As a new business owner, you will make countless decisions to more effectively run and grow your new business. Thankfully, one decision is simple. Offering credit card payments in your business model greatly increases the number of sales and the size of each sale you make. These benefits are especially important when first starting your business.
There are multiple steps to set-up credit card transactions, and you’ll face some important considerations along the way. To make the process easier, this article provides a step-by-step guide to credit card payment processing.
Accepting credit card payments is an excellent way for entrepreneurs to increase their revenue. With this informative guide, you'll learn how any small business can start accepting credit card payments.
To start, let's look at how credit cards boost your revenue and discuss other important advantages of this form of payment.
Is it necessary to accept credit cards for my small business?
It is not mandatory, but these transaction benefits are so wide-ranging that it probably should be required. Here's why:
According to the 2019 Federal Reserve Payments Study , three out of four transactions are paid without cash, and 34% of these transactions are from credit cards. You will experience significantly more business than you would through other payment methods, which is a massive advantage for a new company.
Credit card payments increase the buying power of customers and lead to higher dollar payments. Nerd Wallet states, on average, customers spend between 12% and 18% more with credit cards than from paying with other methods.
The conversion rate of credit cards is faster than checks. Checks can take as long as ten business days to clear, whereas credit cards only take a few days.
Additionally, the actual process of taking payment is simpler and faster for customers and you. When a customer swipes their card, an order is instantly placed. A check must be deposited using an app or physically deposited at a bank, both of which take longer.
In today's world, convenience in purchasing is becoming increasingly important for customers, and this is where a credit card excels. This ultra-convenient payment method leads to fewer disappointed customers.
Regardless of the type of business, honoring credit cards shows you are a legitimate business—even when you are a brand-new business.
Checks and cash can be lost, stolen and forged, and the more sales you take in these ways, the higher the risk. Although credit cards are also susceptible to fraud, this mode of payment comes with enhanced security features.
With payments traveling through an electronic system, you benefit from accurate accounting with your invoicing software. You also get clean reads on all payments and added business management tools to spot trends for added sales and learn which cards are most popular to help with budgeting credit card costs. Accounting software providers can aid with installing and syncing your software, and payment processors may also help.
In addition to ease of payment, you benefit from other backend services, such as customer relationship management software for improved sales and service. The better you meet your customers’ needs, the more they come back. Repeat business is integral for growth.
As your business grows and orders increase, you can negotiate lower rates for credit card fees, boosting your profits even further.
Credit card transactions take place in different ways. In turn, they offer flexibility in how you do business and help you process orders in the ways you do most.
Credit card processors have different credit card processing fees depending on the credit card payment methods. Let's take a look at each method.
In brick-and-mortar businesses, you can take customer payments in person using stationary credit card terminals or portable handheld devices with credit card readers. If you have a mobile business, such as a food truck or booth at a Farmers Market, you can place orders on mobile payment devices and credit card readers designed for mobile businesses. In-person transactions have less risk of fraud, which means it charges the lowest processing rate for credit card transactions and is the cheapest way for small businesses to accept credit card payments.
Customers can complete online transactions directly through your website or on a third-party e-commerce website. Examples of businesses with online payment capability include ecommerce businesses like your favorite retail stores, restaurants, and service companies.
Online payments are convenient for customers, allowing them to pay on their schedule. Offering credit card payments online requires a payment gateway for added security and more favorable rates. To avoid the potential of a bogus gateway, your merchant services provider can assist with setup.
Also called card-not-present transactions, phone payments are an alternative to online orders. The customer relays credit card information over the phone that is then manually inputted by the representative on the other line.
Of all the credit card processing options, over-the-phone purchases have the highest risk of fraud and, therefore, the highest credit card transaction fees.
There are fees for credit card payments. To better understand the costs behind credit card usage, it helps to understand how payments work.
When a customer pays, your terminal or online payment software receives the card information. The data then moves to a payment processor.
The fund request runs from the processor to the credit card network (Visa, Mastercard, or American Express), which then goes to the card-issuing bank. The bank checks to see if the customer's account is in good standing and sends the funds to the merchant account, which transfers the funds to your business bank account. The processor informs you when funds are approved and received, completing a card payment.
The processor and credit card network charge processing fees to provide safe and reliable payment. Typically, processors and credit card networks charge per transaction. The fees range based on card types (Visa and Mastercard are on the lower end while American Express tends to be higher). Merchants pay a rate between 1% and 3% per transaction.
You have options of different price models from your processor. Let's review those here.
This model consists of:
In some instances, a payment processor may only charge a flat percentage fee that includes all fees associated with a purchase. Though this is good for clarifying costs, you lose the ability to saving money through lower interchange fees, which is especially important when placing high-ticket purchases.
Some processors offer special rates for different cards or types of transactions. For example, debit cards may cost less than credit cards. In exchange for this benefit, they may increase the price for options on the other side of the scale. Your payment processor determines the tiers and the pricing, but credit cards often sit at the higher end of the scale, so this option isn't recommended—especially for any long-term contract.
This is a more recent option for payment and includes additional services by the processor. Some services are even free if you pay more for your monthly subscription, though you will miss out on some low-cost benefits. Like with tiered pricing, pay particular attention to lengthy contracts.
A strong option for businesses with multiple payment systems, such as terminals, mobile devices, and online payment systems, is to use a cloud-based accounting solution to consolidate all data and read it in real-time. This allows for data analysis and cuts down on management time without manually inputting data from various sources, which can also lead to errors. Even if you have a business with only one payment system, real-time data reports can do wonders for your business.
These cloud systems have become very popular. Nearly all providers offer this option in their rates.
What is the best payment service provider for small businesses?
Now that you have an idea of how rates work, how do you choose your provider? The best provider is one that serves you in the ways you most need them. Consider factors like:
Some payment service providers offer a merchant account. Still, if you prefer not to use an outside provider, you will need to set up a merchant account at your bank to receive credit card payments.
Merchant accounts are separate business bank accounts that receive the funds from the credit card network and transfer the funds to your current business account.
It’s a good idea to shop around, which may include checking with your current bank to make it easier to conduct all needs under one roof. Some banks won't charge fees for this service because the charge may be included in your standard bank account charges.
For account approval with your bank, you will need to provide basic information such as your type of business, your business license, current bank account details, and the volume of transactions you expect per month.
You can obtain special card acceptance technology from your merchant services provider that corresponds to the method of purchasing you expect most. Examples of hardware and software are stationary terminals, portable terminals, online ordering systems, card swipe readers, contactless readers, digital wallet payment systems like Google Pay and Apple Pay, receivers, scanners, and stationary or portable printers.
Some online systems provide the software for you. Your payment processor may also provide software for you.
At BNG Payments, we specialize in all forms of payment processing and have deep experience with credit card processing. Whether you offer online payments, phone orders, or in-person orders through a stationary terminal or mobile device, we offer all the hardware and software you need to accept credit card payments. Some options even include advance invoicing capabilities.
We offer competitive rates to fit your budget and help you through each stage of the setup process. And after setup is complete, we also offer support for payment issues your business might encounter.
Contact us to learn how our credit card processing and payment systems can help your business get set-up to accept credit card payments.