credit card processors for every possible sales venue.

Once you get set up, you will pay monthly fees of around 25.00 for your credit card processing.  If you process on the internet, you will have an additional monthly 'gateway fee' of around 25.00.  On top of these fees, you will have a transaction fee of about .20 a transaction and then there's the discount fee - that's the percentage that the credit card company takes off the top.  I pay about 2 % of the gross amount of the transaction back to the credit card company.

Of course, there are also risks associated with accepting credit cards either on your own or through paypal.  All businesses with merchant accounts dread the words 'charge back'.  Basically, that means that the credit card you accepted was used fraudulently.  You lose the money for the sale - you also have to pay the bank a 'charge back fee' of at least 25.00 for each charge back you incur.  Fraudulent credit card use is more prevalent on the internet than in the brick or mortar world because the 'card is not present'.  When accepting credit cards via mail order of any type, you can't match up the signature on the back of the card to the customer's current signature.  An online merchant can cut down the risks of credit card fraud by getting the CVV2 number - the 3 or 4 digit number on the back of the card.

In my mind, accepting plastic is imperative IF your business is large enough to handle the fees.  I remember when I first set up my merchant account, several salespeople said you had to do about 600.00 a month to make accepting credit cards profitable.  When you are ready for a merchant account, check your local bank - but also check other solutions.  Local warehouse clubs - like BJ's or Costco often offer good deals to their members.  There are many companies out there competing for your merchant account - you can negotiate - particularly after you're established.  And a word to the wise: never sign a contract that locks you into that credit card processor for anything more than a month to month account.

There are two more payment options available.  One of them is only applicable to mail order companies - shipping COD.  This means that your courier (I use UPS) collects the money when they deliver the package.    They then funnel the money back to you.  It does offer some flexibility to your customers if you only accept checks or money orders.  It also allows  last minute shoppers a way to get their merchandise quickly.  However, there are two disadvantages to this method.  One is the fact that the customer can refuse the shipment and you have to pay the shipping costs.  The other disadvantage is that it can take a long time for your courier to get the check back to you - up to a month.

The final method of payment is extending credit directly to the customer.  There are two variations of house accounts

The first method is accepting School and Company Purchase Orders.  If you want to sell to schools you will probably be best advised to ship upon receipt of their purchase orders.  Luckily, this is a fairly safe bet.  I am always happy to ship on school POs secure in the knowledge the payment will reach me within 30 days.  They've never yet let me down- knock on wood!  If a company wants me to ship on a purchase order, I first check with three of their current vendors.  I do very little shipping on a company PO as most of our customers do not issue them.  They are typically used  by larger companies. 

The second and last method we will discuss involves setting up a house account for the customer - in other words, shipping first and then billing them.  How important this is to your business depends on what type of customer you want to reach.

If you sell to individuals I would not recommend letting them establish credit if you accept credit cards.  If you do not accept credit cards, you have to weigh the size of the transaction against  the paperwork and risk involved in managing a house account.  So what happens when your second cousin says she really wants a piece but can't afford it until her next paycheck? I would offer her a very clearly defined lay away plan.  I might even set the piece aside for a week with no money down.  But that piece would stay with me until it was paid for.  Of course, you know your second cousin better than I do.

If you sell to stores, you will increase your market if you sell on 30 days credit.  A lot of small bead and jewelry stores do not expect credit and are happy to buy on their company charge cards.  But a lot of companies, mine included, like to buy on 30 days net.  Terms can make a difference to me.  And they can make a difference to other stores.  There are three factors I take into consideration when extending credit:  (1) length of time the company has been in business, (2) their payment history with three of their current vendors and (3) the highest amount  of  credit they have carried with three of their current vendors.   I want to see a regular 30 day pay whose been in business for three years.  I also want to see other vendors carrying them for at least as much money as they are requesting from me.

To sum up, there are a variety of payment options available to vendors of all sizes and types.   If you know your marketplace and your competition, you'll pretty much know which options you should accept.  But only accept what makes economic sense for you.  If you can't afford to extend credit and still buy your supplies, don't do it.  If you don't want to feel pressured to do a volume business, don't accept credit cards.  Make up for  the shortage of payment options by offering something intangible - a one of a kind piece designed just for them, vintage beads that can't be found elsewhere, lower costs than the competitors who have those high merchant account fees or whatever angle best suits your business.