A Small Business Guide: Credit Card Payments
Running a small business can be tough. But if you’re not accepting credit cards, you could be putting yourself at an immediate disadvantage.
According to Barclays, 32% of people would consider walking away from a purchase if they could not pay with a credit card, and 43% of customers say they would have a lower opinion of a business that did not accept card payments.
Accepting credit card transactions, whether that’s in-store, over the phone or via a website, can bring a host of benefits, including:
- Improved sales. An increasing number of customers expect you to take credit card payments. You’re more likely to make a sale if the customer can pay via their preferred method.
- Customer benefits. Many customers will receive additional benefits from using their credit card. These might include cash back, air miles, reward points, and other perks.
- Improved security. Holding less cash on your business premises makes security easier to handle.
Let’s have a look at some of the main considerations for a small business owner looking to accept card payments.
Credit vs Cash
The U.S. is increasingly becoming less reliant on cash to do business. By opting to accept card payments, you stand a far greater chance of running a successful business. Let’s look at the main reasons why:
Cash is no longer king
Fewer adults carry cash on them, with more and more consumers preferring to use credit cards and digital transactions. According to the U.S. Bank, 50% of people said they carry cash with them less than half of the time they are out. When they do have cash on them, nearly half said it would be less than $20.
The Pew Research Center found that about 1 in 3 Americans made no cash purchases in a typical week, and this trend is even greater among millennials. Subsequent research has shown that more than 1 in 10 millennials use their digital wallet (via apps like Apple Pay and Venmo) for every purchase.
Cash doesn’t come without its problems
You might think that cash is easier to deal with than credit card payments, but that may not always be the case. Although cash may not involve any transaction fees, it does require additional resources to manage. Cash has to be stored and protected and requires you to make regular trips to the bank to pay it into your account.
Cash can also slow down the payment process, particularly for busy stores. In fact, some stores in the U.S. are choosing not to accept cash at all in order to speed up the transaction process.
Cash can also be more difficult to account for, making balance sheets and end of year tax returns cumbersome. Credit card transactions and digital payment services can usually be incorporated into accounting software, meaning you don’t have to deal with discrepancies and manually inputting data. Employees also don’t have to worry about handling cash, meaning they’re less likely to give incorrect change to a customer.
Understanding Merchant Accounts
In order to accept credit card payments, you’ll either need a merchant account or an all-in-one solution, such as those offered by Square and PayPal. Let’s look at the benefits of both:
A merchant account is essentially an intermediary between the credit issuers and your own account. When someone makes a payment to you using a credit or debit card, the funds are sent to your merchant account. They are then held here until the payment is confirmed and is settled into your business bank account.
Opening a merchant account is a little trickier than opting for an all-in-one solution, but the transaction fees are almost always lower in the long term. Your bank is an excellent place to start if you want to set up a merchant account, but you’ll need both a business account and a business license to apply. Some banks may also require additional checks and paperwork—for example, credit history, employment history, and bank statements.
Payment service providers such as PayPal, Square, and Stripe will allow you to use an all-in-one solution, meaning you don’t need to set up your own merchant account. While these are much simpler to set up, they will use a flat rate for all transactions. This often means they are more expensive in the long run.
Once you have your merchant account set up, there are a few other things you’ll need to consider before you can accept credit card payments. For most businesses, this will either mean hardware, such as a card reader, or a payment gateway for accepting online payments.
Evaluating Different Card Reader Devices
In order to accept credit card payments in person, you’ll need hardware that can process electronic payments. Typically, there are two main options:
These are often referred to as POS systems, typically used by fixed-location stores that accept both cash and cards. A POS system is a complete checkout terminal, often including a barcode scanner, cash register, credit card swiper and electronic interface.
Modern POS systems combine merchant accounts, software, and hardware to deliver a single system for accepting all kinds of payments. They often come with added functionality, such as inventory tracking and re-ordering.
Payment terminals are the hand-held machines you see in stores and outdoor markets. Generally, they will either be countertop devices, portable devices, or mobile payment systems.
Countertop devices are often used by small businesses which only have a single physical point for transactions. They are electronically connected to the merchant account provider, usually via an ethernet connection or telephone line.
Portable devices look very similar to countertop card readers but aren’t physically connected to the terminal. They work via a Bluetooth signal, allowing them to be moved around the store.
Mobile payment machines are connected via wireless networks, allowing business owners to accept payments anywhere. These machines connect to a phone or tablet, usually running a card reader application. They are a good option for businesses that don’t have a single location, such as food trucks, taxi services and pop-up stores.
Whichever hardware you choose, always look for machines that are PCI-compliant, meaning they have been approved by the Payment Card Industry standards. It’s also a good idea to look at user reviews and industry feedback before choosing a card reader for your business.
The best machine for you will depend on whether you’re looking for mobile, countertop or portable card machines. However, there are a few market-leading brands that you should consider, including Ingenico, iZettle, Worldpay, SumUp, PayPal, and VeriFone.
Finally, it’s worth checking that your small business insurance covers this kind of equipment and any possible data breaches that may occur.
How to Accept Payments Online
If your small business is based online, accepting credit card payments is slightly different. To accept online payments, you’ll need a payment gateway, as well as a website with the ability to take payments. You’ll also still need a merchant account or all-in-one system as discussed earlier.
This is a secure portal that connects your merchant account to your customer’s bank account or credit provider. The payment gateway ensures the payment reaches your merchant account securely, allowing you to take payments via your website.
There are many good payment gateway providers available, with varying levels of functionality and fees. Many website owners will opt for an all-in-one solution like PayPal or Stripe, which will provide the merchant account and payment gateway in one system. Some providers, such as Shopify and Constant Contact, offer the website solution along with the payment gateway and merchant account in one service.
Top payment gateways include:
- Paypal Payments Pro
For customers to make purchases online, you’ll need a way to collect customer data and record the sale. Most businesses do this through a website.
There are numerous ways to get a shop online, from building an HTML website and sourcing hosting, to using a content management system (CMS) such as WordPress or Squarespace. You can even build a site using a specialist ecommerce website builder, such as Shopify or Weebly, or an all-in-one solution like Constant Contact.
Keep in mind that users will want to know that their details are secure when using your site. Many providers will offer functionality to ensure customers information is encrypted, either through third-party services or by integrated security features.
Some of the top online platforms to consider are:
- Constant Contact
How to Accept Payments Over the Phone
For some businesses, the ability to take card payments over the phone is important. There are a couple of ways you can do this:
Virtual terminals allow you to take payments over the phone using a secure web interface. There are lots of different providers for this service, often very competitively priced, but good options include Square, Dharma, Quickbooks Payments, PayPal Payments Pro and Shopify POS.
A virtual terminal will allow you to input the customer’s card details into an online platform, leaving any card machine you have free to serve customers in your store. Often, they will come with additional benefits such as real-time reporting and integrated risk management.
Using your card reader device
If you have a card reader device, you can use this to accept payments over the phone. Usually, you will need to the 16-digit code on the front of the card, the customer’s name, the expiration date, and the associated billing address. You may also need the last three digits of the security code on the back of the credit card.
In order to take the payment, you will need to enter the 16-digit card number into the machine, and then follow the on-screen prompts to enter the rest of the information.
Once the transaction is completed, you should file your copy of the credit card receipt and post the customer’s copy to them, along with any physical product they’ve ordered.
Using a mobile application
Some payment providers such as Square allow you to process credit card payments using your smartphone, without the need for a card reader. This is usually done via a mobile app.
As with using a card reader device, you will need to take the 16-digit card number, security code, expiration date and the billing address over the phone. Simply input this information into the app, ensure you’ve selected the appropriate option to avoid needing a digital signature and complete the payment. These apps will often allow you to email the receipt directly to your customer.
Security and Risks
Taking credit card payments does present some additional security concerns, particularly if you’re storing customer details. To mitigate the risks associated with taking card payments, you can:
- Elect not to store customer payment card data or personal details
- Develop suitable employee payment card data handling policies. These might include implementing a ‘clear desk’ policy (where all confidential information is removed or locked away when not in use) or ensuring no customer information is ever sent via email
- Always verify shipping and billing addresses
- Protect any data you do store with physical and virtual security methods. This might include the use of restricted server access, storage and cabinet locks, user authentication, secure passwords, etc.
- Use and regularly update ant-virus software. Strong brands in this area include Bitdefender, Norton, McAfee, and AVG
- Develop and maintain a policy that addresses information security
- Use 3-D Secure authentication products such as Address Verification Service (AVS), MasterCard SecureCode, Verified by Visa and SafeKey.
Taking credit card payments does involve some research, investment, and integration into your business. But once you have the right merchant account, hardware, and security policies in place, you can begin to reap the benefits of taking card payments, attract more customers and grow your business.