As a small business, preparing to accept credit card payments can be a confusing and complex process, but being able to accept these payments can greatly increase your revenue and customer satisfaction. It’s wise to make sure you understand how the process works and review your options before you choose a payment processing company.
Why should you accept credit card payments?
Accepting credit card payments is necessary for most companies. Although some businesses may find the cost to accept credit cards to be expensive, accepting credit card payments will ultimately increase your sales and revenue. In the end, the increased profit is sure to outweigh the costs.
There are a number of key reasons why you should accept credit card payments:
- Customers prefer to use credit cards. Customers often prefer to use credit cards because they find it more convenient and safer than using cash, and they may be able to receive rewards from their credit cards. Many people do not carry cash with them; if they find that you don’t accept cards, they’re more likely to decide not to make a purchase than they are to find an ATM.
- Customers are likely to spend more if they are able to use credit cards. Accepting credit cards increases the likelihood that customers will make larger purchases or purchase on impulse since they won’t be limited to the amount of cash in their wallets.
- Accepting credit cards increases the perceived legitimacy of your business. Customers are used to seeing businesses accept credit cards and may find your business more trustworthy if you display card logos and accept card payments.
- Helps you track transaction history. Many electronic payment systems can track customer payments and activity—this data could help you develop rewards programs or special offers to attract more business. Systems may also help you track inventory.
- Necessary for online sales. Offering online sales can increase your revenue. You must be able to accept credit card payments to do this.
- Receive funds more quickly. Credit card transactions can be processed faster, putting funds in your account quickly. You won’t have to wait to take cash to the bank, wait for invoices to be paid, or worry about bounced checks.
- Reduces cost of cash handling. With fewer cash transactions, you’ll spend less on dealing with cash, which includes time spent counting cash and transporting the cash to the bank or hiring a transport service.
- Protects from fraud. One common concern about accepting credit payments is the risk of fraud, data breaches, or identity theft. Good credit card processing companies typically offer fraud prevention services that will help protect you from these risks.
- Can be affordable. If you choose your merchant account provider or payment processor carefully, the costs can be fairly low.
How to Accept Credit Card Payments
You’ll need to take a number of steps to prepare to accept credit card payments.
1. Determine what type of payments you need to accept.
Before you set up credit card payment accounts, you will need to determine what your business needs are. Will you offer in-store payment, online payment, mobile payment, phone payment, or some combination of these options? The answers to these questions affect what hardware and software you will require and what providers would be easiest for you to work with.
In-store Payments
To accept in-store payments, you will need a merchant account or payment service provider and a credit card terminal or point-of-sale (POS) system. Credit card reading hardware and software can range from small card swipers that work with your mobile device to standalone terminals. Some systems can also track inventory and help you manage employees.
Some payment service providers or merchant accounts will include hardware and software with your account, while others will require you to lease or purchase it. It’s important to consider whether a payment processor’s terminals work well with your existing POS system, if you have one.
Online Payments
Online payments require an online purchasing system, a merchant account or payment service provider that accepts online purchases, and a payment gateway. Payment gateways connect with credit card companies to authorize online purchases. Some providers may charge for use of the payment gateway service, while others include it automatically as part of their services.
You’ll need to choose a payment processor that works with e-commerce systems and works well with your website. Some online payment options are specifically streamlined to work with e-commerce platforms.
Mobile Payments
If you run a very small business or a mobile business that operates at various locations, you may want to accept credit card payments through a card reader that attaches to your phone or tablet. This setup is common for businesses that don’t operate out of a permanent physical location and are constantly on the move, like food vendors or home repair services. Many POS providers offer a mobile card reader that can swipe or read chips.
Phone Payments
To accept payments over the phone, you will need a virtual terminal that allows you to enter credit card information. Because this type of payment is less secure and more vulnerable to human errors, processor markup fees tend to be the highest on this type of purchase.
2. Determine what system you want to use to accept payments.
To accept credit card payments, you’ll need to either open a merchant account or work with a payment service provider.
A merchant account is a type of bank account that processes card transactions and sends the funds to your business bank account. There are many providers of merchant accounts, including banks and credit unions.
A payment service provider is a third-party service that processes credit card payments without using a separate merchant account. Common payment service providers include Square, Paypal, and Stripe.
Should you choose a merchant account or payment service provider?
| System | Pros | Cons |
|---|---|---|
Merchant Account |
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Payment Service Provider |
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There are pros and cons to both a merchant account and payment service provider, and one is not definitively better than the other.
Generally, more established businesses tend to prefer using a merchant account, which provides them with dedicated service and more favorable pricing. Because the financial institution providing the merchant account is establishing a direct relationship with your business, you’ll likely have better customer support and see fewer interruptions in service. However, the application process will likely be longer and involve an underwriting process, requiring you to provide information about your business, banking, tax returns, and credit scores.
Newer and smaller businesses tend to prefer payment service providers because of the simplicity in application and in fee structure. Because payment service providers aren’t opening a dedicated merchant account for your business, they are able to spread out risk by pooling together multiple businesses to share a single merchant account. This means a faster application process with less extensive information requirements. However, you may see less extensive customer support and less stability in service given the pooled nature of the service.
3. Set up hardware and software.
Once you’ve determined what types of credit card payments you will be accepting and chosen a merchant account or payment processor, you’ll need to set up your systems to begin accepting cards.
If you are setting up in-person sales, you will need to choose what type of card reader or credit card terminal will work best for your business. You may already have a point-of-sale system in place; if so, you’ll need to find a card reader that will work with your existing system or choose to switch to a new system.
If you are setting up online sales, you will need to integrate an online payment system into your site. You may need to work with your web developer or payment processor to achieve this. Many e-commerce systems offer inbuilt payment processing software or will assist you in setting up payment systems.
What are the fees for accepting credit card payments?
There are multiple fees for accepting credit card payments, which are collectively called credit card processing fees. These fees are typically a percentage of the purchase amount plus a small flat fee, and there may be monthly fees as well. Some fees are set by banks and credit card networks and are non-negotiable, while others are set by credit card processors and can vary depending on the processor. It’s important to understand these fees and choose the processor that will present the lowest cost for your business.
- Interchange fees are paid to the card-issuing bank (e.g., Chase). These fees are set by the credit card network and can vary depending on the type of transaction, type of credit card, industry your business operates in, and more.
- Assessment fees are fixed fees that are paid to the credit card network (e.g., Visa, Mastercard). Interchange fees plus assessment fees are often grouped together and known as the interchange rate.
- Processor markup fees are paid to the merchant account provider or payment services provider (e.g., Square, Stripe) in exchange for their services. Since these companies set their own fees, you may be able to find options with more favorable rates if you shop around.
It’s also important to be aware of the different pricing structures available:
- Interchange plus plans charge merchants the interchange and assessment fees plus an extra fee per transaction. For example, you could pay the interchange rate plus 0.15% plus $0.30.
- Flat-rate plans charge the same fee for every transaction regardless of other factors. The fee is typically a percentage of the transaction amount plus an added flat fee of around $0.10 to $0.30. These plans may cost more, but the cost is always the same, which can simplify budgeting.
- Tiered plans charge different rates depending on the type of transaction. For example, lower rates may be charged for in-person debit card purchases.
- Subscription plans charge interchange and assessment fees plus a flat fee per transaction, in addition to a monthly membership fee. This pricing model is similar to interchange plus plans, but instead of a percentage fee on each transaction, you pay the monthly membership fee.
Learn more about credit card processing fees.
Compare Credit Card Processing Providers
| Provider | Description |
|---|---|
| Helcim | Helcim offers interchange plus pricing with no monthly fee and no long-term contracts required. |
| National Processing | National Processing offers interchange plus pricing, free equipment, and no long-term contracts required. |
| Payline | Payline offers interchange plus pricing and provides software for billing and invoicing and can integrate with POS systems. |
| Payment Depot | Payment Depot offers subscription pricing plans and includes free terminals. |
| PayPal | PayPal is a well-known service that offers a variety of payment options for businesses, including both in-person and online options. |
| Shopify | Shopify is both an e-commerce provider and a payment processor for both online and in-person sales. You must have an e-commerce website through Shopify to use it. |
| Square | Square is popular for mobile payments, as it offers free mobile payment devices that can work offline. |
| Stax by Fattmerchant | Fattmerchant offers a subscription pricing model that can be useful for businesses with a high sales volume that want to secure low transaction fees. |
| Stripe | Stripe offers flat-rate pricing for online, in-person, and mobile payments. It can be used with other apps and financial software. |
Final Word
Although setting your business up to accept credit card payments takes some time and effort, having this capability provides many benefits to your business, from increased sales to happier customers. Once you determine your business’s needs and make sure you understand the process, you can choose the right credit card processing provider for your business and set up credit card sales without too much hassle.
