When you started your business, you likely didn't consider how credit card processing for small business would impact your bottom line. After all, as a small business owner, one of your major goals is the satisfaction of your customers.
So many factors go into ensuring satisfaction, from the quality of the products and/or services that you offer, to the customer service you provide. What does credit card processing have to do with any of it? Satisfaction also includes how easy it is for a customer to make a purchase with your business.
Think back to the last few things you bought. When was the last time you used cash? These days, very few people actually carry or pay with cash. Most point of sale (POS) transactions are with some form of debit or credit card.
It might be “easier” to be a cash-only operation, but the truth is, by accepting only cash, there’s a good chance that you’ll be seriously restricting your potential sales.
Credit card processing for small businesses is all about convenience for the customer and can help you to see a boost in your sales. However, choosing a credit card processing company involves more than just the sign-up process. With the right credit card processing company, you can help your small business to flourish and grow.
We'll review the information in these easy-to-read sections:
A credit card processor, or payment processor, handles credit and debit card transactions. When you swipe (or insert, if there is a chip) a credit or debit card, the credit card processor takes the information from the card and communicates it to both your bank and the customer’s bank.
Along with facilitating the transaction, the credit card processor also works to provide security, ensuring that the customer’s information is correct .
Finally, credit card processors can handle charge disputes for you. Instead of you issuing a refund, the credit card processor will return the funds spent to the customer’s account, resolving the dispute. This is one reason why a processor's customer service support is important to consider, which we'll discuss further on.
When it comes to deciding on the best credit card processor for small business, you may hear a few similar-sounding terms thrown around. Because there's so much to consider that could go into your decision, we're going to review the different terms so you can get the full picture of your options.
Merchant: Simply put, the merchant is you and your business. Your customers come to you to exchange money via their credit card for a product or a service.
Payment gateway: You can think of a payment gateway as what stands between the customer and their money getting processed. Whether the credit card is physically used or used via an online payment method, the payment gateway is what processes the transaction.
The hardware, or machine you'll need so you can accept a customer's credit card, differs depending on a variety of factors. Some credit card processing companies will either give you a machine at no cost or charge you a one-time fee. Hardware can include chip readers, scanners, near field communication technology (which customers can use to tap-to-pay with their card), and more.
To read more about the different types of hardware you can consider for your small business, start here.
Credit card processor: This is what moves the money through from the customer to your bank. Some processors have their own gateways, but others can work separately.
Choosing the right credit card processing for small business can be hard, because they deal with moving information that needs to be kept secure. The processors are responsible for being compliant with the Payment Card Industry Data Security Standard (PCI DSS).
Merchant account provider and payment service provider: Both of these providers help you to process payments made by customers. The difference between the two is in how the money is moved into your business's bank account once it's processed by your credit card processor.
First, let's review merchant account providers.
These are accounts that help you accept money from your customers and hold it for you until it's approved to pass through to your bank. Sometimes these merchant account providers are banks themselves, but they also can be payment processors or sales organizations.
Your merchant account provider will give your business a specific account that money can pass through on the way to your bank account. The money passes through after your customer pays with a credit card and the transaction is approved by the bank that issued their credit card.
The payment gateways mentioned earlier take compliance measures during these transactions with merchant account providers. Both have to take certain steps to meet compliance standards that make sure information and money are protected.
Now let's take a moment to talk about payment service providers.
These providers work differently. Unlike a merchant account provider, your business won't get assigned a specific account. All credit card processing is moved through one large account managed by the provider where your customers' payments will be transferred to your business's bank account.
Depending on how many transactions your business does, one of these provider accounts may work better for you than another. You don't need to decide right now! What we talk about later in the article may help you with your decision.
Before we get into the benefits of credit card processing for your small business, let's talk a bit about protecting the money coming in through card payments. After all, the money your customer is paying is passing through a few channels before it gets to your company.
Credit card processing for a small business will likely include compliance and encryption to keep your business and customers' information safe.
You can do your part by both making sure that how you set up your processing follows the guidelines set by the Payment Card Industry Data Security Standard (PCI DSS) and making sure you have updated hardware. You can learn more about those standards here.
But what about things unrelated to a credit card purchase? Unfortunately, as a business owner, there can sometimes be events that we can't possibly see coming. That's why it's a good idea to understand how to protect yourself in case something unexpected happens that could cost you money.
That's where business insurance comes in.
A business insurance policy can give you financial protection. For example, general liability insurance could help if you have any property damage, a customer gets hurt, or there are any third-party accidents. Your insurance policy could help to pay costs like property repair or medical bills, up to your policy's limit.
While business insurance is protecting you, the decision to accept credit and debit card payments can also protect your customers. In times when so many people are health conscious, it's helpful to provide a way for customers to buy your products or services without exchanging cash. The fewer physical exchanges, the lower the risk of spreading germs.
But not all accidents or mistakes happen face-to-face — there are risks online, too. Fortunately, with Simply Business, you have the option of adding cyber liability insurance to your general liability coverage.
That means that if you have a security breach online, you could be covered for crisis management, fraud response, public relations work, or other similar instances, up to your policy's limit.
There are over 1,000 credit card processing companies, and when it comes to insurance coverage, there are several types of policies to choose from. How can you decide which is best for your business?
You'll have results in under 10 minutes, with general liability insurance starting as low as $21.25/month.* So for less than the monthly cost of hosting your website, you could protect your business.
Like we said, there are over 1,000 credit card processing companies out there, so when choosing which is best for your business, here are some benefits you should consider when looking over your options:
There’s a good chance that your competitors are already accepting credit card payments. According to Weave, 64% of customers wouldn’t be able to pay for a product or service if a business didn’t accept payment forms other than cash.
Think about it — have you ever been in a situation where you're out of cash or just short of what you need to pay for your purchase? It's easy to feel a bit panicked and even a little guilty for holding up other customers or the cashier.
There are likely other similar businesses in your area or industry that accept credit or debit card payments. In order to stay relevant, and compete with them, you should consider taking payments by card as well.
As you know, not all customers carry cash. But let’s face it,even if they do, fumbling through a wallet to find cash, counting coins, and then trying to put the change away can be aggravating.
Credit cards offer a quick, convenient way to pay. Not only that, but many cards offer all kinds of perks (air miles, points, or other rewards) to encourage their use.
This can help create loyalty to your business, because a customer can realize that when they make a purchase with you using their credit card, they'll likely benefit from its perks by adding points to their account.
For example, let’s say you own Carol’s Cleaning Service. A customer may know that when they buy a package service deal from you, they not only get a discount on the services, but they rack up points that they can later redeem for cash or different rewards provided by the card-issuing bank.
It's rare for businesses to take checks these days. Not only are fewer customers using them for purchases, but consider this: If you decide to accept personal checks at your business, you put yourself at risk.
When a customer writes a personal check to make a purchase, there isn't a way to confirm they have enough money in their account to cover it — meaning the check could bounce. If a check bounces, your business is often slapped with the responsibility of paying a fee requested by the card-issuing bank. And remember, you'll likely already have eaten the cost of the product that was purchased with the bad check.
On top of that, many banks charge a penalty to make up for the inconvenience of moving around funds.
Then you have to waste valuable time tracking down the customer who wrote the bad check. With credit card processing, the card is screened during the transaction, not after, reducing the risk of fraud.
With credit card processing, you're not only saving yourself and your customer time during the actual purchase, but also the time after the purchase.
Today, many businesses are operating a storefront and are doing business online. Some businesses even run solely on the web. Taking your business online provides a way to broaden your customer base, and therefore increase sales and profits.
Other businesses may operate their companies online and also on the road. For example, maybe some business owners sell their products online and also at trade shows.
Being able to bring hardware (like Square) along with you, can make the process of accepting payments on the road much easier, opening up a whole new realm of sales possibilities.
All credit card transactions are processed electronically. The money you make is quickly deposited into the bank.
While some credit card processing companies may take some time to process your payments, there's no more long wait times for checks to clear or waiting to receive payment. (Both can make or break some small businesses when funds are tight and bills are due).
Taking payments with a credit card also means that you have less physical cash to handle. With the majority of your payments being processed in the same way, it may be easier for you to get an overview of incoming payments and better manage your business's cash flow.
No one likes to think that their employees will steal from them, but it can, and does happen. Small businesses typically lack the complex security systems that many larger operations have, making it easier for cash to go missing.
By accepting credit cards, it becomes much more difficult for employees to steal. According to SCORE, some of the best ways to prevent employee theft involve tracking payments, which is often easier to do with credit cards than cash or checks. The digital processing records act as a paper trail you can use to keep an eye on employee actions.
When you accept only cash, your customer base is small. There are not many people who still carry cash, and if they do, it's likely not enough to buy everything they want or need. In fact, only about 20% of customers carry enough cash with them to make purchases from companies they shop at often.
By accepting credit and debit cards, you broaden your customer base, increasing your potential sales at the same time.
When customers have to write a check, or run to the ATM to get cash, they tend to limit their purchases. This ties back to earlier when we asked if you'd ever come up short of cash for a purchase. How many times have you gone to an ATM for the cash and returned to buy what you intended?
Many studies have shown that when customers can use a credit or debit card, they tend to spend more, especially when it comes to impulse purchases.
Consider online purchases when thinking of impulse buys, too. Often, customers may have their credit card information saved on their internet browser. This can make it even easier for them to buy from you, because they don't have to check their wallet for the credit card number and information.
Many small business owners tend to shy away from accepting credit and debit card payments. If you're used to accepting cash, then moving to also accept credit card purchases can feel like a daunting change because of everything that’s involved with it.
One reason is the fees. Some small businesses don't have a high enough margin to justify the credit card fees. This is a personal decision to each business owner, but if you're not at a point in your business where you think you're making enough profit to pay the processing fees, you may be hesitant to accept card payments.
Other small businesses are doing well enough financially to consider the switch, but they fear that the fees for credit card processing for small business are too expensive and not worth the trouble. They think that the fees will eat away at their profits and do more harm than good to their bottom line.
If this sounds like what you've worried about, we don't blame you for being cautious here. After all, it's your job as a business owner to make smart decisions — each one impacts your business down the road.
The truth is, however, that accepting credit cards from your customers can actually be very cost-effective. Credit card processing for small business has become a highly competitive industry, with the different processing companies trying to compete with one another for your business. This means that it's likely you can find a credit card processing company with a good rate that makes it worthwhile for your business.
Along with credit card processing companies being competitive, many small business owners quickly realize that the amount of revenue they bring in from accepting credit card payments makes up for the fees charged by the credit card processing companies. We'll talk a bit more about fees and what to expect later on
When you accept credit and debit cards, you can quickly begin to reap the benefits — increased sales per customer, more impulse purchases, and gaining more customers in any loyalty programs you may offer. Credit card processing for small business owners can provide a great return on investment.
So now that you’re on board with credit card processing, what’s next? It’s time to choose a credit card processing company.
Sounds simple, right? Not always. Like we mentioned earlier, there are over 1,000 companies to choose from, each with its own benefits and requirements for you, your customers, and your business.
Choosing the right credit card processing for your small business should not be taken lightly. It is important that you take the time to consider all of your options. There are several factors that you should consider before choosing the right processor for your business.
One thing you should think about are the fees associated with the credit card processing company, which we touched on earlier.
Fees can be scary, especially to a small business owner. And you're not alone! 41% of business owners are worried that their credit card processing fees could result in losing customers.
The key is to understand what is being charged, who it's being charged to, why, and how much. Depending on the credit card processor, fees may include such things as:
These fees are the ones that are charged during each transaction. The average interchange fee in the U.S. ranges from 1.3%-3.5% and is set by the bank that issues your customer's card and the credit card company itself.
This may be why you've heard that some businesses feel strongly about not accepting certain credit cards, like MasterCard and AmEx, which have higher-than-average fees.
The bank that issues the credit card to your customer will pay this fee.
Some credit card processors charge a fee simply for applying, as well as for setting up the necessary equipment. Depending on the equipment used, there may be an extra fee for the devices.
The monthly minimum fees will change depending on each particular credit card processing company's pricing models. A popular model is a subscription-type model that charges flat-rate fees. A credit card processing company will charge you a percentage each month, plus a per-transaction fee.
Depending on the processor, it may cost you less to process customers' debit cards than credit cards, which is why you may notice that some business owners charge extra if a customer uses one over the other.
With a monthly minimum fee, the credit card processor sets a minimum amount of fees that must be collected. If you fail to meet the minimum requirements, you will be charged the remainder.
The payment gateways we mentioned earlier can't always be accessed free-of-charge. Some credit card processors charge a fee for you to have access to their payment gateway and the equipment it comes with, as mentioned earlier. However, having transparency into the gateway can help you track transactions for customers if something happens with the processing.
This is a fee for mailing monthly statements to you. Some processors may have reduced fees or waive them if you choose to go paperless.
Most credit card processing companies require you to sign a contract. It may be for a year, two years, or whatever they choose. If you want to get out of the contract, the company may impose an early termination fee.
The exact amount of the fee ranges from company to company, but it can reach into thousands of dollars. This can often be an incentive to really do your homework before signing up with the first credit card processor you come across.
While these fees can be scary, there unfortunately really isn’t a free credit card processing for small businesses. For instance, some companies offer no transaction fees, but there are other fees that may still be tied to the service (monthly fees, compliance fees, etc.).
And instead of you being charged the fee, the fee is incurred by your customers. It’s important to read the fine print first. There also are credit card processors who charge lower transaction (interchange) fees, don’t charge for equipment, and/or have no application and set-up fees.
Cost is only one factor that needs to be considered. Other considerations you should keep in mind when choosing a credit card processing company include:
While many credit card processing companies accept a variety of cards, it's still wise to check which are on the list. For instance, you may want to be able to accept all major credit and debit cards, as well as prepaid gift cards, or even EBTs (electronic balance transfers). Whether or not it will accept newer types of payment methods. With new technology constantly changing the way customers shop, there's a good chance you may have customers who want to pay with another method that uses their credit card information. For instance, customers may want to pay using Apple Pay, Google Pay, PayPal or Venmo.
Some credit card processing companies’ software integrates with tools that help you run your business. For example, there may be some processors that integrate with softwares to help with point-of-sale (POS) systems, billing and invoicing, inventory management, customer communications, and more.
Even once you get the hang of your new credit card machine (or your online payment system), it’s still possible to experience technical difficulties. Or you might simply have a question about your statement.
These issues can slow down your business, so it’s important to have those issues taken care of quickly. You may want to consider a credit card processor that offers 24/7 customer support, so you can receive direct help when needed.
Beyond checking a company's customer support services, also check to see what resources or help documentation they make available to their customers. Some companies will offer blogs, videos, or white papers to help you better understand an issue so you can fix it on your own.
When it comes to choosing a credit card processor for your small business, there are a variety to choose from. So how do you know which one is the best?
Here are a few of the top credit card processors for small businesses to consider:
Square is a popular processor with restaurants and retailers alike. It’s extremely easy to use, and it’s affordable.
All swiped transactions have a flat 2.6% fee. There are also fees for keyed transactions (3.5% plus $0.15), as well as online transactions (2.9% plus $0.30). Those are the only fees associated with Square. It also offers a mobile processing solution with no monthly fees attached. You will need the Square hardware, which you can purchase for a flat fee or via a payment plan. But you may qualify for a free card reader! You also have access to other hardware you may find helpful, like docks, printers, scanners, and more.
Square's website has several tutorial videos to help get your business's credit card processing up and running. If you have questions, you can email them 24/7 or call between 6:00 a.m.-6:00 p.m. PST.
PayPal is a great option for online credit card processing, especially for newer businesses that don't yet know how many transactions they'll be doing.
It’s easy to use, and doesn't require annual or monthly payments on your account. Fees for taking a credit card payment range between 2.7% and 2.9%, plus $0.30 per transaction.
With PayPal, you'll have the money from your transaction within 24 hours; you also have the option of paying a 1% fee to have it instantly. You can see your transactions reflected in many of the software products that PayPal integrates with, such as QuickBooks, Shopify, Vend, Lavu, and others.
While it doesn't offer 24/7 support, PayPal's customer service line is available from 6:00 a.m.-6:00 p.m. PST. If that timeframe doesn't work for you, you can access support from their resolution center, in forums, or via text.
CreditCardProcessing.com is a good option for any type of business because it offers different plans, priced based on the number of transactions you're doing.
There are low processing fees, and you can get started for as little as $15.00/month. You also get a free mobile credit card swiper (which works for both Apple and Android). Service is month-to-month, and there are no termination fees. You'll have access to phone support, depending on which plan you buy for your business.
Working with Stripe makes it easy for you to accept your customers' payments both in-person and online. You can manage Stripe from your iOS or Android phone.
Stripe offers flat-fee pricing; for domestic debit and credit card purchases, there's a 2.9% fee plus $0.30 per transaction; in-person payments cost 2.7% plus $0.05 per transaction. If a customer wants to pay via an ACH transfer (where they electronically transfer money from their bank account), there's an 0.8% fee with a $5 cap.
The great thing about choosing Stripe is that it can give you access to other products in its lineup, like Stripe Sigma, which you can use to build reports tracking your progress, or Stripe Billing, which you can also use for invoices.
And don't worry — you don't have to set all of this up on your own. Stripe offers 24/7 customer support via either chat or email. In some cases, you can also arrange service phone calls.
If you're already doing a large volume of transactions, then Stax may be for you. The "Fatt” in Fattmerchant stands for Fast, Affordable, Transaction, Technology. But you'll have to decide whether or not it's affordable for your business.
Fattmerchant's monthly subscription rates change, based on the estimated amount of transactions you'll do each month, and the additional fee rates can differ. Stax's customer service is available 24/7.
Phew! That’s a lot of information. In this article, we've reviewed what's required for having a credit card processor, the benefits of accepting credit cards, why some business owners are hesitant to accept them, and 5 of the best credit card processors for small business.
Remember, this article, though long, is just the tip of the iceberg. Feel free to continue doing other research by talking to small business owners in your community and industry to learn about how they started accepting credit cards at their companies.
You may decide to use one credit card processing company and make a change down the road when your cash flow and customer base change. As a business owner, choosing the right processing company for your business is important, but keep in mind that what works for you now, may not work forever. For more tips on evolving as a business owner as your company grows, visit our blog Simply U.
*Monthly payment calculations (i) do not include initial premium down payment and (ii) may vary by state, insurance provider, and nature of your business. Averages based on July-September 2023 data of 10% of our total policies sold.
I love writing about the small business experience because I happen to be a small business owner - I've had a freelance copywriting business for over 10 years. In addition to that, I also head up the content strategy here at Simply Business. Reach out if you have a great idea for an article or just want to say hi!
Mariah writes on a number of topics such as small business planning, contractor insurance, and business licenses.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.