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How to Accept Credit Card Payments: A Beginner's Guide

Adam Uzialko
Adam Uzialko
Freelance Editor

You know your business needs to accept credit cards. How can your business accept them?

Most consumers expect that every business will accept credit and debit cards; a standard you are all too familiar with if you must repeatedly explain to customers that your business accepts cash only. Luckily, accepting credit and debit cards is as easy as partnering with a credit card processing company.

This guide will walk you through the ins and outs of the credit card processing industry and highlight the important factors you need to look for when choosing a processor.

How do you accept credit card payments for your small business?

Accepting credit and debit cards begins with selecting a processor, followed by considering which piece of payment technology you'll utilize to accept payments.

1. Determine the type of processor you need.

Choosing the type of credit card processor you want to work with comes down to what you value from this type of company. PayPal and Square, for example, are great for businesses that are just starting out and process a low transaction volume due to their lack of fees. But, because their credit card processing rates are higher than other options, they're not always a cost-effective choice for high-volume businesses.

When choosing a processor, consider what you value, such as rates, service and technology.

  • Competitive rates: Don't always look for the lowest rate possible. Some advertised rates are deceptively low, showing a rate that only applies to a certain type of transaction. Many companies also charge a variety of monthly and annual fees that you need to consider when comparing costs.

  • Knowledgeable and available customer service: If your payment technology stops working during peak business hours, what are you going to do? What is the backup plan for processing cards? How will it get fixed, and how can your processor's customer service be reached? You can't afford to have any downtime and need a processor that can support you and be there when you need them.

  • Fast, secure and reliable payment equipment: There is a plethora of payment equipment in the market, but not every processor offers every kind. A processor can help you decide which equipment is best for your business. As an example, typically, restaurants favor point-of-sale systems and retail businesses favor payment terminals. No matter which hardware you choose, your payment acceptance system needs to be fast, secure and reliable.

Editor's note: Looking for the right credit card processor for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.



2. Consider how you will accept credit cards. 

When you begin accepting credit cards, it's generally because your customers prefer using them or because doing so makes accounting easier. So, it's important to consider how your customers use their cards. If the vast majority come into your physical location and swipe their card, then perhaps that's the only method you need to accept. However, you might also want to accept credit cards online, over the phone, on a mobile device or across multiple channels. Determining the methods of payments you will accept can help you better understand what type of credit card processing equipment you need.

Due to COVID-19, it's become essential for merchants to have a card reader with near-field communication (NFC) technology that can accept contactless payments such as Apple Pay, Google Pay and contactless credit cards, noted Priority Payments Systems Local in a blog post.

Consumers don't want to touch payment technology; they want the convenience of tapping their card or phone on a payment terminal, then being on their way. NFC payments also make checkout faster, are easy to implement and can help deepen consumer engagement, according to the company

3. Examine pricing models and fee structures. 

Pricing models and fee structures vary greatly from company to company, so this is one of the more arduous parts of the buying journey. There are multiple pricing models available that determine the rates you will pay on certain transaction types.

Most processors charge between 2% and 4% of the transaction value, plus a small transaction fee based on your monthly processing volume, average ticket size, your industry and your processing history. In addition, there are often several fees processors charge.

For a breakdown of the most common pricing models and credit card processing fees, see our credit card processing reviews.

4. Compare quotes. 

Using the criteria above, narrow your list of candidates down to three. Then, contact each credit card processor to request a quote. Sometimes, a credit card processor's rates are negotiable, so don't be afraid to haggle – especially if you've already received estimates from other companies.

After comparing quotes, request a contract from one or two companies that offer the most competitive rates. However, keep in mind that the lowest rate is not always best. When comparing quotes, consider what else each company offers to add value to your service.

Do not complete an application until you are ready to sign up with a company. If you read the fine print, you'll discover that the application is part of the contract, and by signing it, you've agreed to accept the company's services.

5. Review contracts. 

As always, review these contracts very carefully – some companies try to hide fees. If something does not look right to you, ask about it. When possible, have legal counsel look at the contract as well to ensure everything is above board. Consider whether the contract includes automatic renewal clauses, early termination fees and other binding clauses. Once you are satisfied that the contract is fair, sign with the company you believe is the best fit for your business.

Once you've completed these steps and decided which credit card processor you'd like to partner with, you are ready to apply. Generally, applications can be submitted online and take two days for the processor to review.

Once your application is approved, the processor will set up your account and walk you through the process of selecting any hardware you might need. Once the hardware arrives, the processor will help you set it up and test it.

How do I accept credit cards on my phone?

To accept credit card payments on your phone or another mobile device, you will need a mobile credit card reader or app. Many readers plug into the headphone jack of the device. More advanced mobile credit card readers connect to your mobile devices via Bluetooth.

When you sign up with a credit card processor, selecting a chip card reader that is EMV compliant is the most secure option. EMV chips allow you to skip signature authentication, which can speed up the payment process. Select a reader that is NFC enabled for accepting contactless payments. NFC capability allows you to accept payments from contactless cards and mobile wallets, such as Google Pay or Apple Pay. You can expect to pay less than $100 for this type of mobile credit card reader.

Using a mobile credit card reader doesn't limit you to accepting payments on your mobile device only. These readers can be used as part of a larger system that includes additional hardware and can even be used on a tablet.

Mobile credit card readers are useful for traveling businesses, businesses that frequent trade shows and businesses that simply want to accept payments from anywhere within their establishment.

Another reason to accept credit and debit card payments on your phone is that some of the mobile credit card processing apps include basic POS features. Besides accepting payments, the mobile POS system helps you manage your sales and inventory, which can be very helpful for small businesses that aren't yet ready to invest in a full-fledged POS system. [See our review of Clover's credit card processing services.]

How to accept credit card payment online

Accepting credit card payments online requires the use of what is known as a "payment gateway." Payment gateways are often provided by credit card processors, either directly or through a third party.

Typically, a credit card processor charges you an additional monthly fee for this service, so it's important that you only set up a payment gateway if you sell online or if your sales, though infrequent, are large enough to cover the cost.

In addition to the monthly fee, some credit card processors charge a gateway setup fee and an additional per-transaction fee, so review each processor's terms and conditions before signing up.

Depending on the gateway, to accept credit cards online, you'd follow these steps.

Accepting credit cards by sending your customers to a direct payment link

Get the payment link from your payment provider. Depending on your provider, the link may be able to be customized to your liking. Then, determine where you would like to put the link on your website. The customer will then:

  1. Click on the link to open a payment page
  2. Enter the dollar amount
  3. Enter their contact information and billing information
  4. Click a button to complete their order

Accepting credit cards with a payments page

St. Jude Hospital is a good example of an organization that utilizes this method. The payment page is already generated. Contributors then:

  1. Choose a donation amount (and frequency)
  2. Select a payment method
  3. Enter their credit card information
  4. Enter their billing information
  5. Select Donate to finalize their order

Accepting credit card payments online with a shopping cart

These are the payment pages you've seen anytime you've shopped retail online. Customers browse e-commerce shops for products then add them to their cart. When they are ready to check out, they:

  1. Enter their shipping information
  2. Enter their credit or debit card information
  3. Enter their billing information
  4. Select the Pay now button to complete their order

Processing payments manually

If your business accepts credit cards over the phone, for instance, if you have a restaurant that offers delivery or takeout and you've been writing down credit card information on a piece of paper, then entering it into a terminal or POS after you get off the call, you are doing things insecurely.

Instead, use a virtual terminal or your payment gateway to accept phone payments or invoices (i.e., law firms, marketing agencies, etc.).

  1. Log into your payment gateway with your username and password.
  2. Either generate an invoice for your customer or select the Payments tab.
  3. Enter payment and customer information.
  4. Click the button to finalize payment.
  5. Choose how you'd like to send a receipt.

With each of these methods, your funds will be processed to go into your account after you've batched out and will be posted to your dashboard.

How much does it cost to accept credit cards?

The price of each transaction varies based on the method by which a card is accepted and the pricing plan you've chosen. There are three main pricing models you are likely to come across in your research. They include: 

  • Flat-rate pricing: Generally a model of payment facilitators like Square or PayPal, flat-rate pricing includes fixed rates for certain types of transactions. For example, PayPal charges 2.7% for a card-present transaction, meaning the card was swiped at a physical location. For online transactions, PayPal charges 2.9% plus 30 cents per transaction. For a card that is keyed in over the phone, PayPal charges 3.5% plus 15 cents per transaction. The elevated price here is due to the increased risk of fraud associated with this payment method. There are usually no additional fees with flat-rate pricing and no lengthy contracts, making it ideal for businesses that process less than $3,000 per month.

  • Interchange-plus pricing: This pricing model is based on the interchange rate paid by all credit card processors, plus a processor's markup fee. It is the most transparent model available because it is based on a universal rate. The markup, which is how the processor makes money, is usually negotiable in this pricing model. It is expressed as a percentage plus a per-transaction fee. For instance, you may be quoted 0.25% plus 15 cents. Remember, this is what you will pay in addition to the interchange rate for the transaction (which varies, depending on the type of card, your industry and how you accept the card).

  • Tiered pricing: This pricing model differentiates between qualified, midqualified and nonqualified transaction types. Qualified transactions are generally basic debit and credit cards that are physically swiped at a terminal. These are the cheapest rates in a tiered pricing model. Slightly more expensive are midqualified transactions, which often include rewards cards that are physically swiped. Finally, the most expensive nonqualified transactions include premium rewards cards and card-not-present transactions, such as those you key in when you accept payment from your customer over the phone.

Of course, in addition to rates you pay for each transaction, the credit card processors that use the interchange-plus and tiered pricing models charge account maintenance fees. These include a monthly fee, a monthly minimum, payment gateway fees, a PCI compliance fee and various network fees. Some processors may also charge a setup fee, a payment gateway setup fee and other fees. [If you're looking for a processor that doesn't charge set up fees, read our in-depth review of Payment Depot.]

These fees all vary from processor to processor, so request a breakdown of all pricing and fees in writing, then read the contract before signing it to verify that you're aware of everything you'll be required to pay.

What is the cheapest way to accept credit card payments online?

Determining the cheapest way to accept credit card payments online has a lot to do with your unique situation. A small business with less than $3,000 in monthly credit card sales is in different circumstances than a larger-volume business, and the processor that benefits one might be a detriment to another.

For the low-volume merchant, using a processor that has flat rates and provides its services on a pay-as-you-go basis is more cost-effective than working with a processor that charges multiple account maintenance fees, even if that processor's transaction rates are lower. Once a small business eclipses $3,000 in monthly volume, though, a processor with lower rates might be more cost-effective, even with the associated fees.

No matter which type of processor you choose to work with, avoid long-term contracts if you are unsure of the future of your business. Some credit card processors offer month-to-month terms and don't charge early-termination fees. Even though most processor contracts have a standard three-year term, many sales reps are eager for your business and will offer a month-to-month contract if you ask for it and their management team allows it.

How do you accept credit card payments on Square Cash and other apps?

Accepting credit card payments on mobile wallets or peer-to-peer applications should only be done when you know and trust the people sending payment. It is much easier for a customer to dispute transactions and recoup money using these platforms, whether it is Square Cash or PayPal.

Freelancers working with well-known clients, however, can benefit from using peer-to-peer payments. To do so, simply set up an account and link your bank account to begin sending or receiving money to other users.

For established businesses that want to accept payments from a customer's mobile wallet, investing in an NFC-enabled terminal or card reader is the way to go. NFC-enabled readers allow you to accept contactless payments, so customers can pay with apps like Google Pay or Apple Pay while your business is more protected from chargebacks and transaction disputes.

Accepting credit cards is a customer service must.

In the modern business landscape, it's imperative to accept debit and credit cards. Cards as a payment method have become so ubiquitous that many customers don't carry cash any longer. Accepting credit cards is a means of boosting customer satisfaction and driving more sales. Choosing the right credit card processor for your business can ensure that you not only keep your customers happy but that it doesn't cost an excessive amount to accept credit and debit cards.

Additional reporting by Simone Johnson.

Image Credit: cyano66 /Getty Images
Adam Uzialko
Adam Uzialko
business.com Staff
Adam Uzialko is a writer and editor at business.com and Business News Daily. He has 7 years of professional experience with a focus on small businesses and startups. He has covered topics including digital marketing, SEO, business communications, and public policy. He has also written about emerging technologies and their intersection with business, including artificial intelligence, the Internet of Things, and blockchain.