Small Business Guide to Accepting Credit Cards


Congratulations!  Starting a small business is a great achievement.  You’ve invested time, effort and money to make your dream come alive.  You’ve turned your dream of owning a small business into a reality.  Your product is ready to sell and you’re busy marketing and attracting paying customers.  But, are you ignoring potential customers and leaving money on the table?

Merchants today accept credit cards as a part of their business.  It’s just a fact of life.  Your customers will be shocked if you can’t accept credit card payments as a part of their transaction.  It’s not difficult.  Credit card processing can be as simple as opening a merchant account and learning to use a credit card machine.

Why Should My Business Receive Credit Card Payments?

Accepting credit cards is just good business.  Here are the ways accepting a credit card will benefit you.

  • Greater Reliability for You:  When you take credit cards you are guaranteed payment.  You don’t have to deal with bounced checks or missing money from the deposit.


  • Customer Loyalty:  The credit card machine gives your customers one more way to make a purchase.  For people who don’t like to carry cash or want to delay their payment having options builds loyalty.


  • Speed:  A credit card payment puts money in your bank account much faster than sending an invoice and waiting to receive a check.  This increase in immediate cash flow improves your financial flexibility.


  • Easier Recordkeeping:  Your credit card merchant account generates a statement monthly just like other bank accounts.  You have all the information you need for detailed recordkeeping and accurate accounting.


  • Higher Spending:  Statistics tell us that customers spend an average of 68% more when they are able to pay by credit card.  If that doesn’t make you ask “how can I accept credit card payments” nothing will.

What Are Merchant Accounts?

A merchant account is a type of bank account that allows you to accept credit card payment.  You can also accept payments with debit cards through your merchant account.  Your bank has merchant account options for you and will even recommend things like mobile credit card processing or iPhone credit card processing if appropriate for your business.  You will need a merchant account to accept card payments online or in your store.

Merchant accounts and credit card processing companies typically charge credit card processing fees as a part of each transaction.  It’s important to review the fees and make sure you know what to expect each time you accept credit.  Some small businesses choose to set a minimum charge amount to help make each transaction worthwhile.

Some businesses choose to use a 3rd party merchant account to take credit card payments.  These accounts include well-known names like the American Express merchant account or Intuit credit card processing.  PayPal is the leading web merchant account for taking credit card payments online but there are many others as well.

Is your industry high risk for purposes of business credit card processing?  Surprisingly, high risk industries are relatively common.  Not only do they include pawn shops and bail bondsmen, other businesses such as investment organizations, weight loss centers and insurance agencies are high risk as well.  The category refers to a high risk of transaction cancellation, not the risk of bad debt as you might think.  If your business is a part of a high risk industry you will need a high risk merchant account.

There are lots of merchant account providers.  We will look at the three basic types and explain the benefits and limitations of each one.  You can always visit a merchant account website or have a discussion with your local bank officer to determine which account is best for you individual business.

What about Accepting Credit Card Payments Online?

The internet changed business forever.  Customers everywhere use the internet to check out your business and learn about your product.  Some will take the time to come to your store, if you have one, and purchase from you directly.  Most, however, expect to make their purchases online.  Are you ready for them?

Accepting credit cards online from your website might seem intimidating, but it’s really a very simple and necessary function of any business website.  You can increase your customer base and your sales volume by taking this step.  Wondering why?

  • Convenience:  Customers want their product right away.  When you accept credit card payments you get their order immediately and can ship it quickly.  If you only accept payment by check or money order your customers have to prepare the payment and mail it.  That inconvenience, along with the added wait for delivery could push them to your competition.


  • Impulse Purchases:  Customers are on your website reading the amazing marketing material you’ve posted.  They are excited about your product.  Online credit card processing capitalizes on their enthusiasm, letting them purchase while their desire is strong.  More sales for you!


  • Distance Customers:  The internet lets you reach potential customers hundreds and even thousands of miles away from your business.  If you don’t accept online credit card payments you present your business as an amateur rather than a real competitor.


  • International Customers:  Credit card payments have an additional benefit for your customers overseas.  When international customers pay using a credit card the rate of currency exchange is calculated automatically.  You don’t have to worry about exchange rates and neither do they.  The entire process is streamlined and efficient.

Hopefully you’ve decided to accept payments online given all the value web credit card processing offers you and your customers.  After all, once you learn how to accept credit cards it’s only one more step to add website credit card processing.  Some online merchants even allow you to accept credit cards online free of charge.  Let’s take a look at merchant accounts and what they offer.

A Merchant Account through Your Bank

Most banks offer merchant accounts as a part of their business account portfolio.  Any bank with a processing relationship with a particular credit card like Visa or MasterCard can offer a merchant account directly to their business customers.  Most banks require that a small business have a storefront or physical location and at least two years of business history before opening a merchant account.

Opening a merchant account with your bank is relatively easy once you meet the requirements.  As a small business owner you already have a banking relationship and a portfolio of accounts.  A merchant account is just an additional piece to that portfolio.  You benefit from working with a bank that understands your business and your needs and can advise you.

The fees for opening a merchant account are typically higher with the local bank than they are with an online merchant account or third party account.  The transaction fees, though, are often lower.  In addition, you can often purchase credit card machines designed for small business directly from your bank.

Credit Card Gateways and Processors

In order to process credit cards you need a gateway and a processing application.  Credit card merchant account organizations know this and work to provide both the payment gateway and the processor for accepting credit card payments.

A gateway is a method of collecting credit card information and authorizing the payment.  A gateway can be a credit card machine, a shopping cart online or even an application for your mobile phone.  Credit card machines for small business are available that interface with your gateway account, giving you both online and physical methods for accepting credit card payments.

The processor is the bank or organization that actually completes the credit card transaction.  With a traditional merchant account from your bank, the bank is the processor and they contract with someone else to provide gateway services to you.  Online merchant accounts and third party merchant accounts typically provide both the gateway and the processor all in one.

Online and Third Party Merchant Accounts

The many choices in merchant account can be confusing.  To point out the differences in an easy way, let’s look at two specific accounts.  We’ll look at the PayPal merchant account, a leading way to process credit cards online.  We’ll also look at American Express, a third party merchant account with many options to offer.

PayPal Merchant Account

PayPal is the leading online merchant account.  Your customers know and recognize the PayPal logo and feel comfortable clicking on it to make their online credit card payment.  Let’s look at what PayPal offers you and the benefits of working with them.

  • Security:  PayPal is an external payment solution.  This means your customers leave your website by following a link and enter their credit card information on PayPal’s secure encrypted site.  This step keeps their payment information secure and also removes the security burden from you and your business.


  • Low Cost:   PayPal is a low cost option for businesses that want to accept credit cards on their website.  The only fees are charged as a percentage of each transaction.  There are no application fees, monthly fees, or minimums.  You don’t pay them unless you make money from their service.
  • Easy to Use:  You will be surprised at how easy PayPal is to use.  They provide you with the online tools you need including a shopping cart feature.  With PayPal you can accept credit cards, debit cards, and even electronic bank transfers.  International payments are simple and easy too.

PayPal sounds great, right?  At this point you might be wondering why you should look any further.  If you are only wondering how to accept credit card payments online, PayPal seems to have all the answers.   Before you get too excited, let’s explore the limitations of PayPal.

  • Only Online:  Are you primarily on online business?  If so, PayPal is a great option for you.  If you have a storefront or plan to make sales outside the internet, PayPal won’t be enough.  You can only take credit cards online with PayPal.  It won’t help you offline.


  • Shipping:  After you sell a product you need to ship it, right?  Some online and third party merchant accounts calculate an actual shipping fee for you and add it to your customer’s shopping cart at checkout.  PayPal does not have this option.  Instead of real time calculation, you determine a flat fee and PayPal can add it.


  • Flexibility:  PayPal is a self-contained system.  This is great for security, but not so good for flexibility.  You must use the tools and options provided by PayPal.  Nothing else will work with this provider.

Online merchant accounts like PayPal are a good solution if your business is primarily online.  They are inexpensive to set up and allow you to pay as your business grows.  You don’t have to worry about a monthly minimum to meet or high start-up fees.  The security is wonderful and the name recognition, especially of PayPal, helps your customers feel confident.

If your business has a store front or sells product offline in any way, an online merchant account like PayPal won’t allow you to process credit card payments for your offline customers.  Flexibility with issues like shipping fees, discounts, coupons and promotional pricing is not available with these merchant accounts either.  They are simply not designed for it. – a Third Party Merchant Account / Payment Gateway is a merchant gateway that partners with processing providers like Capital Merchant Solutions to provide a total solution. offers the flexibility that PayPal lacks, but has drawbacks as well.  Let’s take a look.

  • Online and Offline: You are not limited to online transactions with  You can use them to accept credit cards from a machine, a wireless terminal, online, or even through use of a mobile app.  You can take payments from your customers anytime, anywhere.


  • Flexibility: Discounts and coupon codes are not a problem with  You can adjust pricing and make changes to your pricing structure in real time and without hassles.


  • Shipping:  Again, you have much more flexibility with a system like  You can calculate actual shipping costs via UPS or FedEx and simply add them to the customer’s shopping cart online or to their invoice offline.  You are not locked into a flat rate.

Third party merchant accounts like have a lot of advantages.  Although they are often made up of a gateway and a separate processing provider, they function like one unit.  They are designed as a partnership to provide a total solution and work closely to keep transactions smooth and easy for you.  Third party merchants are extremely popular with retailers and small business.  There are some drawbacks you should be aware of, though, before you make your decision.

  • Cost: Third party merchant accounts are usually more expensive than online accounts like PayPal.  Each company is different, so review the costs carefully.  Many have monthly minimums or additional fees for things like statements.  Third party accounts are still typically less expensive than opening a merchant account at your bank, however.  Just make sure you understand what you’re paying for.


  • Reliability: A merchant account is only valuable to you and your customers if it works.  During peak times, some third party merchant account gateways experience delays and even go down.  Of course, this can happen to anyone.  However, since these accounts are so popular with retailers, the volume is high.  Be prepared on heavy shopping days to wait for authorization.


  • International Payments:  Not all third party merchant accounts handle international payments.  Some just don’t offer this option and others charge high fees to convert foreign currency and complete the transaction.  Again, you need to understand your business and know the capabilities of a provider before you sign up.


Using a third party merchant like or one of the many others available make sense if you sell products and services both online and offline.  The flexibility in accepting credit cards in a number of ways is worth the relatively low risk of processing delays.

Which Merchant Account Option is Right for Your Business?

It all comes back to your business.  If you are basically a storefront with only limited internet sales, you may prefer to use a merchant account through your bank.  The higher start up fees might be a good investment to get the same relationship and reliability you enjoy with your local bank.

If your business is exclusively online or has a large online component, a provider like PayPal is just the low cost solution you need.  The low costs and ease of use make online merchant accounts like this one a great choice.

If you have international customers and a lot of online sales along with a storefront, no one option gives you everything you need.  Small and midsize businesses in this situation will often combine a merchant account with their local bank for offline customers and PayPal or a similar online merchant account to serve their online and international customers.

Negotiating Fees

You’ve determined the type of merchant account that’s best for you.  You understand your business and how to accept credit card payments online through a shopping card or pay now button on your website.  You’ve also decided the type of terminal or wireless application you’re going to use to accept credit cards offline.  What’s next?

Before you sign up for a merchant account, make sure you understand the fees.  You will be surprised at all the different types of fees some accounts charge in return for credit card processing and acceptance.

  • Interchange Fees:  These are the fees charged by the credit card companies (Visa, MasterCard, etc.) as a part of each transaction.  The most popular fee structure is the 3-Tier system. This system charges three fees based on the way the card is swiped or the transaction is processed.  Understand your contract so you can authorize transactions in the least expensive manner.


  • Authorization Fees:  This fee is charged every time you request authorization for a transaction.  It is not the same as the interchange fees but is an additional fee charged by the bank authorizing the card.


  • Nuisance Fees:  These fees are charged when a card is declined and then swiped again.  It’s typically a very expensive fee, resulting in up to $25 for each additional authorization attempt after the card is declined.  You can avoid this fee totally by training your employees to handle declined cards properly.
  • Statement Fee:  This is a monthly fee charged by your merchant account.  It’s an administrative fee to cover their costs in creating your statement.  You’d think they would automatically waive this fee if you received your statement electronically, but they don’t.


  • Monthly Minimum Fee:  Some merchant accounts charge a monthly minimum fee.  A monthly minimum fee of $25, for example, means that if you interchange and authorization fees don’t add up to $25 in a month you will be charged $25 anyway.  Merchant accounts use this fee to make sure they can afford to maintain your account even if you don’t have many transactions.


  • Chargeback Fees:  This fee is similar to the fees banks charge for NSF checks.  If you accept a charge that is disputed by the card holder, you can be charged $15-$30 as a chargeback fee.  While this seems like a big risk, the credit card companies are often able to prove the charge and win the dispute.  In cases of fraud or stolen cards, however, you can be liable for not only the amount of the fraudulent charge but also a chargeback fee.


  • Annual Fee:  Some merchant accounts charge an annual fee for the pleasure of working with your business.  They use this fee to cover their costs in maintaining your account throughout a year.

These are just some of the most common fees charged by merchant accounts.  Remember, though.  Everything is negotiable.  Keep fees in mind when you choose a merchant account and then carefully read the contract.  The payment processing industry is known for hiding fees in fine print.

If you see a fee you don’t agree with or think is out of line, negotiate to reduce or eliminate it.  Processing credit card payments is a profitable business for these companies.  They compete strongly for your business.  Use that competition to your advantage and get the best deal you can.

Getting Started

You’ve learned how to accept credit cards online, offline, and in person.  Now it’s time to get started.   Your merchant account has options for collecting payment information such as shopping carts and online buttons, terminals, and other collection devices.  They also have information about how to use your merchant account effectively.  Take advantage of their training.  You’ll be successfully accepting credit card payments before you know it.


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