How To Set Up Credit Card Payments For A Small Business

You may have heard by now that the use of cash as a payment method is on the decline. Fewer people carry significant amounts of (or any) cash with them, preferring to rely on debit and credit cards when making purchases. Moreover, the COVID-19 pandemic spurred an even steeper decline in the percentage of cash payments, although it’s not certain that this trend will continue once life returns to “normal.”

Nonetheless, it’s extremely important that your business has the ability to accept both credit and debit cards and possibly other payment methods as well. You don’t want to miss out on all those additional sales opportunities as disappointed customers walk out without making a purchase simply because they can’t use their credit cards and don’t have any cash with them.

Unfortunately, taking credit card payments is both complicated and expensive. Besides needing to acquire the necessary processing equipment, you’ll also have to go through an extensive underwriting process before you can be approved for a merchant account. (Note that payment service providers (PSPs) such as Square offer a simpler account that requires a lot less paperwork.)

The payment processing industry is also notorious for charging arcane percentage-based fees and other unexpected per-occurrence fees. These are so hard to predict that it can be almost impossible to estimate your actual cost for taking credit cards in advance.

We’re here to help. This article explains how to set up credit card processing for your small business. We’ll discuss the various options for taking card payments, including the required hardware and software you’ll need. We’ll also show you several alternative payment methods that you might not be familiar with yet. Finally, we’ll point you to some additional resources that can help you learn more about the convoluted world of payment processing, allowing you to make more informed decisions about how to accept credit card payments for your small business.

5 Steps To Setting Up Credit Card Processing For Small Businesses

Selecting a payment processor for your business requires methodically going through a list of steps. You’ll want to do some careful research into your options before choosing a particular provider for your processing needs. However, it’s equally important to closely monitor your actual costs once you’ve been approved for an account and started accepting credit card payments.

While it would be impossible to come up with a specific number, we estimate that at least half of the small businesses in the United States are overpaying for credit card processing. That’s usually because they didn’t follow the step-by-step approach we’re going to outline below and instead just accepted the word of the first sales agent who walked in the door. Read on if you’d prefer to avoid joining this unfortunate group.

1)  Find A Payment Processor

Your first step — which will require a significant amount of research on your part — is to select a payment processor that will be a good fit for your business. Most processors usually offer only one of two types of payment processing services: (1) true, full-service merchant accounts, or (2) aggregated accounts, which you’ll find with payment service providers (PSPs), such as Square, Stripe, or PayPal.

Both of these approaches to payment processing have their advantages and disadvantages. Using a payment service provider will give you quick and easy account approval, a minimum amount of recurring fees, and predictable flat-rate pricing. However, you’ll also have to contend with limited customer support options and an elevated risk that your account will suddenly be shut down or frozen. Also, flat-rate pricing becomes less cost-effective at higher monthly processing volumes.

Merchant accounts offer much better account stability and generally lower processing rates, and require much more underwriting to get approved for an account. You’ll also have to be on the lookout for long-term contracts, early cancellation penalties, and a host of additional monthly fees on top of the cost of processing your transactions.

Unfortunately, there’s no simple way to decide which option will be a better choice for your business. As a very general rule, payment service providers work best for businesses that process less than $5,000 per month; those processing more than this amount will usually be better off with a true merchant account. We highly encourage you to look at both options and compare your estimated costs under each one before deciding.

2)  Negotiate Rates & Terms

Once you’ve identified several possible candidates (we recommend selecting at least three alternatives), contact them and get quotes. In addition to asking about the per-transaction fees, don’t forget to ask about the incidental fees as well, as those can add up very quickly.

It’ll be difficult to get a true apples-to-apples comparison on the price, given all the pricing models out there for card processing. However, if you make sure that your contract can be terminated at any time, even if you do make a mistake, you won’t be stuck with a bad processor for a very long time. Just remember that the basic interchange fees for processing a transaction are passed through by your processor and beyond their control. However, markups kept by your processor can be lowered (to a reasonable degree) through negotiation.

Processing rate plans come in four different varieties, with interchange-plus and subscription pricing models clearly disclosing the provider’s markup, while flat-rate and tiered pricing options do not. For a more in-depth discussion of processing rate pricing plans and how to recognize which one you’re using, check out our article, How To Identify The Pricing Model On Your Processing Statement.

3)  Choose Your Hardware & Software

Unless your business is eCommerce-only, you’ll need some equipment to process your transactions. This could be a traditional countertop credit card terminal, a point of sale (POS) system, or even a mobile card reader that works with your smartphone or tablet. If you accept any online sales, you’ll also need a payment gateway to facilitate those transactions as well.

We’ll get into more detail on these products and services below. For now, just be aware that none of this will be free. You’ll either have to buy, rent, or lease your processing hardware, and payment gateways and other software services almost always require an additional fee of some sort. Also, be aware that popular products such as Square’s line of terminals and card readers and Clover terminals and POS systems are proprietary products that won’t work with a different provider if you later decide to switch processors.

When it comes to hardware, we strongly recommend that you buy your equipment outright rather than leasing it. Furthermore, be very wary of the increasingly popular use of “free” credit card readers that require you to sign a long-term contract.

4)  Launch Your Business

This might mean actually launching your business, changing processors, or maybe going from in-person cash-only to online sales. No matter which, there’s a lot involved in doing all that, from getting a physical location/online store, to hiring employees, to getting all the legal paperwork ready. Some of these we cover on this website, but most we do not. In fact, there’s so much involved that we won’t even attempt to cover everything here. We will assume you got the best advice from your available sources, that your grand opening was a huge success, and that you got to use your brand-new credit card processing service lots and lots of times.

As a part of opening your business and starting to take payment cards, you’ll discover that you’ll work with repeat customers, have fraudulent charges, failed transactions, and more. When dealing with these issues starts to get really painful, take a deep breath, and remind yourself that these are just regular hiccups related to credit card processing. Eventually, your reward in the form of increased sales will vastly outweigh your inconveniences.

5)  Monitor Monthly Statements

Unfortunately, launching your business isn’t the last — or even the most important — step. The most important step is to continue monitoring your monthly statements and regularly revisit your credit card sales data.

Sometimes, processors charge merchants incorrectly on per-incident items. It’s not necessarily because your processor is bad. It might be a simple data entry mistake. But if you don’t monitor your statements and speak up, no one will correct the error. When you finally notice these extra charges months or even years later, the processor might refuse to refund you 100% of the overpayment. We’ve seen many complaints about this problem on the Better Business Bureau website.

We’ll also warn you that some providers love to raise your rates and fees after you’ve been with them for a while (typically six months to a year). Unfortunately, this often happens with no notice to you, so carefully reviewing your processing statements every month is the only way you’ll catch onto this shady practice.

3 Ways To Accept Credit Card Payments As A Small Business

Merchants can accept credit card transactions either in-person or online. Another category of transactions, mobile payments, has become more popular in recent years as wireless terminals and mobile card readers have allowed businesses to accept payments virtually anywhere.

Accepting Credit Card Payments In-Person

For businesses with physical locations (such as retail stores or restaurants), you’re going to need at least one credit card machine per location. These days, you have a choice between a traditional countertop credit card terminal and a POS system.

Countertop terminals can process transactions, but most traditional models offer little or no additional functionality. On the other hand, a POS system can handle inventory management, employee scheduling, and a host of other functions. Naturally, POS systems cost more than most countertop terminals, although tablet-based systems (such as ShopKeep) are more affordable (and mobile) than a standalone POS terminal.

Whatever type of equipment you decide to purchase, make sure it’s EMV-compatible at a minimum. EMV (Europay, Mastercard, and Visa) is now the standard method for accepting credit and debit cards in the United States. Since the EMV liability shift in October 2015, you can be held responsible for a fraudulent transaction if you accept an EMV-enabled card using the magstripe instead of the chip. These days, EMV-compatible terminals are widely available and less expensive than ever. With most customers now carrying EMV cards, there’s really no good reason to continue using a magstripe-only card reader.

If you want the latest and greatest in card acceptance technology, it’s pretty easy to find a terminal or POS system that accepts NFC-based payment methods. NFC stands for near-field communications, and it’s found on digital wallet payment systems, such as Apple Pay, Google Pay, and Samsung Pay. NFC technology is built into most modern smartphones, tablets, and even smartwatches. This technology is gaining in use as more people become aware of its availability and convenience.

Accepting Credit Card Payments Online

For eCommerce-only shops, you’ll have it a little easier with accepting credit card payments for your small business because you won’t need a credit card terminal or POS system. However, you will need either a payment gateway or a virtual terminal to accept payments from your customers.

A virtual terminal is a software application that turns your computer into a credit card terminal. Mail order and telephone order businesses use them to enter their customers’ credit card data manually. They can also be combined with a card reader (usually USB-connected) to accept card-present transactions. A virtual terminal can replace a dedicated countertop terminal for retail merchants if you add a card reader.

A payment gateway is a web-based software service that connects your eCommerce website to your processor’s payment network. Payment gateways allow customers to enter credit card data from wherever they are as long as they have access to the internet. While a few merchant services providers offer a free payment gateway with your account, most will charge you a monthly fee (usually around $25) to use their gateway. You might also have to pay an additional $0.05-$0.10 per transaction to use the gateway in some cases.

Authorize.Net is one of the most popular payment gateway providers, but there are many others today as well. Most of the larger processors now offer their own proprietary gateways that include the same security and ease-of-use features, such as invoicing, recurring billing, secure storage of customer payment information, etc., that you’d find in a more well-known gateway.

Depending on how many products you sell on your website and the options you want to give your customers, you may or may not need to use an online shopping cart in conjunction with your payment gateway. Shopping carts allow you to feature products, conduct secure transactions online, and perform various other functions related to running your business. You’ll want to ensure that your chosen shopping cart is compatible with your payment gateway before setting up your site. Most of the popular shopping carts today are compatible with almost all of the more well-known payment gateways. For more information on online shopping carts, see our article, Shopping Carts 101: How To Choose A Shopping Cart For Your Business.

Accepting Credit Card Payments On The Go

When Square first introduced its original card reader in 2009, it was revolutionary. For the first time, merchants could accept credit or debit cards using their smartphones or tablets. Square was (and still is) a great choice for very small businesses, startups, and merchants who operate seasonally. Naturally, the company has spawned many competitors, and today, almost all merchant services providers offer some type of mobile payment system.

These systems inevitably include both an app for your smart device and a card reader. Unfortunately, many of the apps are very basic and don’t offer Square’s depth of features. Only recently have EMV readers become more popularized than magstripe-only readers, connected to a mobile device through Bluetooth. These card readers are more expensive than the older models, but they’re still cheaper than a traditional countertop terminal.

For businesses that need to accept transactions out in the field, mobile readers are lighter and far less costly than wireless terminals, which usually run at least twice as much as their wired brethren and require a separate wireless data plan. They’ve become so popular that you can even see fast food restaurants use them as extra checkouts for drive-through lines during rush times. For more information on mobile payment systems, please see our article on why accepting credit cards with your phone is the easiest option.

Alternative Methods For Small Businesses To Accept Credit Cards

One recent trend in the payments industry is the introduction of various alternative methods of payment acceptance. While these methods ultimately still involve credit or debit cards (or ACH transfers), they offer different options for your customers to pay you in either a retail or online environment. Here’s a brief overview of some new payment methods that might be a good choice for your business:

• Online Invoice Payments: While you can still print traditional paper invoices and mail them to your clients, you’ll get paid much faster if you make it as easy as possible for them to submit an online payment. Online invoicing payments are available from Square, PayPal, and several accounting software providers.
• SMS Payments: If sending an invoice by email is a fast way to get paid, sending one by text message is even faster. SMS payment services allow you to send invoices to clients via text message, including links they can click on to submit payment. Check out our article, What Is An SMS Payment & How Does Text To Pay Work, for more details on this payment method and recommendations for several vendors that offer this service.
• QR Code Payments: While online invoicing and SMS payments are great options for eCommerce businesses, QR code payments provide an alternative payment method for retail businesses. Interest in QR code payments increased during the COVID-19 pandemic as businesses struggled to implement “contactless” payment methods to protect their customers.

All-In-One Credit Card Processing: The Best Way To Accept Credit Cards?

Another recent trend in the payment processing industry is the introduction of integrated payments platforms. These services are designed to bring all your online and in-person transactions together, integrating sales processed using credit card terminals, POS systems, virtual terminals, and payment gateways.

Until just a few years ago, retail merchants relied on monthly paper statements to track their transactions, with any data analysis being done manually by the business owner. Today, almost all providers offer a cloud-based online dashboard that allows you to monitor sales data in real-time. Even a retail-only business with no website or online sales channel can benefit from this type of service.

Integrated payments platforms also addressed the needs of many restaurants and other small businesses during the COVID-19 pandemic, when they needed to start accepting online and telephone orders from customers for the first time. An integrated approach to payment processing offers many advantages to business owners, at least when the service includes the features you need and comes from a reputable provider.

Interoperability between the numerous subsystems within the payments platform is the primary advantage. It eliminates the need for a merchant to cobble together a system using services from multiple providers that may or may not work together very well. While PSPs (such as Square) have always offered this type of platform, most merchant services providers in the industry now provide similar systems.

Learn More About Small Business Credit Card Processing

The world of credit card processing is too vast and complex to distill into a single article. Before you start making specific decisions that could dramatically affect the success of your business, we strongly encourage you to read more about this subject and get solid answers to the many questions that you’re undoubtedly going to have.

Fortunately, you’ve come to the right place! We’ve researched and published a host of articles that explain the various aspects of credit card processing in detail. Here’s a list of resources to get you started:

• What Is A Merchant Account? Your Guide To Merchant Account Processing, Fees, & Setup
• The Complete Guide To Finding An Online Merchant Account
• Need Merchant Services For Small Business? These Are The 9 Best Credit Card Payment Processing Companies
• 9 Cheapest Credit Card Processing Companies To Save Your Small Business Money
• Looking For The Best Credit Card Reader For Small Business? Try These 7 Options
• Mobile Credit Card Processing Reviews
• The 6 Best Credit Card Processing Companies For New Businesses & Startups
• The Best Payment Gateway Providers For Online Businesses
• How Much Does Clover POS Cost? Everything You Need To Know About Clover Pricing

What’s The Best Way To Accept Credit Cards For Your Small Business?

The payment card industry can be complicated, and each business that takes credit and debit cards is different. So it’s almost impossible to have a “best way” to accept credit cards for your small business. However, we’ve tried to outline some steps and give general guidance on finding a suitable processor and the right equipment for your business. We hope you use this very brief guide for general step-by-step instructions on getting started and understanding that the actual process is much more complicated and takes a lot more time.

What is best for your business depends on what you plan to sell or what service you plan to provide, the seasonality — if any — of your goods or services, and your business’s monthly processing volume, to name just a few issues for you to consider. When you start your business, a lot of these are just guesses, and, of course, you’re allowed to change the focus of your business as you continue to operate. All these factors can mean that the great processor you started with might not be the best choice as time passes, so you might need to switch to a different provider that can meet your current needs.

Finding the right credit card processor for your small business might sound daunting, but if you break the project down into smaller steps (such as the five steps we suggested earlier) and take each step one at a time, you’ll be able to find the best way for your small business to accept credit cards.

Please share your experiences with us below!