A customer walks through the front door of a business and asks a merchant if they accept credit cards. He wants to make a big purchase.

He only has $10 in cash, so he wants to use his brand new rewards credit card. But the merchant is a cash-only business and doesn’t even know how to accept credit card payments.The small business owner looks at the customer with a sad face as the customer leaves the store— hands empty, credit card in their wallet. That merchant has just lost a major sale.

Now imagine if it were you in the situation mentioned above. You could lose hundreds, if not thousands of dollars in a single day if you don’t know how to accept credit card payments. Running a profitable business means catering to the needs of your customer base. Customers often carry a finite amount of cash and credit cards allows them the flexibility to spend more money.

There are many benefits as to why a small business needs to accept credit cards. But often, once a small business owner understands the value of accepting credit cards, a million questions rush into their head. If this sounds like you, don’t worry. Start with one question at a time. Learning how to accept credit cards doesn’t have to be difficult. In this post, we’re going to talk about why you should accept credit cards, best practices, hardware and software options, and what to expect when filling out a credit card processing application.

Now let’s dive in!

If you own a business — or are just starting a business — and you want to accept the most common form of payment (credit cards), then you’ll need to use a merchant service provider. A credit card processor or merchant service provider is a term used to describe companies who provide businesses with the products and services needed to accept credit cards and other forms of electronic payments.

When a potential customer comes into the store and makes a purchase, in the process of completing the transaction, the credit card processor will move funds from the cardholder’s account — depositing them into the business account. Seems simple enough, right?

But when you are a cash only business, you run into situations such as when a cashier gives back too much change, causing the register to be short. The chances of making an error like this, go up when you’re a cash-only business. Not to mention that then there’s the hassle of going to the bank with a large amount of cash for a deposit.

When you know how to accept credit cards, it reduces the chances of a cashier making a mistake. The frequency of cash transactions go down, meaning less human errors. Busy hours become a breeze, because the cashier only has to swipe the card and ask if they would like a receipt.


customer in retail store looking at merchandise - how to accept credit card payments

So the ability to process credit cards provides a better experience for customers and saves money. What else does it do?

It encourages larger sales!

If a customer wants to buy a $200 item, but they only have $150 in cash. They have two options, they can leave the store or use their credit card. That’s an extra $50 spent, by just having the ability to process credit card payments. More times than not, customers spend more money when they use a credit card. Think about the last time you went into a store with the intention to buy one thing. Then you saw this item you needed and that item and before you know it you had three or four extra items in your shopping cart. Luckily you had your credit card to make the purchase.

So where do I start the process of learning how to accept credit card payments?

Before you choose a credit card processor, there are a few things every merchant needs to know. Let’s start with the basics. There are four card issuing brands: Visa, MasterCard, Discover, and American Express. Over the years, these brands have issued over 300 different credit cards. Each one operates on their own network with their own fees. Merchant service providers provide detailed breakdowns of these costs in paper or electronic formats, otherwise known as statements. Some statements are easier to read than others. The best way to keep your merchant service provider honest is understanding how to read a statement.

Reading a statement can be confusing, what should I expect?

Two of most the popular pricing structures you’ll come across on a statement are Interchange Plus and Tiered Pricing. Each one has its pros and cons. The main fact every business owner needs to know about how to accept credit card payments is that each card used in your establishment has its own wholesale rate. Take a look at Visa’s interchange reimbursement fees to get a better picture.

Interchange Plus Pricing has a cost plus model. This means every merchant pays the same wholesale cost to have the ability to process credit cards. Then the merchant service provider will mark it up so they can make a bit of profit. For example, it may cost 1 percent to process a credit card at a wholesale rate. But the merchant service provider might add .35 percent and $0.20 to process that transaction. Most business owners feel more comfortable when they know the exact percentage and dollar amount they’ll be charged for each transaction. This pricing structure is called Interchange Plus Pricing. Tiered pricing doesn’t show the difference between the markup and the wholesale rate. Simply one rate inclusive of everything — not helpful when you’re trying to figure out if you’re getting the best deal.

So what miscellaneous fees should I pay attention to?

Miscellaneous fees are debited monthly, or annually. Some of the most common miscellaneous fees you’ll come across are statement fees, service charge fees, customer support fees, batch fees, and PCI compliance fees. The first three are self-explanatory, the last two may require a little background.

A batch is the total dollar amount of credit card sale charges in a single business day. It’s deposited into a business owner’s checking account. Some processors will charge $0.10 to $0.30 to complete the batch out. Payment Card Industry (PCI) compliance is a set of security standards designed to ensure that all companies know how to accept credit card payments, store or transmit credit card information to maintain a secure environment. Many credit card processing companies will issue a PCI questionnaire and some companies will charge a PCI compliance monthly fee.

So there’s a handful of miscellaneous fees, are there any other fees I should be aware of?

Yes, there can be.

There’s a right way and a wrong to accept credit cards. You want to make certain you have a good understanding of how to accept credit card payments to avoid these per occurrence fees: retrieval, chargebacks, and ACH Reject fees.

The retrieval fee is the first part of the potential chargeback process. Before a chargeback is officially ruled, the bank will give the merchant a chance to provide supporting documentation showing the legitimacy of the charge. The fee associated with the retrieval process can range from $10 to $25 per occurrence.

The second part of the process is the official ruling of a chargeback. If the merchant fails to provide supporting documentation or loses the ruling, then a chargeback is issued. A chargeback pulls the money from the merchant’s bank account, placing it back into the cardholder’s bank account. Then the merchant receives a chargeback fee. The fee is usually $25. For every chargeback, a small business owner can lose the money from the transaction, the product, and up to $50 in fees. Because of this potential loss, merchants will typically use a basic identity verification process. To do this, ask for the customer’s ID and match it with the credit card they are using. A few seconds could save hundreds, if not thousands, of dollars.

Now that you know how to accept credit card payments, it’s time to receive the money. If a merchant service provider attempts to debit a business owner’s bank account and it lacks insufficient funds, then the merchant will be charged an ACH reject fee. If a merchant service provider attempts to deposit funds into the business’ bank account and it’s closed or blocked then they’ll also receive an ACH Reject fee. A standard ACH Reject fee is $25.

customer in retail store swiping credit card - how to accept credit card payments

Before I fill out an application, do I need to already have hardware?

The reason why the application is saved for last is because the processor you choose needs to be able to integrate with the software you’re going to use. Some processors are hard coded to certain hardware and others may not have the integration capability needed for the software. Before you settle on a processor, make certain it can integrate with the software.

One of the main things you want to decide on is how you want to accept credit card payments. For example, will it be online, in store or both. If you’d like to process credit cards in store then you’ll need equipment. There’s three options: mobile readers, standalone terminals, and a POS systems. Each one has its pros and cons. The mobile reader comes with an application you can download. Usually, it plugs into the headphone jack of a cellular device, iPhone, iPad or Android device. The standalone terminal plugs into your phone or internet line. Then you simply swipe or key in transactions into the terminal. The most commonly used device for in-store credit card processing is a POS system. It offers inventory reporting, analytics, marketing tools, and much more.

Once you’ve implemented your device of choice, it’s time to run a credit card test transaction. If the system responds with an error then the credit card processing is not fully functional. If it responds with “approved” or “declined” then the ability to process credit card payments is active and you are good to go!

Okay. What if the power goes out and I still have customers. How can I process credit cards?

There may come a time when the internet is down and you still need to process credit cards. Many merchants are taking advantage of offline mode. It allows you to swipe the card without getting card authorization that the transaction was processed. So it’s a bit of a risk. If a customer walks out, product in hand, there’s no guarantee the credit card transaction actually went through — until power is restored. The reality is although offline mode was created with the best of intentions, it can leave merchants vulnerable — at risk of invalid purchases and subsequent chargebacks. Because of these risks, it’s not something we recommend. During these times it’s best to rely on cash transactions only.

So what information do I need to provide on an application?

Finding the right credit card processor shouldn’t be hard and a standard credit card processing application will ask about three main areas. There’s basic information about your business such as annual and monthly sales volume, average size transaction, location, and types of items or services offered. Then there is personal information. Usually, this portion will ask for your name, SSN, home address, and primary phone number. Finally, every processor needs to know where you’d like your funds deposited. They’ll need an official document to support the bank account information — either a voided check or bank letter. Both items need to have the name of the business with the full correct routing and account number.

Before a small business owner decides to accept credit cards they should have all the facts and a good understanding of how to accept credit cards. As outlined above, there’s a number of ways you can do it. Each one has its pros and cons. The one thing that is constant among them is the added cash flow. The ability to process credit cards shows an additional level of customer service. It’s the extra mile that a business is willing to go that will stand out and be obvious to customers. So the next time a potential customer comes in to make a huge purchase and wants to use their credit card — smile! You’ve just made a sale.

Larry Walker

About the Author

Larry Walker is ShopKeep point of sale's Payments Specialist. Larry uses his journalistic background and payments expertise to inform and inspire small businesses on the process of running a more efficient business.