How to accept credit card payments for your small business

Key takeaways

• Accepting credit card payments lets retailers and small business owners capture more sales and provide more payment options
• You can accept credit card payments using a point-of-sale (POS) system, credit card terminal, mobile card reader, or online payment gateway
• Payment processors charge different transaction fees and specialize in different payment options, so keep that in mind when choosing a provider

Accepting credit card payments is a small change that can have a big impact on your business. For many customers, paying by credit card isn’t just convenient — it’s their preferred payment method. According to the Federal Reserve Payment Study, “the value of card payments grew faster from 2018 to 2021 than in any previous FRPS measurement period,” to reach $9.43 trillion.

If you haven’t accepted credit card payments before, you’ll need to choose a payment services provider to facilitate credit card transactions. Learn how to accept credit card payments as a small business and improve your revenue and cash flow.

6 types of credit card payments

Credit card payment technology keeps changing, and many businesses have moved away from traditional card readers to contactless payments and modern POS systems. Most platforms are compatible with both debit cards and credit cards, but processing fees may differ depending on the type of card and transaction type.

Here are six types of credit card payments to be familiar with:

• Swiped: Swiped transactions are those where the card is “swiped” through a credit card reader. The magnetic stripe on the card transmits information to the merchant, such as the card number and expiration date.
• Dipped: Dipped transactions are those in which the card is inserted, or dipped, into the credit card reader. This method uses an EMV chip to transmit payment information, so it’s considered more secure, but not all cards support it.
• Tapped: Tapped (contactless) payments don’t require the card to be swiped or inserted at all. This method uses radio-frequency identification (RFID) or near field communication (NFC) to transmit information securely.
• Digital wallets: Digital wallets include services like Apple Pay, Google Pay, and Samsung Pay. Customers pre-link their credit or debit card to their digital wallet and can tap their mobile device on your contactless card reader.
• Online payments: Online credit card payments include e-commerce purchases, subscriptions or recurring payments, and online bill pay. Customers enter their credit card information manually, so it’s less secure than in-person payments.
• Card-not-present (CNP) transactions: Other types of card-not-present (CNP) transactions include over-the-phone payments, mail order purchases, and other scenarios in which the merchant can’t verify the credit card details in person.

5 Steps to Accepting Credit Card Payments as a Small Business

Whether you’re a freelancer, a brick-and-mortar retailer, or a mobile business, accepting credit cards can help you grow your business and improve your cash flow. Follow these five steps to start accepting credit card payments as a small business:

1. Compare payment services providers (PSP)

First, explore your options and find a payment services provider (PSP) that meets your needs. Payment services providers, such as Stripe, Square, and Plooto, connect your business to the credit card networks used to process payments.

Different PSPs support different credit card networks, so consider whether you want to accept cards like Visa, American Express, Discover, and Mastercard.

PSPs also set their own credit card processing fees, which may include a flat fee and a percentage of the transaction. Some PSPs may be more cost-effective for high-volume businesses, while others are a better fit for small businesses with a low sales volume.

2. Open a merchant bank account

Next, decide whether you need to open a merchant account. A merchant account is a type of business bank account that’s specifically set up to accept incoming payments. Payments may be held in the merchant account for one to two business days before they’re deposited into your ordinary business bank account.

Some payment services providers offer merchant services as part of their end-to-end solution, so you may not need to open your own merchant services account. This will allow you to get set up faster, but may incur higher fees in the long-run.

2. Set up a payment gateway

A payment gateway is the software that facilitates electronic payments, including both online and in-person transactions. This is the technology that sends encrypted credit card information to the payment processor and the customer’s financial institution to verify that the funds are available and to authorize the purchase.

Payment gateways, such as Stripe or Paypal, automatically approve or decline credit card transactions, helping you streamline purchases and prevent fraud.

Your payment gateway may also integrate with other tools, such as your accounting software or inventory management software, to help you track transactions.

4. Get a card reader or POS system

If you want to accept credit card payments with a mobile device or in a brick-and-mortar location, you’ll need a physical credit card reader or point-of-sale (POS) system. Your payment services provider may offer a mobile card reader for free, while credit card terminals and contactless card readers cost anywhere from $50 and up.

Some businesses, such as restaurants, may need a more advanced POS system that can handle food orders and reservations. Other small businesses can use an existing mobile device or iPad as a POS system without investing in new hardware.

5. Ensure security and compliance

Finally, understand your obligations when it comes to protecting customer information. If you’re using a reputable payment services provider, they’ll handle PCI DSS compliance for you, but you should still take security precautions of your own.

Train employees on how to handle credit card information securely, especially when it comes to over-the-phone payments and card-not-present transactions.

3 ways to accept credit card payments

Different business structures call for different ways to accept credit card payments. For example, if you have an online catalog and a brick-and-mortar location, you may need more than one. Here are three ways to accept credit card payments:

Online

Online payments go directly through a payment gateway — no credit card terminal or point-of-sale system required. If you have an e-commerce store, you can link to your payment gateway or embed it directly into your website. Customers can enter their credit card information, including their CVV code, to make a purchase.

Accounting platforms like Plooto make it easy to enable credit card receivables so customers can pay as soon as they receive an invoice.

In-store

For in-person payments in a brick-and-mortar location, you’ll need hardware like a POS system or credit card reader to accept credit card payments. Depending on the type of card, customers can swipe, insert, or tap their card to make a purchase.

Advanced POS systems can provide digital or printed receipts and integrate with your cash drawer and inventory management software.

Mobile payments

Mobile businesses include pop-up shops and other types of retailers that don’t have a permanent physical location. Instead of carrying around a bulky POS system, you can use a mobile card reader to accept credit cards on your smartphone or tablet.

Customers can use their credit or debit card just like they would at a brick-and-mortar location, and you can provide them with a digital receipt by text or email.

Best practices for accepting credit card payments

Practice smart cash flow management

Effective cash flow management means ensuring that you have enough money going into your business to cover your upcoming expenses. Since electronic payments can take a few days to process, use cash flow projections and automatic reconciliation to ensure that all of your transactions line up.

Take credit card processing fees and interchange fees into account when calculating cash inflows, and be prepared for the unexpected refund or chargeback.

Focus on the customer experience

Payment gateways and point-of-sales systems can speed up the payment process, but they can also add unnecessary friction if they have too many steps or ask for too much information. Ensure that your checkout process is clear and easy to follow.

Consider collecting contact information for personalized offers or follow-up emails, but be transparent with customers about how you’ll use their information.

Take security seriously

Your payment services provider will do most of the work when it comes to storing and transmitting credit card information securely. This will usually involve tokenization and end-to-end encryption so credit card numbers are never transmitted openly.

If you have an online storefront, you can use two-factor authentication (2FA) to verify a customer’s identity before they can make changes to their account.

Support international payments

In today’s interconnected world, accepting payments from international customers can help you grow your customer base. This might entail higher processing costs such as foreign transaction fees, but the increased revenue may be worth it.

Allow customers to accept or decline dynamic currency conversion (DCC) so they can choose to pay in the local currency or their home currency.

Benefits of accepting credit card payments

Accepting credit card payments as a small business offers several benefits over other payment methods like cash, check, and ACH transfers. Here are just a few:

• More payment options: By accepting credit card payments, you’ll be able to accommodate customers who don’t carry cash or simply prefer to pay with a credit card for personal reasons like earning points or convenience.
• Faster processing times: Compared to traditional payment methods like paper checks or wire transfers, credit card payments are fast and efficient. Most of the time, you’ll see the money in your bank account in just a few business days.
• Reduced fraud and theft: Each credit card transaction is authorized individually, and your payment services provider will flag suspicious transactions. Plus, you’ll have less cash on hand that can be lost, embezzled, or stolen.
• Improved customer experience: Mobile POS systems and contactless credit card payments make for a faster, streamlined checkout process. You can also offer digital receipts and loyalty points to improve the customer experience.

How does credit card processing work?

Credit card processing involves multiple players, including your business, your payment services provider, and your financial institution. Here’s how it usually works:

• Initiation: For in-person card payments, the customer initiates the transaction by swiping, tapping, or dipping their credit card. For online purchases, they’ll enter their credit card number, expiration date, and security code manually.
• Authorization: The transaction request moves through the payment processor and credit card network to the customer’s bank. This step ensures that the card is valid and that there are enough funds available to cover the purchase.
• Processing: Credit card transactions are usually processed in batches at the end of the day. Although they’ve already been approved, they still need to be routed to the relevant banks to complete the settlement process.
• Settlement: Within a matter of business days, the funds are “settled,” or sent to the recipient’s bank account, minus any interchange and processing fees.
• Disputes: In rare cases, the customer may initiate a chargeback, which means they’ve disputed the transaction and want their money back. The money will be redrawn from your bank account unless you can show that the transaction was legitimate. Frequent chargebacks can result in fees, so try to avoid them.

5 services to help you accept credit card payments

If you’re ready to start accepting credit cards, you’ll need to choose the right processing option for you. Here are five ways to get set up with credit card payments today:

Plooto

Plooto is an all-in-one payment processing and accounting platform that supports credit card payments, electronic fund transfers (EFTs), international payments, and more. It’s great for businesses that send out invoices and want to give customers the option of paying by credit card or setting up recurring payments.

Plooto’s AR and AP automation tools support automatic reconciliation, and you can integrate Plooto with NetSuite, Xero, QuickBooks, and more.

Credit card processing starts at 2.9% + $0.30 per transaction.

• Pros: Transparent fees, recurring payment option
• Cons: No card reader for in-person payments