From commonly accepted payment methods like cash and credit cards to niche payment options like cryptocurrency, there are endless choices for small businesses to consider offering their customers. On the other hand, determining which payment options your small business will offer can be challenging—for example, how do you know whether you’re required to accept a particular payment option, and what happens if you refuse a payment option that a customer wants to use?
This blog post covers the legal requirements for small business payment options and key payment options you may want to consider integrating into your business.
Legal Requirements for Small Business Payment Options in Ontario
Generally, small businesses have control over deciding which payment options they offer. In Ontario, there are no laws requiring small businesses to accept particular types of payment options, like cash or credit and debit payments.
However, small businesses must clearly communicate their policies (i.e., which payment methods they accept and do not accept) to ensure customers understand the policy and avoid confusion or frustration when it comes time to purchase. In particular, clearly displaying the available payment options at points of sale is an excellent way to ensure customers know how they can pay you.
Below, we’ll discuss some of the common payment options available for small businesses, along with their pros and cons.
Cash
Contrary to popular belief, and despite being “legal tender”, businesses are not required to accept cash as a payment option in Ontario. Given consumers ‘ familiarity with it, cash is a commonly accepted form of payment. However, some businesses may choose not to accept cash to reduce counterfeiting risks or prefer to handle payments digitally or through a point-of-sale (POS) system. During the COVID-19 pandemic, many businesses even opted to forego cash payments to avoid physical contact with customers.
Credit and Debit Cards
Credit and debit card payments are as common—if not more common—than cash payments these days. Given consumers’ familiarity with and access to credit and debit cards, the vast majority of businesses offer them. However, some businesses may elect not to accept them due to the transaction fees charged to them for each transaction.
Remember that if your business accepts credit or debit card payments, you’ll have entered into an agreement with the payment processor and must comply with certain requirements, such as the Payment Card Industry Data Security Standards (PCI).
Cheques
Over time, cheques have become a less common payment method for businesses. Nevertheless, many companies still accept cheques, particularly for high-value transactions (such as real estate transactions or motor vehicle sales). Some businesses choose not to accept cheques due to the risk of a cheque bouncing or the associated banking fees.
Digital Payments
Many consumers are beginning to use digital payments, like Apple Pay (an option allowing them to “tap to pay” using their iPhone or Apple Watch). Depending on their clientele, offering these types of payment methods can be a crucial differentiator for businesses. Like many other payment options, however, using Apple Pay involves transaction fees and can be challenging to implement if small businesses are using outdated point-of-sale (POS) systems.
Cryptocurrency
Cryptocurrency—which uses blockchain technology to allow businesses and customers to conduct transactions without going through a bank—has become an increasingly popular option for consumers. These transactions do not have fees and are anonymous. Some small businesses accept cryptocurrency to differentiate themselves from competitors or to avoid processing fees. However, businesses may not accept cryptocurrency as a payment option due to regulatory uncertainty or the technical complexity of enabling this payment option.
Discounts for Specific Payment Methods
Small businesses are entitled to offer discounts for customers who choose to pay via a particular payment method (for example, offering 10% off purchases made using cash).
However, when offering discounts for payment options, be mindful of your obligations under the Competition Act. Notably, this federal legislation requires businesses to avoid deceptive marketing practices. Businesses must clearly display their policies relating to payment options and discounts and avoid any false or misleading representations regarding pricing (for example, clearly stating the amount of the discount and the terms under which a customer is entitled to a discount).
Credit Card Surcharges
Small businesses that offer credit card payments have the option to pass on the cost of accepting credit cards to their customers. Specifically, they are allowed to charge an additional fee at the point of sale when customers choose to pay by credit card, up to a maximum of 2.4% of the purchase price. Small businesses are also entitled to charge a fee for debit card purchases.
Deciding whether or not to apply credit card surcharges is a personal decision for small businesses. On the one hand, credit card surcharges can be a great way to recoup the costs associated with credit or debit card purchases. On the other hand, they can negatively impact customer satisfaction or discourage customers from making a purchase.
Encouraging Customers to Use Particular Payment Options
Small businesses have the option to encourage customers to use particular payment options. For example, businesses may display a sign at the point of sale encouraging customers to consider paying by cash or debit card and to highlight the costs associated with credit card payments. While displaying such a sign does not prevent customers from paying by credit card (unless you explicitly state that you do not accept credit card payments), it can subtly encourage customers to pay with cash or debit cards.
Choosing Payment Options for Ontario Small Businesses
Ultimately, small businesses are entitled to choose to only accept particular payment methods from their customers. However, they must make it clear to customers which payment methods they accept and any potential discounts that customers might receive if they pay using a particular payment option. Clearly displaying this information at points of sale helps ensure that both businesses and customers are on the same page and avoid confusion.
The decision on whether to accept a particular payment option is highly contextual, and different payment options will be more or less attractive depending on the nature of the business and its customers. In any event, offering commonly accepted payment options, such as cash, debit, and credit cards, is generally good practice for businesses that wish to remain competitive and ensure their customers can quickly pay for goods and services.
Contact Bader Law for Top-Tier Small Business Advice in Toronto
The team of skilled business lawyers at Bader Law have decades of experience guiding new businesses to success from their venture’s inception, including financing assistance, contract drafting, software licensing, corporate structure, and governance issues. We have lasting relationships with clients throughout the Toronto area, including Mississauga and Oakville. To schedule a consultation, please call 289-652-9092 or reach out online.