How to Accept Credit Card Payments for Small Business

Accepting credit card payments is an effective and advantageous way to improve your small business's cash flow, increase sales volume, and manage your inventory.

In this article, we’ll explain who can accept credit cards, how to get started, and how credit card processing works. We'll also discuss how long it takes and the pros and cons of merchant services vs. payment processing services, to help you make an informed decision.

What Kinds of Businesses Can Accept Credit Card Payments?

Credit cards have become a legitimate and common form of payment around the world. Almost any type of business can accept credit cards these days, including independent contractors, retailers, e-commerce businesses, pop-ups, or brick and mortar establishments.

Do I Need a Merchant Services Account to Accept Credit Card Payments?

In the past, a business needed a Merchant Services account in order to accept credit card payments. Not any longer.

Today’s Payment Processing Services, or credit card processors have replaced cumbersome merchant services accounts (with their restrictive contracts, and annual fees).

PayPal, Stripe, Square, Shopify, and others, now allow small businesses and individuals to accept credit card payments with ease—and usually at better terms.  You will, however, still need a bank account to access your funds.

If your business does large volumes of credit card transactions, a merchant services account can still provide value by simplifying the payment process and dealing with any payment issues.

What Do I Need to Accept Credit Card Payments In Person?

Starting in 2009, Square’s credit card reader revolutionized small business merchant services with its mobile payment platform. This tiny bit of technology enabled businesses and individuals to safely and securely accept credit card payments—on a global scale.

To get started accepting credit card payments in-person you’ll need to decide which credit card networks you’ll accept, e.g. Visa, Mastercard, Discover, American Express, etc., and the following three things:

• A Payment Processing Service. The service that completes the transaction between the card network, and your bank.
• A Point-of-Sale (POS) System. A combination of software and hardware used to ring sales and track inventory, which may also include card readers, cash register terminals, cash drawers, and barcode scanners.
• A Card Reader or Scanner. Many POS systems provide card and chip readers with their software to facilitate accepting in-person credit card payments at your location. If yours does not, you will need to purchase these separately.

What Do I Need to Accept Online Credit Card Payments?

If your business is an e-commerce enterprise, you have other options besides a merchant’s services account to accept credit cards. Payment service providers have simplified online credit card transactions, with varying terms, based on volume and amounts.

To accept credit cards payments online, you’ll need the following:

• A Payment Processing Service. Same as above.
• A Payment Gateway. The customer-facing user interface (electronic input form) that allows a customer to enter their credit card information safely and securely.
• Website Integration with Proprietary Software. The payment service provider’s proprietary software integrated into your website's functionality.

Before purchasing these software modules (or APIs), ensure compatibility with your website for seamless integration.

What is a Mobile Wallet or Electronic Credit Card?

Mobile wallets or Electronic Credit Cards function just like a credit card. They were designed for the added convenience and security of not carrying physical cards. They store credit card and banking information in a device, usually a mobile phone, that can be used with most POS card readers.

How Does Credit Card Processing Work?

When a customer swipes, taps, or enters their credit card information to make a purchase, a series of events take place.

First, the credit card reader, or payment gateway, captures the card’s information and transmits it to the payment processor. The payment processor verifies the transaction with the card’s network while simultaneously communicating with the issuing bank to approve, or deny, the transaction.

If approved, the transaction is complete, and a merchant can expect to receive the funds within a few days.

How Long Does it Take for Credit Card Payments to Process?

It all happens in the blink of an eye. However, the real question is, when will money from a credit card transaction make it to your account?

If the payment is approved, the transaction is completed, and your payment processor instructs the issuing bank to remit funds to your bank account usually within 48 - 72 hours.

How Much Does it Cost to Accept Credit Card Payments?

At the very minimum, businesses accepting credit cards will pay processing or transaction fees, which vary based upon a number of factors.  The volume of transactions, the type of card used, e.g. credit or debit, and the credit card network are all factors that play into the transaction fees.

Whenever a customer uses their credit or debit card to make a purchase, your business is charged a fee, usually a percentage of the transaction, plus an additional fixed amount.

For example, a credit card company might charge between 2.6% and 4.8% of the total purchase amount, plus an additional fixed fee between $0.10 and $0.30 per swipe or tap. For a $100 purchase, the credit card transaction fee could be between $2.70 and $5.10.

Since debit cards are linked to available funds in a customer’s checking account, there's less risk involved. Merchants are often charged less when a customer uses their debit card to make a purchase.

What are the Benefits of Accepting Credit Cards?

Accepting credit cards is advantageous for your business in a number of ways. U.S. credit card transactions increased significantly between 2016 and 2018. Not only are consumers using cash less frequently, studies have shown they are also likely to spend up to 80% more when they use their credit cards.

If you think accepting credit cards is too costly for your small business, consider this. By not having a credit card terminal, a potential customer would have to leave your establishment and track down the nearest ATM, and who mostly likely will never make it back to your business. Many consumers expect this convenience and view cash-only businesses as less legitimate.

Lastly, your business won’t be subject to the long-term subscriptions of arcane merchant services accounts, changing monthly fee structures, or the inconvenience of dealing with multiple entities.

Are There Disadvantages to Accepting Credit Cards?

There are relatively few disadvantages to accepting credit cards outside of the fees. Moreover, many online businesses and digital services would not be able to do business without accepting credit cards.

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