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How to Accept Credit Card Payments as a Small Business (Updated 2024)

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As a small business, every sale counts.

As a newcomer, it’s vital to attract customers through innovative approaches and minimise any hurdles in their buying experience. One crucial step in this journey is the payment process. And the option to accept credit card payments can smoothen this process.

But how do you accept credit card payments as a small business? Let’s get into it.

What to keep in mind when choosing credit card payments as a small business

Payment contract terms

Most of the payment processors have contract terms of 2-3 years. You have to see whether your business benefits more from long-term contracts or short-term contracts. If you choose a long-term contract, for example, you’ll get advantages like lower transaction fees and incentives like special discounts and free setup.

On the other hand, you will be locked into the terms of the contract, making it difficult to switch providers if you’re dissatisfied or find a better deal.

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Collateral

It is advised that you don’t choose a payment processor that demands a high collateral. Many payment processors demand high security from small businesses because they’re doubtful about their worth and growth.

What you can do is communicate with them explaining how your business is sustainable and how it will largely mitigate the risk they have in their mind.

Fees

Fees are a significant consideration.

Generally, payment providers charge a transaction fee of 1.5 % to 3.5% plus a flat rate. And then there may be monthly charges as well for systems like a POS system and card reader. You need to decide which suits your business better – is it a low transaction fee or a low monthly rate?

Your sales volume and number of transactions will be the deciding factor in this calculation. E.g. if you have a low sales volume, choosing a provider with a low monthly fee will be a smarter choice since it will help you save more money.

How to start getting credit card payments

How To Start Getting Credit Card Payments

If you own a small business like a handmade jewellery store or a pet grooming salon, there are 2 steps to start getting credit card payments from your customers.

  1. Choosing a payment provider: It includes choosing between a merchant service provider or a third-party card processing provider (like PayPal & Square).
  2. Choosing the payment collection method: It includes choosing between in-person, phone or online collection methods.

1. Choosing a payment provider

If you choose a merchant service provider, you have to open a merchant account. It’s a type of bank account that allows small businesses like yours to accept card payments from debit and credit cards. Banks and other financial institutions are responsible for creating this account and it comes with fees like statements fees, transactions fees and monthly fees.

If you plan to take in-person payments, setting up a merchant account is necessary.

If you choose third-party processors, you don’t need to set up a merchant account. These are companies that handle the transactions between a business like yours and the customers. They charge fixed transaction fees from you and transfer the payment from customers directly to your business account.

2. Choosing a payment collection method

There are 3 primary options for taking credit card payments for small businesses.

  • In-person payments

For this method, you need a point of sale (POS) system. Popular types include terminal, mobile, cloud-based and open-source. These systems allow customers to swipe or tap their credit cards physically on the card reader to make a payment.

Best for: Food vendors or brick-and-mortar businesses like grocery stores or shoe retailers.

  • Phone payments

For this method, you need a virtual terminal (for example a computer). The customers provide their credit card information which you enter into the phone, the system processes it and the payment gets made. It’s a quick, easy and secure way of accepting cc payments because neither your customers need to present their cards physically nor do you have to own a card reader.

Best for: Small restaurants with drive-thrus.

  • Online payments

For this method, you need an online payment gateway. These gateways enable customers to enter their credit card credentials on your business website, those details are sent to the payment processor that processes them to make payments.

Additionally, you can also accept online payments through shareable payment links. These links can be generated quickly and sent to the email addresses of your customers. They just need to open them, follow the instructions and make the payment.

Best for: Small e-commerce stores.

Cost of taking credit card payments as a small business

Cost of Credit Card Payments

You have to pay fees to accept cc payments. They vary depending on the nature of your business, your card processor and the services you opt for. But generally, they can be divided into 4 fees.

Fee type Description
Hardware cost
This includes the cost of the POS system and card reader.
Transaction fee
This is the percentage that the payment processor charges on every transaction.
Fixed rate/transaction
This is the flat rate that the payment processor charges on every transaction.
Monthly fees
Some companies charge a monthly fee (or rental) for the hardware and software they supply to businesses.
  1. Hardware costs: This includes the price of a POS system and card reader. If you purchase a card reader, it might cost you anywhere between £19 – £230. If you choose to rent it, it will cost around £10 – £225/month.

  2. Transaction fee: This is charged as a percentage of the transaction by the payment processor. It varies according to your preferred credit card provider. For example, Stripe charges 1.5% for UK cards and 1.9% for premium UK cards.

  3. Fixed rate: This is the flat rate that payment processors charge on each transaction. For example, PayPal charges £0.20/transaction.

  4. Monthly fees: Some payment processing companies charge monthly fees for their product and services. It could be charged on a monthly, annual or bi-annually basis.

Other credit card payment fees may include set-up fees, cancellation fees, refund fees, terminal fees and chargeback fees.

How to lower your credit card processing fee

As a small business, seizing any opportunity to save money is crucial. One effective method is to focus on reducing your credit card processing fees.

  • Negotiate the fees with the credit card processor. You could convince them that your transaction volume is high thus having a low transaction fee might work in favour of both parties.
  • Talk about automatic rate reduction from your card processor. You can discuss with them the growth potential of your business and persuade them to lower your rates on the condition that you start giving them more business after a few years (say 2-3).
  • Leverage the address verification service. This system is used by the card processors to verify the billing address of the business. Many give merchants reward points or reductions in the interchange rates if you opt for this service.

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FAQs

Accepting credit card payments can significantly benefit small businesses in several ways, including increased sales, improved customer experience, better cash flow, enhanced customer loyalty, and time-saving.

These are the fees that businesses have to pay to accept credit card payments from their customers. They comprise transaction fees (usually 1.5% – 3.5%), flat rates and incidental fees.

Written by:

Isabella Robinson
Isabella Robinson
Isabella Robinson is a seasoned business content writer, leveraging several years of experience to craft impactful narratives that seamlessly blend business insights with engaging storytelling across diverse industries. Her expertise lies in delivering compelling content that resonates with audiences.