For a small business turning over £200,000 per year, a 1% difference in payment processing costs is worth £2,000. Choose wrong, and that money disappears quietly, every single year.
Here's a practical breakdown of every major payment method available to small businesses in 2025, and how to choose the right one for yours.
Why Payment Method Choice Matters
Payment processing costs are often the third or fourth largest expense for small businesses — after rent, staff, and stock — yet they get a fraction of the attention.
The costs aren't just in visible fees. They include:
- Processing fees — typically 0.5–3.5% per transaction
- Monthly platform fees — often £15–£75/month
- Hardware costs — card terminals, POS systems
- Chargeback costs — disputes that cost time and money to resolve
- Delayed settlement — cash flow impact of T+2 or T+3 settlement
Getting this right is one of the highest-impact financial decisions a small business can make.
Payment Methods Compared
1. Card Payments (In-Person)
How it works: Customer taps or inserts their card. Payment authorised and settled in 1–3 business days.
Providers: SumUp, Square, iZettle (PayPal), Stripe Terminal, traditional merchant accounts
Average fees: 1.5–2.5% per transaction (cheaper on annual plans)
Best for: Retail, hospitality, markets, service businesses with face-to-face sales
Pros:
- Familiar for customers
- Fast checkout
- Low friction
Cons:
- Terminal hardware costs (£19–£299+)
- Settlement delay
- Chargebacks can be costly
2. Online Card Payments
How it works: Customer enters card details on your website checkout page. Payment processed via payment gateway.
Providers: Stripe, PayPal, Square Online, Worldpay, Opayo (Sage Pay)
Average fees: 1.4–2.9% + 20–30p per transaction
Best for: E-commerce, subscription businesses, service bookings online
Pros:
- 24/7 availability
- Global reach
- Easy to integrate
Cons:
- Higher fraud risk than in-person
- Chargeback window is 120 days
- Complex for new businesses to set up
3. Bank Transfer (BACS / Faster Payments)
How it works: Customer transfers directly from their bank account to yours. No cards involved.
Providers: Your business bank account + invoicing software
Average fees: Near zero — just your bank account monthly fee
Best for: B2B invoicing, large transactions, professional services
Pros:
- Lowest fees of any method
- Funds are final — no chargebacks
- Works for any transaction size
Cons:
- No buyer protection (which is the point for sellers)
- Manual reconciliation unless automated
- Slower to collect from consumer customers
4. Direct Debit
How it works: You collect recurring payments from customers' bank accounts on a set schedule. Requires customer authorisation upfront.
Providers: GoCardless, Xero + GoCardless, Stripe (via mandate), your bank's scheme
Average fees: 0.5–1.5% per transaction, capped at a low maximum
Best for: Subscription businesses, membership businesses, recurring invoices, SaaS
Pros:
- Lower fees than card subscriptions
- Reduces failed payments and late payers
- Fully automated with the right software
Cons:
- Requires upfront mandate from customer
- 8-week chargeback window for consumers
5. Open Banking Payments
How it works: Customer is directed to their bank to authorise a payment directly from their account. Bypasses card networks entirely.
Providers: Volt, Yapily, Truelayer, TrueLayer, emerging platforms
Average fees: 0.1–0.5% per transaction — significantly cheaper than card
Best for: High-value transactions, businesses with technically capable customers, regulated industries
Pros:
- Very low fees
- Real-time settlement (faster than cards)
- Strong authentication built in — lower fraud
Cons:
- Still gaining consumer familiarity
- Not yet universally available in all markets
6. Digital Wallets (Apple Pay / Google Pay)
How it works: Customer pays via their phone or watch at your in-person terminal, or clicks their wallet at online checkout.
Providers: Via your existing card processor — Apple Pay and Google Pay sit on top
Average fees: Same as underlying card processing
Best for: Any business already accepting cards — it's free to enable
Pros:
- Faster than card — higher conversion at checkout
- Strong fraud protection
- Customers love it
Cons:
- Depends on your payment processor enabling it
- Same underlying fees as card payments
How to Choose the Right Mix
Most small businesses use a combination:
- In-person sales: Card terminal (SumUp or Square for simplicity, traditional merchant account for high volume)
- Online sales: Stripe or PayPal for ease of setup
- B2B invoicing: Bank transfer or direct debit
- Subscriptions: GoCardless (cheapest) or Stripe for global reach
The right combination depends on your average transaction size, customer type, and volume. A coffee shop and a law firm have very different optimal setups.
What to Look for in a Payment Provider
When evaluating any payment provider, ask:
- What are the total fees, including monthly platform costs?
- How fast is settlement? (T+1 vs T+3 makes a cash flow difference)
- What's the chargeback process?
- Does it integrate with my accounting software?
- What's the contract length? (Avoid long lock-ins when starting out)
Voice Search FAQ
What is the cheapest way to accept card payments for a small business? SumUp and Square offer 1.69–1.75% per transaction with no monthly fees, making them the most accessible options for low-volume businesses. For higher volumes, a traditional merchant account typically offers lower rates.
Do I need a business bank account to accept card payments? Most card payment providers require a business bank account for settlement. A few (like PayPal) can pay to personal accounts, but this isn't recommended for registered businesses.
How long does it take to receive money from card payments? Most modern providers settle within 1–3 business days. Some (including Stripe and SumUp) offer instant or same-day payouts for an additional fee.
Can I accept payments without a card machine? Yes. You can use payment links (Stripe, Square, PayPal), QR codes, or invoice payment options — all of which let customers pay by card online without needing a physical terminal.
The payments landscape for small businesses has never offered more choice — or more potential for savings. The businesses that take the time to audit their payment costs and optimise their setup consistently find they're leaving thousands on the table. Don't let that be yours.