How to Accept Credit Card Payments as a Small Business

Gusto Editors

Setting up your business to accept payments is something you want to get right the first time. Whether you have a brick-and-mortar shop, e-commerce, or hybrid business, having a way to conveniently receive credit card payments from your customers is crucial to your success. This guide will provide you with the information and steps you need to get started. 

6 Steps to accepting credit card payments

1. Decide how your business will accept credit card payments

Before you sign up for a merchant account and install credit card terminals, you first need to determine the various ways your business will accept credit cards. We discuss the most common options below.

In-person credit card payments

Brick-and-mortar retailers as well as mobile businesses (e.g. food trucks and onsite service providers) benefit the most from accepting in-person credit card payments. The risk of fraud is lower than other types of payments because the customer presents the card physically and sometimes signs a sales receipt. Some credit cards even have a picture of the account holder as an additional fraud prevention measure.

You will need to establish a merchant account and set up a point-of-sale (POS) system and a card reader before you can accept credit card payments from customers in person. (Keep reading—we’ll cover this information below.) Prices can vary considerably depending on the company you choose to work with and the features you use when you accept credit card payments.

Mobile credit card payments

If you have a mobile business, you need a mobile credit card reader. You’ll connect the credit card reader to your smartphone to accept mobile payments anywhere you can get an Internet connection.

Over-the-phone credit card payments

These payments happen, as the name suggests, over the phone. One thing to keep in mind is that credit card issuers tend to charge higher transaction fees when neither the credit card holder nor the physical card is present during the sale because the risk of fraud is greater. 

However, this can be convenient for the customer if they are placing an order with a customer service rep or sales person. A restaurant that accepts takeout orders by phone is one example of a type of business that could benefit from this technology. You will need a POS or online payment system gateway and a credit card reader to accept credit card payments by phone.

Online credit card payments

E-commerce companies, digital service providers, and companies offering digital merchandise should be able to accept credit card payments. In order to accept credit card payments online, you will need a digital storefront and a payment gateway. Expect to pay higher processing fees than in-person transactions due to the increased risk of fraud.

2. Consider the fees 

Merchants set per-transaction swipe fees based on your sales volume. These typically range from 1.3 to 3.5 percent of each sale plus a flat rate ranging from 10 to 30 cents. Here are some other average fees to consider:

  • Assessment fee: This fee goes to the network sponsoring a bank’s credit card. For example, if Wells Fargo offered its own branded credit card, the assessment fee would go to Visa, MasterCard, American Express, or Discover. The current average range for assessment fees is between $0.13 to 0.15. However, single transactions over $1,000 typically only incur an assessment fee of $0.10.
  • Interchange fee: This fee goes to the bank or retailer offering a branded major credit card. Using Wells Fargo from the example above, the interchange fee would go to them. The current range for credit card interchange fees is 1.5 to 3.3 percent plus a flat fee of up to 10 cents per transaction. Your merchant category, type of credit card used, and processing method all help to determine your interchange fee rate.

Here are the swipe fees charged by the major credit card issuers as of 2022:

  • American Express: 2.3 to 3.5 percent
  • Discover: 1.55 to 2.5 percent
  • Mastercard: 1.5 to 2.6 percent
  • Visa: 1.4 to 2.5 percent

Your monthly volume of sales is the biggest determining factor for how much you pay in credit card swipe fees. The more transactions you process, the lower your per-transaction fee. How you accept credit cards also matters, with in-person swipes incurring the lowest fees. Credit cards that require the customer to enter a personal identification number (PIN) into the terminal keypad also receive lower rates because this practice reduces the risk of fraud.

3. Consider different credit card processing options

Now you need to choose a point-of-sale system (POS) and a payment processing system. Linking your POS system to a card reader allows your business to process transactions more efficiently and accurately. These five companies are currently the most popular third-party payment processors for small businesses:

  1. PayPal

PayPal is one of the oldest and best-known online payment processing systems. While it originally started as a way to send money to family and friends online, PayPal now offers a wide range of merchant solutions for online and offline credit card processing. Examples include PayPal checkout for online purchases, PayPal invoicing for billing, and PayPal Here for POS systems. Current per-transaction fees are 2.7 percent plus $0.30 for in-person transactions and 2.9 percent plus $0.30 for online transactions.

2. Shopify 

If you build an online store with Shopify, you could use their built-in payment system to accept payments from customers. Your fee is the same whether the customer pays in-person or online. You pay a monthly fee for credit card processing and invoicing capability with the cheapest plan starting at $9. Transaction fees are 2.7 percent for in-person transactions and 2.9 percent plus $0.30 for online and card-not-present transactions.

3. Square

Often ranked as the best payment processor for mobile businesses, Square offers a small card reader you can attach to your smartphone. The company typically provides the mobile card reader at no charge. Since the card reader also works offline, you can still accept credit card payments in locations where you cannot establish a Wi-Fi connection. In-person transaction fees are 2.6 percent plus .10; online transaction fees are 2.9 percent plus .30; and card not present transactions are 3.5 percent plus .15.

4. Stripe 

Ideal for online businesses looking to scale, Stripe offers payment solutions that grow with your business. You can easily integrate Stripe’s platform with other solutions, such as customer relationship management and accounting software. Stripe’s current in-person per-transaction fees are 2.7 percent plus .05 and each online transaction costs 2.9 percent plus .30.

5. Venmo 

Venmo is a well-established payment processor that is owned by PayPal. Venmo can only accept online payments at this time. Standard transfers to your bank account are free. The current per-transaction rate is 2.9 percent plus $0.30.

4. Set up a merchant account

Merchant accounts serve as a holding account for the funds your company receives from credit card transactions. The account provider settles your sales each day and then sends them in a batch over to your bank. The provider deducts its various fees before you receive a final daily settlement. You receive guaranteed payments because the credit card issuer takes on the risk of consumers who become delinquent with their accounts or file for bankruptcy.

Companies offering merchant accounts charge various fees and require you to submit an application with documentation of financial responsibility. You are free to apply to more than one merchant account provider and compare features and pricing before selecting the best provider for your company’s needs.

5. Connect processing software to payment terminals

The next step is to get everything set up and connected. When setting up a card reader, connect cables from the reader to your computer’s USB. Complete a test transaction to ensure that your system is connected and running properly. 

If you are installing a simple POS system that only uses an iPad, you should be able to complete the process on your own. Just launch the software that came with the POS system and enter a few details about your business before processing your first credit card transaction. Retail stores with multiple locations or large, complex product catalogs will require set-up assistance from the company that sold you the POS system.

With online payment portals like PayPal, sign into your account and make sure you plug in any accompanying equipment to your computer or smartphone. The second step ensures that you can process credit card payments online.

6. Test and make sure all systems are working

Be sure to complete several small transactions using your POS or online payment portal before you make the payment option available to customers. You can always void the transactions once you are certain they went through as intended. This step is important to ensure that you’ve worked out any technical glitches and your customer credit card transactions go through without a hitch.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
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