When you have a small business, it is important to manage your cash flow effectively. One way to improve the flow of money in and out of your business is by offering credit card payment options to your customers.
By allowing customers to pay with a credit card, you can reduce the stress of managing cash flow, eliminate the delays that come with waiting for check payments, and potentially increase your sales.
If your business currently does not accept credit card payments, implementing this payment method may be simpler than you anticipate.
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Benefits of accepting credit card payments
As per the Square Future of Commerce report in 2024, it was found that 47% of retailers presently offer the option to make payments using traditional credit cards, while 48% of customers show a preference for contactless payment methods.
Let’s explore some compelling reasons why accepting credit card payments is beneficial for your small business.
- Your customers might prefer paying by card. The acceptance of credit card payments has experienced a consistent rise, becoming the preferred payment method in 2022, as reported by the Federal Reserve Bank of San Francisco. Furthermore, credit card payments offer the added benefit of contactless payment options, which are favored by both customers and staff.
- Your customers will feel good about shopping with you. By displaying the logos of well-known credit cards that you accept, your business gains credibility and appears more reliable to customers.
- Your customers can pay however it is most convenient for them. Furthermore, numerous consumers eagerly anticipate the opportunity to receive rewards when they make payments using their credit cards, such as cash back or benefits related to travel.
How To Accept Credit Card Payments
Accepting credit card payments is a simple and convenient process for businesses of all types. Whether you operate in a physical store or online, you can easily process customer purchases using credit cards.
Steps to Credit Card Processing
Whether you are accepting card payments in person or via an online platform, the process usually consists of a few fundamental steps.
- To facilitate the process of accepting credit card payments, customers have the option to either swipe, insert, or tap their credit card or mobile device.
- When accepting credit card payments, the payment processor plays a crucial role in verifying the availability of funds or credit limit and identifying any potential fraudulent activities by communicating with the bank that issued the.
- Once the bank gives its approval for the transaction, the payment processor will deduct the amount from the customer’s account and transfer it to your merchant account as a credit.
When it comes to accepting credit card payments, the main distinction lies in the method used to input card information at the front end.
In-store Credit Card Payments
In order to accept credit card payments at a physical retail location such as a restaurant or store, it is necessary to have a point-of-sale (POS) system that is equipped with a card reader or a credit card terminal capable of processing transactions independently.
Contemporary POS systems like Square and Clover offer a combination of hardware and software that allow businesses to process both card and cash transactions. If necessary, customers can input a personal identification number (PIN) for a debit card or provide a signature to authorize the transaction either on the screen or on a printed receipt from the credit card terminal.
Online Payments
In order to receive credit card payments for your online business or e-commerce store, it is necessary to have a registered account with a payment service provider (PSP) such as PayPal, Stripe, Square, or Shopify.
To accept credit card payments, you need to link it to your online store. This can be done easily with the appropriate website builder. Popular website builders like Squarespace, Kajabi, and Shopify, as well as marketplaces like Etsy, are designed to make online purchases simple and can easily integrate with payment processors.
While most website builders provide a secure sockets layer (SSL) certificate for customer security, you may need a separate service if you wish to accept online payments. For more details, you can refer to our comprehensive guide on the top SSL certificate services available.
If your current website is not compatible with payment providers, you may need to redirect customers to your account on a third-party site, such as PayPal, by using a “pay now” button. However, this method may not be as smooth and may require additional effort on your part to manage orders accurately.
Mobile Payment Processing
If you want to accept credit card payments without needing any additional equipment, you can do so using mobile payment processing apps on your mobile phone. These apps are perfect for making sales on the go, whether you’re at farmers markets, art fairs, trade shows, or parties.
Square is a highly popular and user-friendly mobile payment processor that you can utilize. It comes with a small card reader that easily plugs into the headphone jack of your smartphone, even if you have a Lightning connector.
To easily accept credit card payments, all you need to do is download the Square Point of Sale app on your Android or iOS device. Once installed, you can enter the customer’s order or total amount and swipe their card to complete the transaction, just like you would at a physical store’s point of sale system. If necessary, customers can conveniently sign on the screen to authorize the payment.
Credit vs. Debit Card Transactions
Accepting credit card payments and debit card payments may seem similar, but they actually operate differently behind the scenes. Both types of transactions are facilitated by credit card networks, resulting in a similar point-of-sale process.
This process involves entering information, communicating with the bank, and successfully completing the transaction. However, from the customer’s perspective, the main distinction lies in the fact that a debit card transaction instantly deducts funds from their bank account, whereas a credit card transaction does not have an immediate impact on their available funds.
When it comes to receiving payments, there are differences depending on whether it is a debit card or a credit card transaction. Debit card transactions are typically processed quickly, and the funds are deposited into your merchant account on the same day.
On the other hand, credit card processing involves the payment processor depositing the money into your account and then settling the payment with the customer at a later date, which may take a few days.
The charges for using debit cards and credit cards can vary depending on the type of account you have with the payment service provider. Additionally, credit card networks may have different rules regarding transaction minimums for debit and credit cards due to regulatory obligations.
Merchant Account vs. Payment Service Provider
In the past, accepting credit card payments required opening a specialized bank account known as a merchant account. This involved signing up with a bank, negotiating fees, and acquiring the necessary equipment for payment processing.
However, payment service providers like PayPal, Square, and Stripe have simplified and often made this process more cost-effective. These providers function similarly to merchant accounts, but they offer the convenience of online sign-up and management.
Additionally, it is effortless to transfer funds to and from your payment service provider account for issuing refunds, making purchases, or depositing into your bank account. For small businesses starting out, utilizing a payment service provider is likely the easiest and most affordable option for accepting credit card payments.
Credit Card Processing Fees
If you decide to accept payments through credit or debit cards, you will have to bear certain customary charges.
- Interchange rate: When accepting credit card payments, a certain percentage of the sale is typically charged by the credit card company, such as Visa or Mastercard. These rates can range from 1.5% to 3.5%, with higher rates often applied to premium cards.
- Transaction fee: The fee you pay to the payment service provider or processor on top of the interchange rate is known as the cut. Different processors have different ways of charging this fee – some charge a fixed rate per transaction that includes both their cut and the interchange rate, while others follow an interchange-plus model where they charge you the interchange rate along with their own fee, which may vary.
- Service fee: The cost of using a credit card payment service varies depending on the provider. Some providers require a monthly or yearly subscription fee, while others, like Stripe and PayPal, only charge a flat-rate transaction fee without any additional subscription fee.
Can Companies Refuse to Accept Credit Cards?
Certainly. Nonetheless, it is not advisable for a business to decline accepting credit card payments. While a business has the prerogative to refuse certain payment methods, the concern lies in how this decision may impact their customer base, particularly considering the rapid rise in the usage of non-cash payments.
Can You Accept Credit Card Payments Without a Merchant Account?
Absolutely! If you don’t have a merchant account, there’s still a way for you to accept credit card payments. By utilizing a third-party processor, you can seamlessly process these payments and have them deposited into your regular business account. This alternative approach is particularly beneficial for small businesses seeking a convenient method to accept credit card payments.
The Bottom Line
In today’s business landscape, it is rare to come across a small business that does not offer credit card payment options. This is primarily because providing customers with a wide range of payment choices can significantly enhance sales and improve customer satisfaction.
Although there may be certain risks and expenses associated with accepting credit card payments, the benefits of increased convenience and sales outweigh these concerns.