Online payment services: a guide for UK small businesses

Published Friday 15 May 2026

Table of contents

• Benefits of accepting online payments
• How does online payment work?
• Types of online payment methods
• How to set up online payments
• Best online payment providers in the UK
• What are merchant service fees?
• Security considerations for online payments
• How do I account for the transaction fee?
• Simplify your payments with Xero
• FAQs on accepting online payments

Key takeaways

• Small businesses that accept payments online can get paid within hours instead of waiting 28 days or more, improving cash flow and reducing time spent chasing late payments.

• Choose a payment provider such as Stripe, PayPal, or GoCardless that integrates with your accounting software, so you can add a 'Pay now' button to invoices and reconcile payments automatically.

• Budget for transaction fees of 1.4–3.5% per payment, and consider using traditional payment methods for higher-value invoices over 5,000 pounds to manage costs.

• Prioritise security by selecting PCI DSS compliant payment providers that meet UK strong customer authentication requirements, protecting your business and your customers from fraud.

Benefits of accepting online payments

Accepting online payments helps your business get paid faster and reduces the admin involved in chasing unpaid invoices. For your customers, it means a simpler, more convenient way to settle what they owe.

Benefits for your business include:

• Getting paid in hours instead of waiting 28 days or more
• Reducing admin by avoiding chasing late payments or processing cheques
• Lowering costs by eliminating postage and bank processing fees
• Improving cash flow with predictable, faster payments

Benefits for your customers include:

• Paying invoices immediately from any device
• Choosing from credit cards, debit cards, or digital wallets
• Spreading costs using credit card payments

How does online payment work?

Online payment processing works through merchant service providers that handle the technical side of collecting payments on your behalf. You connect a provider to your invoicing software, and they manage the payment flow between your customer's bank and yours.

Here is how the setup works as a one-time process:

• Choose a provider that integrates with your invoicing software
• Connect your bank account and business details
• Configure your preferred payment methods and fees

Here is what happens during daily use:

• Your invoices include a 'Pay now' button so customers can pay straight away
• The customer clicks the button and completes the payment
• Funds appear in your bank account within 1–5 business days

Most providers offer free setup. Transaction fees typically range from 1.4–3.5% per payment, depending on the method used.

Types of online payment methods

Online payment methods are digital ways your customers can pay invoices without visiting a bank or writing cheques. Offering a range of options makes it easier for customers to pay promptly. The main types include:

• Credit and debit cards: The most common online payment method. Payments are processed instantly through secure payment gateways and funds typically settle within 1–3 business days.
• Digital wallets: Services such as PayPal, Apple Pay, and Google Pay let customers pay using stored card or bank details. They are especially popular for mobile payments.
• Bank transfers: Direct payments from a customer's bank account to yours, often with lower fees than card payments. Open banking technology is making these faster and more seamless.
• Direct debit: Automated recurring payments you collect from customer accounts. Ideal for subscriptions, retainers, or regular billing. Providers such as GoCardless specialise in this.
• Buy now, pay later (BNPL): Services such as Klarna and Clearpay let customers spread payments over instalments. This can be useful for higher-value products or services.
• Cryptocurrency: Some businesses now accept digital currencies such as Bitcoin. Adoption in the UK is still limited, but growing among tech-forward businesses.
• Open banking payments: Customers authorise a direct bank-to-bank payment through their banking app. These payments are typically faster and cheaper than card transactions, and are regulated under the UK's Payment Services Regulations.

How to set up online payments

To start accepting online payments, choose a payment provider, connect it to your invoicing software, and add a 'Pay now' button to your invoices. The process takes just a few minutes with most providers.

Here is how to get started step by step:

1. Choose a payment provider

Pick a provider that suits your business needs and integrates with your accounting software. Popular options for UK small businesses include Stripe, PayPal, and GoCardless, all of which connect directly with Xero. Consider the types of payments your customers prefer and compare fees before deciding.

2. Connect the provider to your accounting software

Link the payment provider to your accounting platform. In Xero, this is usually a quick setup process within the software itself. Once connected, your invoice payments are automatically matched and reconciled.

3. Add a 'Pay now' button to your invoices

Turn on online invoice payments so customers see a 'Pay now' button when they receive an invoice. This gives them a simple, secure way to pay you straight away from any device.

4. Test and send your first invoice

Send a test invoice to confirm the payment flow works as expected. Once you are happy, start sending invoices with online payment options enabled. You can turn online payments on or off for each invoice individually.

5. Monitor payments and reconcile

Track incoming payments through your accounting software. With Xero, transaction fees and payments are recorded automatically, so your books stay up to date without extra manual work.

Best online payment providers in the UK

Choosing the right payment provider depends on your business type, the payment methods your customers prefer, and the fees you are comfortable with. Here is an overview of 6 popular options for UK small businesses.

Stripe

Stripe is a developer-friendly payment platform widely used by online businesses and subscription services.

• Accepts credit cards, debit cards, Apple Pay, Google Pay, and more
• Standard pricing: 1.5% + 20p for UK cards, 2.5% + 20p for EU cards
• Best suited to online businesses, ecommerce, and subscription models
• Integrates directly with Xero for automatic payment reconciliation

PayPal

PayPal is one of the most recognised online payment brands, trusted by millions of consumers worldwide.

• Accepts PayPal balance, credit cards, debit cards, and Pay in 3 (BNPL)
• Standard pricing: 1.99% + 29p for UK transactions (varying by volume)
• Best suited to businesses wanting broad consumer recognition and buyer protection
• Integrates with Xero so payments and fees sync automatically

GoCardless

GoCardless specialises in direct debit payments, making it ideal for recurring billing and subscriptions.

• Collects payments directly from customer bank accounts via direct debit
• Standard pricing: 1% + 20p per transaction (capped at 4 pounds)
• Best suited to businesses with recurring invoices, retainers, or memberships
• Integrates with Xero to automate collection and reconciliation of invoice payments

Worldpay

Worldpay is one of the UK's largest payment processors, offering solutions for both in-person and online payments.

• Accepts credit cards, debit cards, contactless, and digital wallets
• Pricing is bespoke and based on business volume and card types
• Best suited to established businesses processing high volumes of transactions
• Supports integration with various accounting platforms, including Xero

Square

Square provides point-of-sale hardware alongside online payment processing, making it popular with retail and service businesses.

• Accepts credit cards, debit cards, Apple Pay, and Google Pay, both online and in person
• Standard pricing: 1.75% per in-person transaction, 2.5% for online payments
• Best suited to retail, hospitality, and service-based businesses
• Offers a free online store and invoicing tools

SumUp

SumUp is a straightforward payment solution designed for small businesses and sole traders who want low-cost card acceptance.

• Accepts credit cards, debit cards, and contactless payments via card reader or online
• Standard pricing: 1.69% per transaction with no monthly fees
• Best suited to sole traders, market stalls, and mobile businesses
• Simple setup with no long-term contracts

What are merchant service fees?

Merchant service fees are the costs your payment provider charges each time a customer pays you online. Understanding these fees helps you budget accurately and choose the right provider for your business.

Here is what to expect for card payments:

• Credit cards: 1.5–3.5% of the invoice value
• Debit cards: 1.4–2.5% of the invoice value
• Example: on a 100 pound invoice, you might pay between 1.40 and 3.50 in fees

Here is what to expect for other payment methods:

• Direct debit: a fixed fee of 0.20 to 2.00 pounds per transaction
• Bank transfers: typically 1–2% of the invoice value

Tips for managing these costs:

• Use traditional payment methods for invoices over 5,000 pounds to reduce fees
• Turn online payments on or off for individual invoices to control when fees apply
• Factor fees into your pricing strategy so they do not eat into your margins

Security considerations for online payments

Security is essential when you accept payments online. Your customers need to trust that their financial data is protected, and you need to reduce the risk of fraud for your business.

When you use a trusted payment provider, they manage the complex security requirements for you. This includes compliance with the Payment Card Industry Data Security Standard (PCI DSS), the global standard for protecting card data. PCI DSS compliant providers handle sensitive card information securely, so you do not have to store or process it yourself.

In the UK, the Payment Services Regulations enforced by the Financial Conduct Authority (FCA) require strong customer authentication (SCA) for most online payments. SCA, part of the revised Payment Services Directive (PSD2), adds an extra layer of protection by requiring customers to verify their identity using 2 or more factors, such as a password and a one-time code.

Here are practical steps to strengthen your payment security:

• Choose a provider that is PCI DSS compliant and supports SCA
• Keep your accounting software and payment integrations up to date
• Review your transactions regularly for unusual activity
• Use providers that offer fraud detection and chargeback protection

How do I account for the transaction fee?

Transaction fees should be recorded as business expenses matched to each payment. Getting this right ensures accurate financial reporting and helps you understand the true cost of each sale.

Here is how to track fees manually:

• Record each fee as a 'Payment Processing' expense
• Match the fee to the specific customer payment
• Calculate the net payment by subtracting the processing fee from the invoice amount

Here is how to automate the process:

• Use accounting software such as Xero to record fees automatically when payments are reconciled
• Link fees to the correct invoice and customer without manual entry
• See actual profit margins after processing costs in real time

Automating fee tracking saves time and reduces the risk of errors in your accounts.

Simplify your payments with Xero

Getting paid faster starts with making it easy for your customers to pay. With Xero, you can connect payment services to your invoices and add a 'Pay now' button, so customers can pay you online in just a few clicks.

Xero integrates with popular payment providers including Stripe, GoCardless, and PayPal, so your payments and fees are reconciled automatically. Less manual admin means more time to focus on running your business.

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FAQs on accepting online payments

Here are answers to some frequently asked questions about accepting online payments for your small business.

What is the best way to accept payments online for small businesses?

Using a payment gateway that integrates with your accounting software is often the easiest approach. It helps you send invoices and reconcile payments automatically, saving time and reducing admin.

How can I receive card payments online safely?

Use a reputable payment provider that is PCI DSS compliant and meets the UK's Payment Services Regulations. These providers handle secure processing of card details, so you do not have to manage sensitive customer data yourself.

What is the most secure online payment method?

Payments made through PCI DSS compliant gateways using credit or debit cards are widely considered secure. Open banking payments also offer strong security because the customer authenticates directly through their bank.

Which online payment method has the lowest fees?

Direct debit typically has lower transaction fees than credit cards. Fees vary between providers and payment types, so compare your options to find what works best for your business.

Do I need a merchant account to accept online payments?

Not always. Many payment service providers, such as Stripe and PayPal, let you accept payments without setting up a separate merchant account with a bank. They act as the merchant of record on your behalf.