If you want your business to thrive, you need to be able to accept payments from your customers in as many ways as possible. Cash-only businesses are rare these days, and for good reason: Many people don't carry cash whatsoever, even when out shopping for hours at a time.
So how can you accept credit cards as a small business owner? In total, there are three relatively straightforward ways for you to accept both credit and debit card transactions.
However, as you probably know, accepting credit cards comes with added responsibilities and costs, such as monthly charge minimums, PCI compliance charges, and customer disputes to credit card charges. So why even bother with it?
Why you should accept credit cards as a small business
Given the hassle involved with setting up credit card stations or starting a merchant account, many small business owners might wonder whether it's worth accepting credit cards in the first place. There are many benefits of accepting credit cards from your customers, including:
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Faster payments: Aside from cash, there's no way to get paid faster than through debit or credit card transactions, the money from which is typically deposited into your business bank account within 48 hours.
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Increased revenue: Cardholders usually spend more money when they aren't limited to using cash.
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Increased customer satisfaction: Customers will be pleased with your business for providing convenient service and an easy way to pay.
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No checks: Small businesses that accept credit cards don't necessarily have to accept checks. Credit card or debit card transactions pull funds directly from customer checking or spending accounts.
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Online market positioning: Accepting credit card payments is essential if you want to break into online sales or start an online store.
To sum it up, credit card payments will allow your small business to take in more cash, accept payments from more customers, and grow your business with flexibility.
How to accept credit cards as a small business
Consider the available merchant service providers in your area. Different providers might offer different benefits, require payments of different fees or charges, or have different POS hardware and software.
To start off, open a merchant account at your bank. Then decide from the below three options for accepting in-store credit card payments.
In-store credit card payments
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What you'll need: MSP, POS system, software, credit card swiper
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What is accepted: Credit/debit cards, cash
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Who it's best for: Retail stores or small businesses with both online and in-person storefronts
In-store credit card payments require a POS or point-of-sale system, which usually includes hardware like a credit card reader and software to process customers' credit card payments.
With a POS system, your customers physically insert or swipe a credit or debit card, depending on whether it's a chip card or magnetic stripe card. Transactions are quickly approved or declined, and you'll then get the funds deposited to your business bank account in as little as 24 hours. However, keep in mind that some payments take up to 3 days to process, depending on the financial institution.
This method is excellent for brick-and-mortar retailers or small businesses that generate large percentages of revenue from in-person transactions. For online small businesses, you'll need a different tool to process customer payments.
Online credit card payments
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What you'll need: A payment processor and a payment gateway, not to mention a website to list and sell your products
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What can it accept: Credit and debit cards, ACH and eCheck payments, and digital wallet payments
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Who it's best for: eCommerce small businesses or primarily online stores, as well as restaurants that do delivery
Online credit card payments are naturally the best way to receive credit or debit card transactions for small online businesses.
To accept these kinds of payments, you must sign up for an online payment gateway like PayPal or Stripe. These services process client payments for you over the internet, then charge a processing fee for every transaction you accept.
Many integrate cloud-based accounting solutions and other credit card payment software apps and technology. So if you have online accounting or tax software, you'll be able to make the most of this method and keep your information and profits secure simultaneously.
Mobile credit card payments
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What you'll need: Smart device like a phone or tablet, mobile credit card reader, and pairable software
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What can it accept: Cash, credit/debit cards
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Who it's best for: Small or casual businesses, mobile businesses like contractors, food trucks, etc.
Mobile credit card payments are a more recent method of online payment. They are ideal for small business owners or contractors who do their transactions at work sites or their clients' homes.
Mobile credit card payments involve using a mobile card reader, including gadgets like Square. These portable devices plug into a smartphone or tablet and partner with a primary (or brand-associated) credit card app to accept debit or credit card payments from anywhere, provided you have a solid internet connection.
These can also be a good choice for small businesses that don't want to pay for a dedicated POS system.
How exactly does credit card processing work?
Here is a general overview of each process involved:
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A customer hands you a credit card, and you use a credit card terminal (if it's a physical store) or a payment gateway or virtual terminal (if it's an online store).
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You take the credit card information or data from the card presented.
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The card data goes to a payment card processor – the processor's network checks with the cardholder's issuing bank to make sure that the funds are available.
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Many processing networks also run anti-fraud checks to catch suspicious transactions.
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The transaction is approved.
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At the end of every business day, the vendor (you) uploads all completed credit or debit card transactions to the processor's network.
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Your credit card processor applies an interchange and markup fee for each transaction, and you get the profits from whatever is left.
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The funds are deposited into your account within 48 hours on average.
Small business owners consider their options carefully because the fees and other inconveniences associated with credit card transactions can sometimes mean they make less or even no money from credit card payments.
What are interchange and markup fees?
These are fees levied by your processing network company. Card networks set interchange fees, so merchants can't negotiate them. Fees are in place to pay the banks and other financial organizations involved with setting up the credit card processing network.
Meanwhile, the markup fee is what your payment processor charges you to use their services. These fees are sometimes negotiable, but not always.
Do you have to have a merchant account to accept credit cards?
No, although this was previously necessary. In a nutshell, a merchant account is a bank account you use specifically for depositing the funds from credit or debit card transactions. Merchant accounts can be expensive, but they can provide discounts or other benefits if you process many credit card transactions each month.
If you plan to accept many types of credit card transactions, open a merchant account, so you have more options when selecting how you want to process those payments. You can usually open a merchant account through a processor network.
What about a merchant service provider (MSP)?
You need an MSP to accept credit card payments. MSPs can give your business the equipment and software you need to accept credit and debit card transactions. However, you should choose your MSP carefully by asking yourself questions like:
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Whether the MSP offers fraud protection
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What kinds of services the MSP offers
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What kinds of payments they process (some will offer all three of the above ways, while others may be more specialized)
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What fees they charge for each transaction. Fewer fees mean more profits in your bank account at the end of every day
How to choose the best credit card processing method
In the end, there are three easy ways for you to accept credit card payments as a small business. If you want to make sure you choose the best method for your business, ask yourself these major questions:
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How many credit and debit card transactions do you expect per day? The more transactions, the more likely you will need to provide in-store or online payment options.
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Where do most of your profits come from in terms of payment location? If they come from your retail store, opt for an in-person credit card station. If they come from your online store, then payment processing and gateway services are the way to go.
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How much money do you have to spend to set up a credit card processing station? Online and mobile credit card processing solutions are cheaper than in-person credit card processing solutions in general since POS stations and software are often expensive, depending on how many credit card swipers you need.
Once you've answered these, you'll be able to choose the best credit card processing solution for your small business.
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