Learn whether this payment method is right for you and how to set things up right.
Perhaps you’re a startup and considering whether — and how — to accept MasterCard, VISA, American Express, Discover, and other types of credit cards from a range of credit card companies.
Or maybe your business has only been accepting cash, and it’s time to expand your payment options.
Either way, in this article, I’ll explain everything you need to know to start accepting credit cards at your small business. I’ll also lay out the pros and cons of allowing credit card payments so you can figure out if it’s the right move for you.
- Determine how you’ll accept credit card payments
- Select your credit card payment processor
- Get the right credit card payment hardware and software
- Select a payment service provider
- The pros and cons of accepting credit cards for small businesses
Important fact: Companies are not required to accept credit cards; however, you may miss out on a significant amount of business if you decide not to. Most consumers today prefer to use credit cards to pay for goods and services. Even though fees associated with credit cards and other electronic transactions can add up, most businesses can’t afford to NOT accept cards.
Determine how you’ll accept credit card payments
First, you must decide how and where to accept credit cards. The options include:
- In-person payments, which are typical for brick-and-mortar businesses.
- Online payments, which are necessary for e-commerce operations, including Shopify retail outlets, online storefronts, and other e-commerce platforms.
- Mobile payments, which customers now demand from businesses that sell goods or provide services in non-traditional locations.
As small businesses have become more complex, some may need all three options, especially if they have a real-world location, do business online, and offer their goods and services in places like street fairs or farmer’s markets.
When considering your options, don’t limit your thinking about where you’ll accept credit payments to your current operation. If you own a restaurant and want to offer virtual ordering and food delivery in the future, plan for it now. You don’t want to be forced to switch payment providers when you update your operational model. Switching payment systems is sometimes more difficult than starting fresh.
Select your credit card payment processor
In the past, you had to have a merchant account to accept credit card payments, whether you were a traditional merchant (retailer) or not. Your merchant account provided the three things required to accept credit cards, including:
- Payment processing
- A point of sale system (POS system)
- Credit card terminals.
Merchant accounts are still an option for small businesses. However, they often come with high fees and long-term contractual commitments, making them unattractive to most smaller operations.
The good news: Technology has created many more affordable and flexible alternatives to traditional merchant accounts.
A payment processor or payment service provider offers services comparable to a merchant account, but you don’t have to sign a long-term contract. They provide credit card processing and can supply any hardware and software you need, such as a mobile card reader, without the high cost and extended commitment of a merchant account.
Once you’ve figured out how you’ll accept payments, it’s time to choose a payment processor. There are many payment service providers, and it can be challenging to decide which one is right for your small business.
Get the right credit card payment hardware and software
Depending on the type of business you run, you may need specialized software and hardware with different functionality.
If you run an online business, you’ll need to use software to set up a payment gateway on your business’s website.
You’ll need hardware to accept in-person and mobile payments. Most payment processors provide you with equipment to accept payments in person.
Check out this article on the Biz2Credit blog. It explains how to select your first point of sale system.
Select a payment service provider
There are many payment service providers, but three are the most popular with small businesses. Here’s an overview of each of the processing companies.
Almost everyone has used PayPal and is comfortable with it.
PayPal is one of the top online payment processors. It also makes it easy for small businesses to accept in-person credit card payments.
PayPal provides credit card readers that can be used at your brick-and-mortar location or taken with you when you go out on the road. Another option offered by PayPal for in-person payments is a QR code, which your customers scan to pay for things using their smartphones. Also, PayPal provides payment processing for online credit and debit transactions, the service it’s best known for.
Be aware: PayPal’s fees recently increased and are now higher than those of many similar payment providers:
- PayPal charges: 3.49 percent + $0.49 per transaction if it’s in U.S. dollars
- QR code transactions: 2.40 percent (1.90 percent for transactions greater than $10.01) + $0.49 per transaction if it’s in U.S. dollars
- Standard credit and debit card payments: 2.99 percent + $0.49 per transaction if it’s in U.S. dollars
You can access a list of all of PayPal’s payment fees in this document.
2. Square from Block
Square from Block is a favorite payment system for in-person and online businesses.
Square makes it easy to set up online payments on your business website or mobile app. Square also provides the ubiquitous cube hardware you need to accept payments at your place of business or on the go. In addition, Square makes it possible for small businesses to send invoices, which direct the party you’re billing to a convenient payment page.
Square’s transaction fees are competitive:
- Card-present in-person payments or in-person transactions: 2.60 percent + $0.10 per transaction
- Card-not-present in-person payments or in-person transactions: 3.50 percent + $0.15 per transaction
- Online payments: 2.90 percent + $0.30 per transaction
Stripe is well-known for its online payment processing capabilities, making it a solid choice for businesses that primarily operate in the digital realm. You can quickly and easily create a checkout process on your website that collects and processes payment information with it. While other payment processors can accept multiple currencies, Stripe can process more than 135 different ones, making it an ideal solution for small companies that conduct business globally.
Stripe also allows small businesses to set up recurring subscriptions and billing for credit card payments.
Similar to other credit card processors, Stripe provides hardware, known as the Stripe Terminal, which is a point-of-sale device you can use to collect payments from different credit card networks, Google Pay, Apple Pay, and other types of transactions.
Stripe’s fees can be customized based on the business. The standard fee for a successful card charge is 2.90 percent + a $0.30 flat-rate per transaction
Tip: As you can see, the cheapest way to begin accepting credit card payments depends on whether you receive payments in-person or online. Payment service providers have different credit card processing fees for different types of payments. International transactions can also significantly increase fees, depending on the currency involved. You owe it to yourself to do your due diligence to find the most cost-effective option for your operation.
Check out this article to learn how you can avoid excessive small business credit card fees.
The pros and cons of accepting credit cards for small businesses
Still not sure whether you should accept credit cards? Here are the pros and cons.
The pros of accepting credit cards for small businesses.
- Attract more customers and increase sales volume: You have a much greater chance of bringing in customers if you accept credit card transactions. Fewer and fewer people pay (or even carry) cash anymore. Approximately three out of ten Americans say they make no purchases with money, according to a Pew Research Center study. At the same time, those who say that all or nearly all of their purchases are made with cash fell to less than twenty percent. Based on these numbers, you limit your customer base to a tiny percentage of the population if you don’t accept credit.
- Earn higher revenue: Several behavioral economics studies have concluded that consumers are likely to spend more if they pay with credit instead of cash. Credit is less tangible than real money, so people make larger purchases with it than with cash.
- Convenience: Credit payments are more convenient for consumers and small business owners. Consumers like the ease of not carrying cash or needing to run to a bank or ATM. For business owners, credit processing system software makes things like accounting, managing inventory, and processing and tracking metrics much more effortless. When you deal in cash, you have to enter every transaction manually into bookkeeping, accounting, and analysis software.
- Safety: Needless to say, consumers feel safer paying with credit cards than cash. Not only does it help prevent physical theft, but it also protects against cyber theft. When they use a credit card, consumers are not held liable for unauthorized credit charges. It’s also far safer for small companies not to have cash in a business location, which might attract thieves or tempt employees to do the wrong thing.
Cons of accepting credit cards for small businesses.
- Expense: Cost is one of the most significant issues regarding whether small businesses should accept credit card payments. Business owners must pay considerable credit card processing fees, cutting into already tight profit margins.
- Chargebacks: Customers can dispute credit card charges if they’re dissatisfied with a product you sell or service you provide. You may get hit with a chargeback if a customer disputes a credit card payment made to your business. You may get hit with a debit without warning, which could cut into the cash flow and bottom-line profitability of your business. If enough chargebacks are made to your operation, your ability to process cards may be frozen, impacting your ability to serve customers or clients.
- Fraud Liability: Some credit card processors, banks, and other financial companies hold small businesses responsible for the fraud related to their systems. If hackers use stolen card data to make charges, the owner of the business the data was stolen from could be held all — or partially — responsible for the charges and other damages resulting from the hack. These costs would have to come out of the business bank account, which few small operations can afford. It could also result in the termination of credit card processing services.
In the end, most small businesses these days can’t afford NOT to accept credit payments. Doing so will seriously cut into their sales. Companies must be aware of the costs and risks of accepting credit cards. Your credit card processing service can likely provide you with information on how to manage processing costs and prevent hacking and other threats to your business.