An Introduction to Accepting Payment by Credit Card

Learning how to accept credit card payments can potentially increase your sales potential. To connect with more customers in person and make any financial transactions online, credit card processing is an essential service. This guide covers the basics of accepting credit cards at your small business.


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Benefits of accepting credit card payments

Credit cards and debit cards are some of the most common ways people make purchases these days, so having software and hardware for processing card payments allows your business to reach more customers than if you only accept cash. Accepting credit card payments is also essential if you want to sell products online. 


Customers look for convenient ways to shop, so being able to save their card details on your website might encourage existing customers to make repeat purchases. In-person sales are also easier with card payments because people who don’t carry cash can make purchases on the spot.


When you accept card payments, you also have the benefit of improved cash flow. Card transactions can be deposited into your bank account in as little as 24 hours depending on how the payment is processed. With credit cards, you can process invoices faster and avoid the waiting periods associated with cashing checks.


Ultimately, credit cards are ubiquitous in today’s market that customers typically expect businesses to accept card payments. Not having the infrastructure to take card payments could turn off customers so they seek more tech-savvy competitors. You can help customers feel comfortable with your business by providing them with the option to pay using their preferred method, whether it is cash or credit or debit card. 

Related: How to Grow Your Business


Credit card transaction fees

The costs associated with accepting credit cards are known as interchange fees. Interchange fees might vary depending on your card type, bank and other factors. These fees can include a flat rate for authorization and an ongoing per-transaction charge. You also typically pay a percentage or a flat rate to whichever payment processing company you choose. Some companies may negotiate on the exact amount for this fee while others have the same rate for all customers.


How to get started with credit card payments

Introducing credit card payments to your physical store or e-commerce site can be a simple process for small businesses. Follow these steps to begin accepting credit and debit card payments at your business:


1. Decide on a payment processor

To successfully accept credit card payments for your business, sign up for an account with a credit card processing company. These companies manage your holding account that collects payment information from customers and processes transactions before the money moves to your bank account. Depending on your needs, you have two main options for payment processing:


Independent sales organizations

If you have an established business, a merchant account with an independent sales organization (ISO) can typically set you up with a secure business bank account with low transaction fees. ISO merchant accounts can be good for businesses that process more than $10,000 per month because merchant account providers use pricing models based on sales volume and membership. ISOs require a contract negotiation and a more complex application process in exchange for affordable rates.


Payment service providers

Small- and medium-sized businesses often use a payment service provider (PSP) to manage their merchant accounts. PSPs aggregate your business transactions with payments to other companies to create an accessible and affordable way to accept card payments. They usually don’t have account minimums, monthly fees or applications like ISOs. 


2. Choose a POS system

A point of sale (POS) system manages customer transactions and tracks inventory. In person, a POS can be a simple cash register or a tablet with access to a cloud-based database. Businesses that sell online might use digital e-commerce platforms to run a virtual payment terminal on their website and process changes to inventory with each purchase. POS systems can also include basic business analytics like daily sales reports that categorize payments.


3. Set up a payment gateway

A payment gateway authorizes the transfer of customer funds to your business account, secures customer information and either approves or declines each payment. Many payment processing companies offer payment gateway services along with their other account services, but some processors require a separate, standalone gateway to securely process transactions. 


4. Get a card reader

If you want to make sales in person and online, you will need a card reader. Your POS system might have a card reader integrated into its hardware and software, but you can also get a swipe or tap card reader that connects to a phone or tablet. Payment processing companies offer simple-to-use hardware for small businesses to use when selling items at a booth or creating a simple and cheap payment setup for a brick-and-mortar store.

Related: 10 Steps to Starting a Business


How to accept cards in person

Once you have all the necessary software and hardware, you can start accepting credit card payments. Connect your POS and card reader to the internet to facilitate payment processing, then swipe, tap or insert your customer’s card into the payment terminal. The customer may have to enter a PIN or provide a signature to validate the payment. The POS should notify you whether the payment was approved. Successful transactions will deposit funds into your holding account, then transfer them to your connected bank account.


How to accept cards online

For your online store, you need an accessible and secure checkout option for customers. Some payment processing companies only accept some forms of payment, like a credit card, while others have integrated services that allow customers to pay through PayPal, Bitcoin and other digital wallets. On your website, create a separate checkout page or integrate your secure payment gateway somewhere on your website. Some website builders have plugins to add a checkout and shopping function to your page, or you can also use third-party shopping cart software. 


Refunding card payments

Sometimes you may need to give a customer a refund on their purchase through a credit card. Whether online or in person, you should be able to issue card refunds through your POS. Payment processors can have limits on when they’ll issue a refund and may not be able to return a credit payment after a few months. Learn your payment processor’s policy on refunds and chargebacks so you can create a reasonable refund policy for your customers. 


Understanding PCI compliance

Established in 2006, the Payment Card Industry Data Security Standard (PCI DSS) is a set of rules that every merchant that accepts credit cards must follow to protect their customer’s personal information. Credit and debit cards transmit sensitive financial data, and you have a responsibility as a merchant to protect that data. The PCI DSS is not law, but all major credit card companies require PCI compliance.


Every year, you need to submit a self-assessment questionnaire to confirm that you meet the requirements through strong passwords, firewalls and other protections for customer data. Some payment processors validate your PCI compliance for you, but if you use store Wi-Fi for transactions you’ll typically need to submit your own assessment forms to confirm your network security.


Breaking PCI DSS guidelines could result in data breaches and expensive fines of up to $100,000 each month. If your business is consistently non-compliant, your bank could limit or remove your ability to accept credit card payments. 


Frequently asked questions about accepting credit card payments

Here are some frequently asked questions regarding small businesses accepting credit cards:


How can I accept credit card payments without fees? 

Credit card payments typically have associated fees to pay credit card companies for their services. Some payment processors pass this fee along to customers by adding a service charge to each purchase, but most charge a transaction fee to the merchant by default.


Is there an app to accept credit card payments? 

Some payment processors have apps that businesses can use to accept payments through a card reader that plugs into your phone or tablet. Square and Shopify are two of the leading mobile apps for accepting credit card payments.


How long does it take to process a card payment? 

Credit card payments can typically be processed within seconds when your payment terminal uses the internet to automatically verify a payment. It usually takes between one and three days for those funds to transfer from the payment holding account to your business’ bank account balance.


What are the risks of accepting cards?

Payment fraud and data breaches are the biggest risks of accepting credit cards at your business. Even though credit card companies are usually responsible for fraudulent charges, your business may have to pay chargeback and processing fees.


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