A guide to payment systems for small businesses

In a small business, every transaction matters. Whether you’re taking card payments in a shop, sending invoices online, or running an e-commerce store, your payment system plays a role in your customer experience and ultimately your own cash flow. In this guide, we’ll explore everything small business owners need to know about payment systems, from how they work to which ones are best suited to different business types.

What is a payment system?

A payment system is the technology that allows your business to accept and manage payments from customers. Behind most systems is a merchant account, a special type of business account that temporarily holds funds from card payments before they’re settled into your main business bank account. Different payment systems handle this process in different ways, but they usually cover:

• Card payments: debit or credit card transactions made in person or online.

• Bank transfers: payments made directly from one account to another.

• Direct debits and standing orders: recurring payments for subscriptions or regular invoices.

• Digital wallets: payments made through smartphones and other hand held tech, options include Apple Pay, Google Pay or PayPal.

• Buy now, pay later options: such as Klarna or Clearpay that spread one payment in smaller amounts over a period of time.

Choosing the right payment system for your business is about which is best suited in terms of speed, reliability, security, and customer experience.

What payment systems are available for small businesses?

Small businesses in the UK can choose from several widely used payment systems, depending on how they trade, whether that’s in person, online, or through invoicing. Here are the main options:

Point of sales systems and card terminals 

For businesses that take payments in person, such as shops, cafés, or trades, card readers and point-of-sale (POS) systems are the most common choice. They accept debit and credit cards through chip & PIN and contactless. Popular providers include Square, SumUp, Zettle by PayPal, and Worldpay. Most of these providers offer both the physical card reader and software to track sales, manage inventory, and view reports.

Online payment gateways

If you sell through a website or online store, you’ll need a payment gateway. This is software that processes online transactions securely and deposits the funds into your business account. Online payment gateways can often accept cards, PayPal, and digital wallets, and often integrate with e-commerce platforms such as Shopify.

Bank transfer and direct debit systems

For service based or B2B businesses, bank transfers and direct debits offer a reliable and cost-effective way to receive payments. Thanks to modern Open Banking technology, these methods are now faster and more secure, allowing customers to make instant payments directly from their bank accounts without needing card details. Bank transfers are ideal for on -off invoices or large payments, while direct debit systems work best for recurring payments, subscriptions, or retainers, helping automate cash flow and reduce late payments.

Digital wallets and mobile payments

Digital wallets such as Apple Pay, Google Pay, and PayPal are now standard options both online and in person. They make checkout faster and more secure for customers, which can improve conversion rates, especially for mobile purchases.

Buy now, pay later 

Some retailers also offer buy now, pay later options, which allows customers to split payments into instalments. The business still receives full payment upfront (minus a small processing fee), while the provider handles the repayment schedule. This can help increase conversion rates and average order value, especially for higher priced products. Popular providers include Klarna and Clearpa.

Costs and fees to understand

Before choosing a payment system, it’s important to understand the full fee structure, not just the headline transaction rate. Common costs include:

• Transaction fees, usually 1.5% to 3% per sale, depending on the card type, transaction method (online or in-person), and provider.

• Monthly or annual account fees, some platforms charge a flat rate for access to their services or advanced features.Chargeback fees, applied when a customer disputes a transaction, often £10–£25 per case.

• Currency conversion fees, added when accepting international payments or foreign currencies.

• Hardware or terminal costs, for in-person payments, you may need to buy or rent card readers or POS systems.

• Settlement times and withdrawal fees, check how long it takes for funds to reach your account and whether there’s a cost for faster payouts.

Even small percentage differences can add up. For example, a 0.5% higher fee means £5 more in costs for every £1,000 processed. Always compare the total cost of ownership across providers, not just the advertised rate.

How to choose the best payment system for your business

With so many options available, the best system for your business depends on what you sell, how your customers pay, and what your priorities are, whether that’s convenience, cost, or speed of settlement.

When comparing providers, you should consider:

• Your business type

If you’re a retail or hospitality business, look for POS systems that combine in store and online sales data. For online stores, you’ll want to prioritise secure, mobile friendly gateways that integrate with platforms like Shopify. Service-based or B2B companies will want to focus on systems that support invoices, direct debits, and recurring payments.

• Customer preferences

Identify the payment methods your customers use most. For example, if many prefer Apple Pay or PayPal, choose a system that supports digital wallets alongside cards.

• Cash flow needs

Settlement times can range from instant payouts to several business days. If cash flow is tight, choose a provider offering next day or same day deposits (even if the fees are slightly higher).

• Integration with other tools:

A good payment system should sync with your accounting or e-commerce platform to save time and reduce manual reconciliation.

• Fees and transparency:

Compare the total cost per £1,000 processed, including transaction, subscription, and chargeback fees. You will want to be cautious of low advertised rates that hide extra costs.

• Support and reliability

24/7 support and uptime guarantees can make a big difference if you rely on card payments daily. Check reviews for how providers handle real-world issues.

If you’re unsure where to start, explore our detailed guide to the best payment systems for small businesses in 2025, including a comparison of features, costs, and integrations, to help you make an informed choice.

Security, compliance, and fraud prevention

When you accept payments, you’re handling sensitive customer and financial information, and that comes with legal and ethical responsibilities. Whichever payment system you opt for, you must ensure it's secure, compliant, and built to prevent fraud.

The key regulations and standards you must obey are:

• PCI DSS (Payment Card Industry Data Security Standard): Required for any business that handles, processes, or stores card data. Most payment providers are PCI-compliant by default, but it’s your responsibility to confirm this.

• Strong Customer Authentication (SCA): A regulation that adds extra verification steps (such as SMS codes or biometric checks) to reduce online payment fraud.

• GDPR (General Data Protection Regulation): Ensures all personal and payment data is collected, stored, and used lawfully and transparently.

Here are some best practices for security:

1. Use trusted, PCI-compliant payment processors that automatically encrypt customer data.

2. Avoid storing card details on your own systems, let your payment provider handle this securely.

3. Monitor transactions regularly for suspicious or unusual activity.

4. Enable two-factor authentication (2FA) on all business, banking, and payment accounts.

5. Keep software, plugins, and payment terminals up to date to protect against known vulnerabilities.

6. Train staff to recognise phishing attempts and social engineering scams targeting payment systems.

A secure and compliant payment setup doesn’t just protect your business from financial loss, it also builds customer confidence, strengthens your brand’s reputation, and helps prevent costly data breaches or fines.

If you’re reviewing your payment systems this year, start by mapping how your customers prefer to pay and work backwards. The best system is the one that saves you time, secures your income, and keeps your customers happy.