PayPal has added new features to its invoicing product in a market filled with rivals that are similarly diversifying their services to lure small businesses.

"[Invoicing] has been a popular product, especially for smaller businesses," said Dan Leberman, vice president and general manager of North American Business for PayPal.

The upgrades followed user research that found a demand for more communication options, particularly for business to business transactions, he said. PayPal has offered invoicing since 2004, and 2.5 million businesses sent PayPal invoices in 2014.

The quick growth of merchant services is creating pressure on all companies to flesh out any offering related to payments and billing.

"It looks like anyone who wants to compete in the small- to medium-sized business space needs to offer a complete suite of payment and services capabilities, ranging from loyalty to receivables financing to invoicing," said Thad Peterson, a senior analyst at Aite Group. "Players like Square are pushing upstream to capture more share, and large organizations like First Data and NCR are offering comprehensive SMB packages as well. PayPal has been there for a while and they are in a more defensive role than many of the competitors."

As part of the PayPal invoicing update, templates now include quantity of sale or time spent performing a service. This fills a small but meaningful gap in PayPal's offering, Leberman said.

"We've enabled the business to select the type of product or service that they are invoicing against, they can say there is a quantity of units sold, or hours of service performed," Leberman said. "That sounds simple, but it's a challenge for businesses and [some] pointed that out as a gap."

Additionally, PayPal is enabling partial payments through the invoice service, which feeds a demand for improved negotiating tools. The remaining amount due can appear on the invoice.

Other additions include recording for cash and check payments¬óbusinesses can manage all invoices with PayPal, even for non-PayPal transactions.

"One of the things that we learned is a lot of smaller businesses are using invoicing as a miniature accounting suite," Leberman said. "They want to be able to record payments that aren't actually using the electronic invoice delivery."

PayPal's business services also include PayPal Credit, which allows consumers to divide larger purchases into monthly payments. PayPal recently expanded the program by offering consulting. An additional program, called Working Capital, extends credit to businesses and collects repayments as part of the client's ongoing PayPal transactions.

These programs are not directly related to invoicing, though businesses can remind invoice recipients to apply for PayPal Credit to fund the payment, Leberman said, adding there is a way to navigate to PayPal credit from the invoice program.

Square also offers a lending program, Square Capital, that operates in a similar manner to PayPal's Working Capital.

With so many competitors, the merchant services market may be getting too crowded, according to Peterson.

"The question I'm beginning to ask is whether there's enough business to profitably support the number of players that are getting into the space," he said. "Another question is whether there are enough 'hooks' in the integrated offerings to hold a merchant for an extended period."

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