In a digital world where most people are moving their daily activities online, it’s become necessary for small businesses to offer flexible payment options. The 2019 Diary of Consumer Payment Choice reported these findings:
- Cash payments accounted for only 26% of transactions.
- Debit cards were the preferred option, accounting for 28% of the payments.
- Credit cards accounted for 23% of payments.
- Cash was the preferred option only for transactions under $10.
As you can see, unless your business only deals with small transactions, you’ll need to offer different modes of payments. In today’s world, convenience is the main criteria for customer experience. Make sure you offer convenience throughout the customer life cycle.
There are pros and cons to each type, and some are better suited for small businesses, freelancers, or contractors, such as yourself. Depending on the number of credit card transactions you expect to process and if you need in-person payment processing, online transactions, or both, there is a method of credit card payment processing right for you. Don’t worry if you are not technologically savvy — getting these set up is a lot easier than you think.
In this guide, we discuss the different modes of payment you can utilize in your small business.
How Can a Small Business Accept Credit Card Payments?
As a consumer, the process of paying with a credit card seems simple — you swipe or tap the card, and voila! The transaction is complete. But the back end is a bit more complex, involving monitoring credit card balances and checking for fraud. And since small businesses lack the infrastructure required to monitor and verify every transaction, most prefer to work with payment processing companies.
Every payment method has fees associated with it. This includes application fees, startup fees, monthly fees, per-transaction fees, and cross-border fees. That’s why you need to shop around. Look for a payment processing provider who can accommodate the transactions your business will deal with conveniently and inexpensively, if possible.
A merchant account allows businesses to accept credit and debit card payments. It makes authentication and other technical aspects of transactions flow between the customer. the business, credit card companies, and banks.
To set up a merchant account, you’ll have to go through an underwriting process similar to a mortgage application. You may also have to provide the following:
- Business bank account information
- Employer identification number (EIN) for tax purposes
- Business start date
- Estimated monthly transaction amount
Merchant accounts are generally more expensive and time-consuming to set up, but the convenience of a fast transaction and the promise of improved cash flow through payment deposits of one to two business days make up for it. If you expect to process monthly transactions of $10,000 or more, a merchant account may be the best option for you.
If you have a smaller volume of transactions but want to offer a higher level of customer service, a merchant account may be right for you, as well. To cover your bases, you might want to start with Visa and Mastercard. A merchant account setup process may include:
- Application fees
- Startup fees
- Monthly fees
- Cross-border fees (for businesses with clients outside the U.S.)
- Credit card terminal software/hardware fees
- An interchange fee (generally includes a percentage and per-transaction fee; e.g., Chase Merchant Services charges 2.6% rate plus $0.10 for tapped, dipped, and swiped transactions or 3.5% rate plus $0.10 for every keyed transaction)
Payment Service Providers
Payment service providers like Square, Stripe, and PayPal let businesses accept credit card payments without the hassle of applying for a merchant account. These third-party credit card processing services are free to set up with no monthly fees or long-term contracts, although they generally charge more to process transactions.
Payment service providers may be the best starting point if you expect to process a low number of credit card transactions per month. However, be warned that since the application process of payment service providers does not involve a risk determination process, potential account terminations and funding holds tend to be common.
These are the most popular payment service providers:
- Square: You can use Square to process credit card payments on your mobile device and as a point-of-sale (POS) terminal for in-person transactions. The basic POS system is free to use and charges 2.6% plus $0.10 per transaction.
- PayPal: PayPal is a very popular online payment processing service used by corporations and small businesses alike. For in-person payments, they offer PayPal Here for 2.7% per transaction. You can use a charging stand attached to a POS system for chip cards or purchase a mobile credit card reader. For online transactions, PayPal charges 2.9% and a fixed fee, depending on the currency.
- Stripe: To process in-person payments with Stripe, you’ll need to buy a payment reader and pay 2.7% plus $0.05 per transaction. For online payments, they charge 2.9% plus $0.30 per transaction.
- Venmo: To process mobile payments with Venmo, you’ll need to sync with PayPal Checkout. It’s not very straightforward, but it’s one more mode of payment you can explore. Venmo charges 2.9% plus $0.30 for every transaction.
If you’re planning to sell products online, e-commerce platforms like eBay, Etsy, and Shopify may be the best route for you. These platforms have built-in payment processors and point-of-sale features that you need to run a business, which allows you to accept all major credit cards and gift cards. You only need to set up your store and activate your payment methods.
The products that can be sold on these platforms run the gamut, from food and drink to jewelry and furniture. Shopify offers a basic plan of $29 per month, plus 2.9% and $0.30 per online transaction or a flat 2.7% per in-person transaction. Etsy opts to charge a $0.20 listing fee and take commission and a standard payment processing fee per sale. Explore each site and take advantage of the free trial periods to get a feel for the platforms.
In-Store vs. Online Payments
As a self-employed tradesperson, freelance photographer, or house cleaner, offering different types of payments could streamline the functionality of your invoicing process. If you have a website or an e-commerce store, you could easily integrate an online payment option for monthly cleaning invoices or a booking payment for a wedding package, for example. Meanwhile, in-person payment could be easily accomplished with a card reader or a point-of-sale system.
How to Accept In-Store Credit Card Payments
Below are in-person payment systems great for small business owners, contractors, and freelancers.
- Card reader/terminal: You can purchase a mobile card reader that attaches to your smartphone or a mounted terminal that connects to a desktop or laptop. Accepting payments can be a matter of swiping or tapping a client’s card into your credit card reader.
- Virtual terminal: This option allows you to accept credit card payments by typing the card information from your smartphone or computer. It’s contactless, and all you need is strong Wi-Fi.
- Point-of-sale software: There is a myriad of POS systems geared toward small business owners. They offer a mode of payment and an integrated accounting system and inventory management.
How to Accept Online Credit Card Payments
To accept online credit card payments, you will need to create a website, store, or both on one of the e-commerce platforms.
- Storefront: This would be a digital display of your available products or services. Make sure you have enticing photos and clear pricing.
- Shopping cart: If you have a store on Etsy, this would be part of the platform. You can also add this to your website by choosing a template for businesses with a checkout portal. There are plug-ins available for this purpose, as well.
- Payment gateway: This refers to a technology that allows businesses to accept debit or credit card purchases from customers in an online transaction. PayPal and Square are merchant services and examples of payment gateways.
Don’t worry if you or your customers have very little experience with online credit card payments; payment gateway providers typically handle the security that goes into accepting transactions and many e-commerce platforms come with prebuilt storefronts so you don’t have to start from scratch.
How to Choose the Best Way to Accept Credit Cards for Your Business
To choose the best way to accept credit card payments for your small business, consider:
- The number of transactions you expect to process every month,
- The level of customer service you prefer to have, and
- The type of business.
A merchant account can take a while to set up and will probably cost more upfront, but it’s more stable and reliable. On the other hand, payment service providers are free to set up but may cost more per transaction.
At ZenBusiness, we understand the process of starting a new business. There’s so much that needs to be done, which could leave you overwhelmed instead of excited. Let us take care of the details so you can focus on what matters — growing your business and choosing how you want to accept payments.
Credit Card Payment FAQs
What is the cheapest way to accept credit cards?
There’s not really a “cheapest” way to accept credit card payments as a small business because your needs will depend on the number of transactions you process each month, the level of customer service you need, and how you want to present your brand to your clients.
Is there an app to accept credit card payments?
There are several apps that allow small businesses to accept credit card payments, such as PayPal, Square, Venmo, and Stripe. Even POS software like QuickBooks can be accessed through an app.
Do I need a merchant account for credit card processing?
A merchant account is recommended for businesses expecting to process upward of $10,000 in credit card payments a month. It’s also recommended for businesses that would prefer to have a high level of customer service support.
Can I accept credit card payments without paying fees?
It’s unlikely that you’ll find a product that will allow you to accept credit card payments without paying fees because banking institutions and payment service providers need to assume risks for their services. Credit card payments are complex and require infrastructure and credit card processing fees.