How To Accept Credit Card Payments?

Accepting credit card payments is a standard practice these days. Yet, you’ll still find many small businesses across the U.S. that are cash only establishments.

More than half, actually. 55 percent of small businesses in the U.S. don’t accept credit card payments – that’s 15 million businesses! And those businesses are missing out on $100 million dollars, about $7,000 per company simply because they don’t accept plastic as a form of payment.

Are you missing out on sales because your business doesn’t accept credit cards? If so, here’s everything you need to know about accepting credit card payments at your small business.

These days, accepting credit card payments for your products or services is a virtual requirement. In fact, some businesses have begun to do away with cash transactions entirely—perhaps because researchers have found that people overspend with credit cards. (Good news for you as a small business owner, but maybe something to keep an eye on for you as a consumer.)   

As a small business owner, though, outfitting your enterprise to take credit card payments isn’t as simple as you might expect it to be. When it comes to choosing a payment processor, you’re a bit spoiled for choice—but with all of those choices come equipment and fees to stay on top of.  

But don’t let these complications deter you. Accepting credit card payments is crucial to the success of your small business, and the better you understand how the process works, the more empowered you are to choose your payment processing system wisely.

A Step-by-Step Guide to the Credit Card Payment Process

Before we get granular on the component parts necessary to the process, we’ll lift the hood on what’s really occurring every time you accept your customer’s credit or debit card at your store.

1. You input your customer’s credit card information into your card reader. The equipment or software required to accept this data depends on whether the transaction is in-person, online, or over the phone—we’ll get into greater detail on equipment later.

2. After you swipe/dip/tap/manually input the data from your customer’s credit card, your payment processor transmits that data to your merchant account. If it’s an online sale, then your customer’s information passes through a payment gateway, which authorizes merchants to accept online payments and securely submits the customer’s credit card information.   

3. On the way to your merchant account, your payment processor checks in with the customer’s bank, or issuing bank, before they can accept or deny the payment information. That decision depends on whether the customer has sufficient funds, is spending below their credit limit, and whether there’s evidence of fraud.

4. If the issuing bank approves of the customer’s purchase, then you can accept the payment and complete the transaction. If the bank doesn’t approve, then the customer’s payment will be declined.

5. Once approved, your payment processor will deduct their fees and then deposit the remaining funds into your merchant account. All told, you should see funds for each approved transaction in your business bank account (minus fees) within a few days.  

How to Select a Merchant Service Provider

We mentioned that merchant accounts can be obtained from your local bank or a third-party provider such as an ISO and MSP. We suggest going with an ISO or MSP because when it comes to credit cards, you need a ‘service provider.’

Your business doesn’t have banker’s hours – it’s not 9-5. Also, you don’t just need a bank to help you run your business. You need business management tools and solutions that will help you run a more efficient business.

That’s exactly what ISOs and MSPs provide. In addition to merchant accounts, they can offer an entire ecosystem of small business solutions (we’ll talk about these later) and 24/7/365 customer support, not just 9-5.

Besides 24/7 customer support and knowing how that support is delivered (ex. phone, chat, email, online documentation, etc…), here are a few other things to consider as you go through the vetting process.

Is the Payment System PCI Compliant?
In a time when data breaches are becoming more and more common, it’s important that you choose a payment provider that is using industry best practices and PCI validated payment applications.

What Type of Fraud Protection is Offered?
Make sure you can enter additional card information at the point of purchase such as the security code (CVV) or cardholder’s zip code (AVS). Some MSPs also offer fraud protection services or insurance on certain types of fraudulent activity.

What Other Services does the Provider Offer?
MSPs and ISOs not only provide merchant service accounts, but many of them provide other business management tools. Find out if they offer payroll solutions or financing options like cash advances or loans. If you’re going to use them for processing, you might as well put some of your other tools in the same shed.

How Much Flexibility does the Provider Offer?
If you’re only running a brick and mortar store today but you aspire to have an online store up and transacting within the next year, can the service provider process ecommerce payments as well, and vice versa? We’ll get into more detail about this a little later.

What About Interchange Fees?
If you want to accept credit cards at your business, there are going to be fees. You’re paying for a service that the card networks and other aforementioned parties are providing you. Thus, there is a fee for the service rendered. Just like you pay your cell phone provider, cable provider, or Netflix bill every month.

Make sure the company is transparent about their fees and that you’re actually receiving the services from those fees. Some fees, such as interchange are on a per transaction basis.

Two of most the popular pricing structures you’ll come across in a statement is Interchange Plus and Tiered Pricing. Each one has its pros and cons. The main fact every business owner needs to know how to accept credit card payments is that each card used in your establishment has its own wholesale rate. The wholesale rate or interchange fee is the rate the card brands charge to use their network. This fee is non-negotiable no matter what provider you choose and the transaction fee is applied to every single credit or debit card purchase.

Interchange Plus is the markup that MSPs and ISOs add to the wholesale rate set by the card networks. For example, it may cost 1 percent to process a credit card at a wholesale rate. But the merchant service provider might add 35 percent and $0.20 to process that transaction.

If a customer comes in with a $100 purchase and your rate is 1.35 percent plus $0.20 per transaction, from that $100 transaction you’ll see $98.45 deposited into your merchant account: ($100 – 1.35%) – $0.20) = $98.45.

Most business owners feel more comfortable when they know the exact percentage and the dollar amount they’ll be charged for each transaction. Also, keep in mind that fees may increase or decrease based transaction volume and dollar amount being processed.

Why Should I Accept Credit Card Payments at my Business

Now that you know how to accept credit card payments, here’s why you should.

Less Human Error and More Theft Prevention
When you accept cash payments, there’s always the risk of running into situations where a cashier gives back too much change, causing the register to be short. If your business is cash-only, this risk of this happening increases tenfold, causing significant headaches for you.

When you accept credit and debit cards, it reduces the chances of a cashier making a mistake. The frequency of cash transactions goes down, meaning less human errors. Busy hours become a breeze because the cashier only has to swipe the card and ask the customer if they would like a receipt.

Not only do you reduce the risk of innocent human error, but you also reduce the risk to not so innocent human error. When you’re dealing with cash, it’s easy for a dishonest employee to pilfer a few extra dollars when the cash drawer pops open during a sale.

With credit card transactions, employees have no access to cash during the course of the transaction – making it a lot harder to swipe.

Don’t forget the risk of taking in counterfeit money, keeping a large amount of cash-on-hand, and driving to the bank every day to make a deposit. Even though credit card acceptance comes with its own unique security concerns, let’s not forget security is also a concern with cash payments.

It Encourages More Sales
If a customer wants to buy a $200 item, but they only have $150 in cash, they have two options. They can leave the store or use their credit card. That’s an extra $50 spent, by just having the ability to process credit card payments.

More times than not, customers spend more money when they use a credit card. There have been numerous social science and economic research that validates the idea that consumers do in fact spend more using plastic as opposed to cash.

Think about the last time you went into a store with the intention to buy one thing. Then you saw this item you needed and that item and before you know it you had three or four extra items in your shopping cart. Luckily you had your credit card to make the purchase. The same goes for customers coming through your doors.

Before a small business owner decides to accept credit cards they should have all the facts and a good understanding of how to accept credit card payments. As outlined in this post, there’s a number of ways you can do it, but it’s up to you to find the best solutions for your business model. So the next time a potential customer comes in to make a huge purchase and wants to use their credit card — smile! You’ve just made a sale.

Choosing the Right Way to Accept Credit Card Payments for Your Business

Understanding the process, equipment, and fees involved when you accept credit card payments is certainly important—but only inasmuch as that knowledge informs your decision about which payment processor to choose for your business.   

Ultimately, whether to opt for a traditional merchant account and credit card terminal or a PSP largely depends upon the volume and average price of your transactions. If you’re processing tons of credit card transactions for expensive items, then the per-transaction flat fees a PSP charges will rack up quickly. Comparatively, a traditional merchant account may be more affordable, even though they come with more types of attached fees.

In general, PSPs are excellent options for startups and the smallest of small businesses, not least because their payment structures are much more transparent and manageable than those for merchant accounts. They also don’t usually require years-long and tough-to-break contracts that merchant accounts do.

But if you’re a larger small business, or if you anticipate growing rapidly in the near future (with the increased credit card transactions to match) you might find the support and lower cost you need with a traditional merchant account.

Whichever route you choose, make sure that you’re equipped with the hardware and software necessary to accept payments in any scenario, especially if you want the option of selling your products or services outside a physical location.      


[1] How to Accept Credit Card Payments

[2] How To Accept Credit Card Payments Online in 2019: What Are Your Best Options?


[4] How to Accept Credit Cards Online, In-Store or Anywhere