How to Accept Credit Card Payments

Accepting credit cards can give small businesses a boost

Reviewed by Katie MillerFact checked by Kirsten Rohrs Schmitt

Running a small business means keeping a tight handle on cash flow. One way to facilitate the movement of money in and out of your business is to expand your payment options to include credit cards.

Allowing customers to pay via credit card can make managing cash flow less stressful, eliminate the delays associated with waiting for check payments, and potentially boost sales. If your business isn’t yet accepting credit card payments, changing that may be easier than you think.

Key Takeaways

• Accepting credit card payments for your business can make managing cash flow easier and potentially boost sales. 
• More Americans are relying on credit and debit cards as a payment method instead of cash or checks. 
• You can accept credit card payments whether you run a large business or a small one. 
• Setting up your business to accept credit card payments doesn’t have to be complicated.

Benefits of Accepting Credit Card Payments

Allowing your customers to pay with credit cards can yield a number of advantages for your business that could lead to greater growth. Major reasons to accept credit cards include:

• Improving cash flow, since it can speed up payment times and reduce delays
• Legitimizing your business in the eyes of customers
• Potentially boosting sales volume, since your customers will have more ways to pay

If you’re still not sold on the idea of accepting cards, consider the growth of credit card payments. More and more people are choosing to pay for things with plastic rather than cash. According to the Federal Reserve Payments Study, published in 2023, there were 51.1 billion credit card transactions in the U.S. in 2021, up from 33.7 billion in 2015.

A more recent study from Forbes confirmed that trend. At the end of 2023, according to its research, 37% of purchases in the U.S. were made with either a physical or virtual credit card.

This switch to cards is being fueled by a combination of factors, including more people shopping online and all-round convenience. According to the Federal Reserve, 82% of U.S. adults had a credit card in 2022. Companies that don’t accept this method of payment risk losing business.

What Types of Businesses Can Accept Credit Card Payments?

Virtually any kind of business can accept credit cards. For example, you could choose to accept credit cards if:

• You run a brick-and-mortar business
• Your business operates completely online
• You have a traditional small business with employees
• You’re a sole proprietor with zero employees
• You’re an independent contractor or freelancer 
• You have a mobile business (such as a food truck or dog grooming service)

In any of those scenarios, accepting credit card payments could work in your favor if it makes it easier for customers to pay. Deciding not to accept credit cards in your business usually comes down to personal choice rather than the type of business that you run. 

Note

If you decide to accept credit card payments, federal law requires that you verify that those payments are authorized by the customer before processing them. That is typically done behind the scenes, and virtually instantaneously, by a payment processing service.

How to Accept Credit Card Payments

If you’re ready to accept credit card payments for your small business, you’ll need to follow a few steps. But once you get a system set up, it’s relatively easy to oversee and manage. 

1. Decide How You’ll Accept Credit Card Payments

The first step is determining when and how to accept credit card payments. For example, you can take credit card payments:

• Online
• In person
• Using a mobile card reader
• Over the phone

The option you choose may depend on the type of business that you run. For example, if you have a brick-and-mortar retail store, you may accept credit cards in person at checkout or online if you’ve set up an e-commerce store. Alternatively, if you run a mobile business, using a mobile card reader may be the best option. 

You’ll also need to decide which of the major credit card networks (Visa, Mastercard, Discover, or American Express) you want to accept.

2. Choose a Payment Processing System

When a customer gives you their credit card to pay, there’s more to it than simply swiping or inserting the card. The customer’s card and account details have to be reviewed and processed electronically so that the payment to you can be authorized. All of this happens digitally behind the scenes in a matter of seconds, but you need to hire a payment processor to make it all work. 

If you want to accept credit card payments, you can do it in one of two ways: merchant accounts or payment service providers. A merchant account is an account that you open with a bank to accept credit card payments. Payment service providers are companies that allow you to accept credit card payments without setting up a merchant account. 

Of the two, a payment service provider may charge lower processing and transaction fees. So it may work well for you if you have a newer business or relatively small credit card payment volumes. But if you do a large volume of sales from credit cards, then a merchant account could be an easier way to manage your credit card payments. 

Important

When comparing merchant accounts and payment service providers, consider whether you have to sign a long-term contract and what fees you’ll pay for credit card processing.

3. Get Your Credit Card Payment Software and Hardware in Place

Once you have a method in place for processing credit card payments, you may need to update your point of sale software and hardware to actually accept them. 

For example, if you run a brick-and-mortar business, you may need to purchase checkout software to accept card payments or install a card reader that’s EMV chip–enabled at checkout. Some payment service providers will also supply the equipment that you need to get set up for accepting credit card payments in-store or via a mobile card reader.  

How to Accept Credit Card Payments Online

Many small businesses are now online-first, or even online-only. Whatever type of business you own, giving your customers the ability to pay with their credit card online provides them with more convenience and can boost sales. E-commerce shops, restaurants that accept orders online, and digital services companies wouldn’t be able to function without this capability.

Providing this service to your customers is not difficult. If you plan to accept credit cards online, then you’ll also need to set up a payment gateway for that. Again, this may be included with your merchant account or payment service provider plan.

You will need a digital storefront, and the most common way of obtaining one is to sign up for an account with an e-commerce platform provider. Credit card payments are such an important part of contemporary e-commerce that all of the major e-commerce platform providers will allow you to take credit cards as a form of payment.

Just be aware that there is generally a cost associated with this. Online credit card transactions typically have higher processing fees than in-person transactions.

Disadvantages of Accepting Credit Card Payments

Despite the advantages of accepting credit cards for your small business, some risks are involved in giving customers this option. The most prominent are:

• Fraud: Some credit card systems are safer than others, and there have been instances in which businesses have been affected by credit card fraud.
• Processing fees: If your profit margins are very small, the processing fees associated with accepting credit cards can easily add up to a major business expense. Small businesses with thin margins will need to assess whether accepting credit cards makes business sense.
• Chargebacks: A chargeback is a disputed transaction that customers initiate when they aren’t satisfied with a purchase. Even if you’re in the right and the customer is not, it’s difficult and costly to dispute chargebacks.

Using Credit Cards Safely: Tips for Small Businesses

Small businesses that want to accept credit cards but also want to avoid the risks outlined above should consider the following:

• Only use approved, well-known software and equipment. There are lots of different payment processors on the market today. Make sure to check the credentials of the company that you choose to work with.
• Don’t store customer credit card data. Although you are allowed to do so, it makes you very vulnerable. It’s better to adopt a use-and-delete process.
• Train your employees to handle credit card data and spot potentially fraudulent transactions. This can save you a lot of time in the long run.
• Verify shipping and billing addresses. This can dramatically reduce the potential for fraud.
• Be extra vigilant when accepting credit card payments online. With this kind of payment, if your company accepts a bad or stolen credit or debit card, the total liability for the loss is yours.

Pay Attention to Credit Card Payment Processing Fees

Accepting credit cards through a merchant account or a payment service provider isn’t free; each charges service fees to facilitate those payments. As you get ready to accept credit card payments, consider how those fees factor into your operating and overhead costs. 

If the fees are going to take a serious bite out of profits, you might compensate by increasing prices for your products or services. Alternatively, you could add on a surcharge or convenience fee for processing credit card transactions below a certain dollar amount.

Be sure that you’re aware of state and federal regulations on credit card surcharges to avoid any illegal practices. In some states, it is illegal to charge credit card fees. And where it is legal, there are limits to how much you can charge and rules about being transparent.

Can Companies Refuse to Accept Credit Cards?

Yes. However, it’s not a great idea for the business. Any business is within its rights to refuse a method of payment. The question is whether this will affect their customer base by doing so, especially as the use of non-cash payments is growing fast.

Can You Accept Credit Card Payments Without a Merchant Account?

Yes. You can accept credit card payments without a merchant account by using a third-party processor. Third-party processors work through a different business model, which allows you to accept these payments into a standard business account. This can provide an easy way for small businesses to accept credit card payments.

How Much Do Small Businesses Pay in Credit Card Fees?

Credit card processing fees will typically cost a business 1.5% to 3.5% of each transaction’s total. For a sale of $100, that means you could pay anywhere from $1.50 to $3.50 in credit card processing fees. For a small business, these fees can be a significant expense. However, most businesses find that this is more than made up for by the increase in sales associated with accepting credit card payments.

The Bottom Line

Nowadays, it’s unusual to find a small business that doesn’t accept credit cards. This is because giving customers as many options as possible when it comes to payment can drive sales and boost customer satisfaction. And while there are some risks and costs associated with accepting credit card payments, these generally are more than made up for by an increase in convenience and sales.

Read the original article on Investopedia.