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How to Accept Credit Card Payments: Guide for Small Businesses

How to Accept Credit Card Payments: Guide for Small Businesses
Jason Steele

Jason Steele

Updated February 25, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Although it may seem daunting for new small business owners, accepting credit card payments is relatively easy to set up and get running. The process of how to accept credit card payments includes only a few steps, from finding a credit card processing provider to creating a merchant account to setting up your payment terminal. Plus, accepting credit card payments provides benefits to businesses, including potentially improving your cash flow and making payment easier on your customers — though there are fees involved. Read on to learn more about how to take credit card payments.

Benefits of Accepting Credit Card Payments

There are many benefits of accepting credit card payments. Since many Americans choose credit cards and debit cards now more than ever, learning how to take credit card payments can open up your business to more customers and offer them greater convenience. This can lead to increased sales. Plus, taking more forms of payments can help legitimize your business in the eyes of customers.Additionally, accepting credit card payments can also streamline the management of your business’s cash flow. It can also help you to avoid the delays that can happen with check payments, further improving cash flow.  After learning how credit card payments work, most business owners will realize how beneficial and easy accepting credit card payments can be.

Ways to Accept Credit Card Payments

There are several ways to receive credit card payments if you own a small business. These methods differ depending on whether you’ll be accepting payment primarily in-store, online or through a mobile payments system. Each of these methods of payment has certain requirements for credit card processing. 

1. In-Store Credit Card Payments

Accepting credit card payments in-store requires the use of a point-of-sale system (POS) with a card reader or credit card terminal. A POS is a system through which the customer makes a payment for products or services at your business. Some POS systems can even provide inventory management, advertising, task automation, sales tracking and rewards programs.  

2. Online Payments

To accept online payments, businesses need an account with a payment service provider, such as PayPal or Square. You’ll need to connect the payment service provider with your online storefront. Many website builders are already designed to easily connect with payment processors. However, if your website doesn’t already connect with payment service providers, then you can add a link out to your payment provider so customers can pay through the third-party site. 

3. Mobile Payment Processing

Mobile payment processing apps allow you to accept physical credit cards through a cell phone. These payment processing systems may have a card reader attachment that fits into the headphone jack of a phone, so that customers can scan their cards and then sign on the screen of the phone.

Requirements for Accepting Credit Card Payments

The list of requirements for accepting credit card payments will differ depending on whether your business will be accepting in-person payments or online payments. This is sometimes referred to as a “card present” and “card not present” transactions. To accept in-person credit card payments, you’ll need the following:
  • A payment processor: A payment processor is the service that initiates and completes the transaction with the credit card companies and the banks.
  • A point-of-sale system (POS): A point-of-sale system involves both software (to track inventory, views sale history and register the sale) and hardware (including items like a card reader, a bar code scanner and a cash drawer).
  • A card reader: If card readers aren’t included in your POS system, you’ll need to get one separately. You can either get these items bundled together from one provider, or you can buy them separately.
To accept online credit card payments, on the other hand, you’ll need:
  • A payment gateway: A payment gateway is a digital system that allows customers to securely enter their credit card information for payment. 
  • A payment processor: A payment processor for online payments is similar to one for in-person payments in that it initiates and completes the transaction with the credit card companies and banks. Some payment gateways also include payment processing services. 

How to Accept Credit Card Payments

Whether in-store, online or through mobile payment, figuring out how to accept credit card payments is simple once you know how credit cards work. First, the customer swipes, inserts or taps their credit card or mobile device, enters their credit card number or otherwise inputs their information into the payment process. Then, the payment processor checks with the card’s issuing bank to ensure available funds or the credit limit. If the bank approves the transaction, the payment processor credits the business with the transaction amount and debits the customer’s account for the amount. If your business is ready to start accepting credit card payments, here’s how to do so.

1. Find a Credit Card Processing Provider

There are several credit card processing providers to help you process credit card payments. To choose the right one for your business, you should consider the portion of credit card transactions that will be processed in person, online and over the phone. Also think about the type of credit cards your business will accept and the volume of transactions you’ll be processing.Processing fees vary by transaction types and credit card issuers, such as American Express, Visa, Mastercard and Discover. Providers may also offer different rates based on the volume of transactions processed. 

2. Create a Merchant Account

Businesses typically need a merchant account to accept credit card payments. This is where the funds will go when a card transaction is completed. The funds are then transferred from this account to the business's account within one to two business days.You can sign up for a merchant account with most banks. However, merchant accounts may not be necessary if you’re using certain payment service providers, as the merchant account may belong to the payment service provider rather than being a dedicated account for the business. Thus, it's worth comparing the options to see what makes the most sense for your business. 

3. Set Up Your Payment Terminal

Finally, to accept credit card payments, businesses must set up payment terminals. A payment terminal may involve hardware or software, depending on whether your business will be accepting in-person or online payments.

Applicable Fees for Accepting Credit Card Payment

Just like there are fees for the credit card owner, like balance transfer fees and foreign transaction fees, there are also fees for businesses to accept credit card payments. These are important credit card terms to know for credit card users as well as businesses that accept credit card payments. 

1. Interchange Rate

An interchange rate is a fee that goes to the credit card company. It is a percentage of the sale, typically between 1.5% to 3.5%.

2. Transaction Fee

A transaction fee is the fee paid to the payment service provider or processor for the service of completing the transaction. Some providers or processors charge a flat rate per transaction that covers their cut and the interchange rate, while others charge the interchange rate plus their own varying fee.

3. Service Charge/Fee

Some providers also charge a monthly or annual subscription fee to use their service. However, some do not have a service fee.

The Takeaway

It’s beneficial for businesses to accept credit cards as a form of payment, and it can be easy and cost-effective to set up as well. In addition to benefiting the business, accepting credit card payments also benefits the consumer, since many top credit cards can provide many benefits to individuals, including purchase protection, cash back and travel rewards. If you’re ready to find the right credit card for you, Lantern by SoFi makes it easy to compare credit cards to explore a range of potential options. This can help you to find a card that fits your needs and spending habits. You can also find out your chance at getting approved ahead of time with credit card preapproval.
Photo credit: iStock/RidofranzThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.SOLC1221033

Frequently Asked Questions

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About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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