How to set up credit card processing for a small business

How do small businesses set up credit card payment processing? 

In this guide we’re going to take you through the simple steps, so you can answer ‘yes’ when a customer asks you if you accept credit cards.

1. Decide how you want to take credit card payments 

Firstly, consider how you would like to take card payments. There are three main options for this: 

1. in person - using a point-of-sale (POS) system, like a credit card reader along with the relevant software
2. online - for example using PayPal or another provider
3. via mobile - using a mobile credit card reader

Which method works best for you will depend on the type of business you run. If you’re an online-only business, for example, then having a point-of-sale system isn’t going to be of much use, as customers aren’t going to be seeing you in person to make payments. 

On the other hand, if you have a brick-and-mortar business, such as a corner shop, a point-of-sale system will be essential for accepting card payments. Having an online system in place is great for increasing your e-commerce side of things, but it isn’t a necessity.

Likewise, with accepting mobile payments, mobile credit card readers can be great for businesses that move around a lot (e.g., if you sell goods at the market), because they can be used anywhere as long as your mobile phone is connected to the internet so you can access the relevant app.

Whichever method you go with, the steps that follow are the same.

2. Choose a merchant service provider 

The next step is to choose a merchant service provider, which is essentially a company that enables businesses to accept credit card and debit card payments.

Some examples include PayPal, Worldpay, and Square. They take the hassle out of payment processing using specialist top-of-the-range software and hardware.

Most merchant service providers will offer the standard services like online payment processing, providing POS systems, card terminals, etc. but some also offer a range of tailored services, like fraud protection. So, it’s worth doing a bit of research to find one that offers the most relevant benefits to suit your business.

3. Open a merchant account 

Once you’ve chosen the best provider for your business, the final step is to open a merchant account with your chosen merchant service provider. It’s not the same as a regular bank account or a business bank account – it’s specifically designed to enable your business to process credit and debit card payments.

When you take a payment, you will be charged a transaction fee, then the remaining money will be transferred to your merchant (once authorised by the customer’s bank). The money will then be transferred to your business bank account a few days later. So, you could view your merchant account as a holding account.

To open a merchant account, you’ll need to provide some information about your business, such as:

• the name and trading address of your business
• business accounts (if you’ve been established for a while) or your business plan and projections if you’re a new startup
• your business (and potentially individual) credit history
• the age of your business
• whether you’ve had any previous merchant accounts and how well you have managed them

One way of boosting your chances of getting accepted is to work on improving your credit rating if it’s less-than-perfect. If you’re a startup without a business credit rating, the merchant provider will look at your personal credit rating to see how risky it’d be to lend to you. So, making sure your report is up to date and accurate is essential. 

Advantages and disadvantages of accepting credit cards

It’s been the case for a while now that fewer people are carrying cash and more people are making contactless payments instead. While it may seem as though all businesses use card processing, it’s important to consider the pros and cons to make sure it’s the right move.

Advantages of accepting credit cards

• more convenient for customers – many people have stopped carrying cash altogether, so by introducing card processing, you could widen your customer base and potentially increase your revenue
• take payments over the phone or online – you’re not limited to in-person transactions in certain working hours
• add a layer of security – accepting card payments means you’ll have less cash on your premises or person, which helps to keep your earnings safe
• boost your business’ credibility – you can make your business look more professional and trustworthy by accepting card payments

Disadvantages of accepting credit cards

• one-off and ongoing fees and charges – you may incur setup fees, monthly fees and credit card processing fees, for example. The amount you’re charged can vary depending on the provider, transaction methods and card types
• customer refunds – if a customer requests a refund for a purchase they made on a credit card (or debit card), your business may incur a chargeback fee from your bank
• extra bookkeeping – you’ll need to keep a record of all the extra costs involved with taking payments via credit card
• fraud liability – you may unwittingly accept credit card payments from a stolen credit card. If the owner of the card disputes the transaction, you may need to reimburse the cost of the goods – and your business could incur chargeback fees on top

Tip: Before you sign up, check the terms and conditions and compare fees and charges with different providers and weigh them up against any benefits, to find the best deal.