21.9.2022

Credit Card Payments For Small Businesses

Written by Tillie Demetriou

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As a small business owner, you may wonder if accepting credit card payments is the right move. After all, there are plenty of other options out there when it comes to payments. You could go the cash-only route or offer contactless payments through your smartphone. So why bother with credit cards?

The answer is simple: accepting credit card payments can help your small business grow. That's because more and more customers are using credit cards for everyday purchases. Statistica found that last year there were about 59.6 million credit cards issued to UK residents [1].

So we're giving you the lowdown on credit card payments for small businesses, from setting up credit card payments to the benefits of accepting credit cards.

The basics of payment processing 

When a customer swipes a credit card, it may appear like a simple transaction. Money goes from their bank to the business’s bank, correct? Well, it’s not that simple. 

In a normal transaction, multiple parties work together to transfer the funds to the merchant. This process typically looks as follows:

  1. The cardholder inserts their credit card into a terminal, often provided by the payment processor.
  2. The payment processor checks with the credit card company and cardholder’s bank to ensure the card is authentic and the account has sufficient funds.
  3. The bank approves the transaction, and the terminal will print/display a success message. 
  4. The payment processor sends the funds to the merchant’s account. 
  5. The funds will take 1-3 business days to clear before the merchant can access them. 

Although this process seems simple, it does require sending data back and forth between parties. Most importantly, it requires the merchant to have an account to collect the digital funds. A traditional business bank account will not do. 

Instead, a business will need a merchant account. This account will hold the credit and debit payments until the charges clear. Then, the business can deposit the funds into their normal bank account. 

You can obtain a merchant account independently, but then you will also need to coordinate which card companies you’ll accept and negotiate on rates. To make things easier, you can work with a payment processor that already has relationships with banks and will settle the funds for you.

Benefits of accepting credit card payments

Before we dive into how to set up credit card payments for your small business, let's look at some of the key benefits of accepting credit cards.

Increased sales

Perhaps the most obvious benefit of accepting credit card payments is that it can boost sales. That's because customers who don't have cash or cheque still have an available payment option.

Suppose you own a barbershop, and a customer wants to get a haircut but doesn't have enough cash on hand. If you only accept cash, that customer will likely go elsewhere. But if you accept credit cards, that customer can still get their haircut, and you'll make the sale.

With so much competition, small businesses must find every opportunity to increase sales. And accepting credit card payments is one way to do just that.

Greater customer satisfaction

Another big benefit of accepting credit card payments is that they can improve customer experience. That's because customers appreciate the convenience and flexibility that comes with being able to pay with a credit card.

If you've ever been in a situation where you've wanted to make a purchase but didn't have the cash on hand, you know how frustrating it can be. You may end up leaving the store empty-handed or having to make an inconvenient trip to the ATM.

Accepting credit cards makes it easier and more convenient for your customers to do business with you. And that can lead to a major boost in customer satisfaction.

Encourages impulse purchases

Another big benefit of accepting credit card payments is that they can encourage impulse purchases. That's because customers are more likely to make spontaneous purchases when they can pay with a credit card.

Think about it this way: if you're window shopping at a clothing store and you see a shirt that you like but don't necessarily need. You're more likely to buy it if you don't have to go to a cashpoint to take money out. Plus, customers tend to spend more when using credit cards than cash [2]. So if you're looking to increase your average purchase size, accepting credit card payments is a great way to do it.

Easier to keep track of business expenses

Another big benefit of accepting credit card payments is that it can make it easier to keep track of your business expenses. The data from your credit card processor can give you valuable insights into your customers' spending habits.

This information can be helpful in a number of ways. For example, you can use it to customise specific accounts and create promotional campaigns that target certain customer groups. You can also use it to identify new trends, target new customer groups and attract more customers.

In other words, accepting credit card payments can help you better understand your business and make more informed decisions about how to grow it.

How to set up credit card payments for small business

Now that we've looked at some of the key benefits of accepting credit card payments, let's take a look at how to set up credit card payments for your small business.

Step 1: Choose a Credit Card Processor

The first step in accepting credit card payments is to choose a credit card processor. There are several different payment processors, so it's important to research and find one that best suits your needs.

When choosing a credit card processor, there are key factors, such as fees, features, and customer service. You'll also want to make sure that the processor you choose is compatible with the type of business you have

For example, if you have an online store, you'll want to ensure that the processor you choose offers e-commerce solutions. And if you run a brick-and-mortar business, you'll want to make sure that the processor you choose offers electronic-point-of-sale (EPOS) solutions.

Once you've considered all of these factors, you should know which credit card processor is right for your business.

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Step 2: Set up an account

The next step is to set up an account with your chosen credit card processor. This process will vary depending on the processor you choose, but generally, you'll need to provide basic information about your business, such as your business name, address, and contact information.

You may also be required to provide additional documentation, such as your tax ID number or a copy of your driver's licence.

Once you've provided all of the necessary information, you'll be able to access your account and start accepting credit card payments.

Step 3: Start accepting credit card payments

The final step is to start accepting credit card payments. This process will also vary depending on the credit card processor you choose. Still, generally, you'll need to provide your customer's credit card information, as well as the amount of the purchase.

You may also be required to provide your bank account information so the funds from the sale can be deposited.

Once you've completed these steps, you'll be able to start accepting credit card payments for your small business.

Taking credit card payments

You may be wondering what the best way to accept credit cards in your small business is. With three simple steps you can start taking payments immediately.

Step one: Make sure that you have all of the necessary equipment.

This includes a credit card reader and a point-of-sale (POS) system if you're accepting in-person payments.

If you're accepting online payments, you'll need to make sure that your website is set up to accept credit card payments. This usually involves setting up a shopping cart and payment gateway.

Step two: Train your employees.

If you have employees, training them on how to accept credit card payments is important. This includes how to properly use the credit card reader and POS system, as well as how to process credit card refunds and returns.

It's also important to educate your employees on credit card fraud prevention. The detected fraud rate for credit cards rose by 42% in the first quarter of 2021, to rates not seen since 2017 [3]. So, it’s important that your employees know what signs to look for. 

Step three: Set up your payment processing

This step will vary depending on the credit card processing company you choose, but generally, you'll need to provide your customer's credit card information, as well as the amount of the purchase.

You may also be required to provide your bank account information so that the funds from the sale can be deposited.

Once you've completed these steps, you'll be able to start accepting credit card payments for your small business.

Final Thoughts

In today's day and age, accepting credit card payments is essential for any small business. Not only does it make it easier for your customers to make purchases, but it also makes it easier for you to get paid.

If you're not accepting credit card payments, now is the time to start. Just follow the steps outlined in this article, and you'll be up and running in no time.

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