According to a 2022 Pew Research study, 41% of American adults no longer use cash for weekly purchases. This is a sharp increase from 2018, when only 29% reported they didn’t use cash. Given that more people are relying on non-cash payment methods, accepting cash only could mean your small business is missing out on lots of potential sales.

If you’re considering adding a credit card payment option to reach more customers, here’s a quick guide to setting up credit card payments.

How do credit card payments work?

Chances are you’ve used a credit card to pay for a purchase in person or online, and your card was either accepted or denied in seconds. While the process seems fast and seamless, a lot happens behind the scenes. Here’s what happens in the seconds before a customer’s card is accepted or denied:

• Customers manually enter their credit or debit card information online or insert, swipe, or tap their card or smartphone at a payment terminal.

• Retailers’ payment processing service or POS system engages with a customer’s bank or card issuer and determines if the customer has sufficient funds to cover the purchase.

• The payment processor either approves or denies the transaction based on the information the bank or card issuer provides.

• If approved, the customer’s payment is processed and sent to a merchant account, then transferred to the business’s bank account.

5 steps for accepting credit card payments

1. Figure out whether you’ll accept payments in person or online

The first step in adding a new payment option is determining whether your business will accept credit card payments online, at a physical store, or both. This will help guide your decisions about potential payment processors and POS systems.

If you plan only to accept online payments, you can connect a payment processing service, such as Stripe, Square, or PayPal, to an online store. While this might seem complicated, e-commerce companies like Shopify make it simple to set up a dedicated, secure website and sync with a payment processor. Shopify also has a built-in payment processing option if you prefer not to rely on a third-party service, making setup even more convenient.

But if you do most of your business at a physical location, such as a store or community market, a POS system is likely a great solution to process payments. Companies like Clover and Square offer payment terminals that process customer payments and software that lets you manage and track them. The hardware and software options you choose may vary based on your sales volume and whether you have a dedicated storefront or primarily accept payments via credit card or mobile wallet at community markets.

2. Compare payment processors and POS systems

Once you’ve determined whether you’ll accept online or in-person payments, it’s time to compare payment processors and POS systems. Features and costs vary based on your chosen company, so it’s essential to research what different companies offer and pricing to find the best option for your business.

Here’s a short list of potential companies to consider:

• Shopify

• Stripe

• Square

• Clover

• PayPal

These processors typically accept a range of card options. Whether your customer is using a debit card issued by a regional bank, a rewards card like Chase Sapphire Preferred® Card, or a secured credit card like OpenSky® Secured Visa® Credit Card, you can find a system that works for you.

3. Know your fees

While accepting credit card payments could help boost your sales, doing so will generally mean you’ll pay certain fees that don’t apply to cash-only payments. As you compare payment processors and POS systems, it’s helpful to understand possible fees. Here’s what you can expect:

• Subscription fee: Depending on the payment processing company or POS system you choose, you may need to pay a monthly fee for the hardware or software services. Costs vary by company; certain companies may not charge a monthly fee.

• Interchange fee: Interchange fees are the amount you pay to credit card companies, like American Express, Mastercard, and Visa, to process payments. These fees often range from 1.5%-3.5% of a sale but vary by company, card type, and payment location.

• Transaction fee: You’ll also pay a transaction fee to your payment processing service. This fee is often grouped with an interchange fee and taken as a percentage of the total sale. Payment processing services pricing models vary, with some charging a flat-rate fee, a percentage-based fee, or a tiered fee based on the purchase type.

4. Sign up for a payment processor and POS system

After comparing options, it’s time to choose a payment processing and POS system, if applicable. The right system for you will depend upon your business needs related to features, hardware, and pricing.

You can opt for a payment gateway and merchant service account, payment processing service, or an entire POS system that lets you easily track and manage online and in-person payments. This will make it simpler to get a full picture of your transactions.

5. Open a merchant account if needed

In the past, businesses needed to set up payment gateways and open dedicated merchant services accounts to accept credit and debit card payments. Funds from customer purchases were held in the merchant services account until the transactions were settled.

While standalone merchant services accounts are still an option, the application process for these accounts is often extensive. So if you’d like to accept credit card payments quickly, a payment processing service with built-in merchant services capabilities is often a better solution.

One caveat: Payment processing services may not be an option if you do business in a high-risk industry. Instead, you may be required to set up a merchant account and payment gateway.

6. Begin accepting payments

Once your business is set up with its new payment systems, you can begin accepting customer debit and credit card payments. It’s smart to inform customers that you’re now accepting new forms of payment, as doing so could encourage them to shop with you.

As with any new system, there may be a learning curve and you could run into issues with your payment hardware or software. Be patient as you get up to speed, and rely on your payment processor’s customer service team for assistance if needed.

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Accepting many forms of payment is a great way to increase sales for your small business. If you’re interested in getting started with debit or credit card payments, several companies out there can make the setup process simple. Compare options like Shopify, Square, Stripe, or PayPal to find the right payment solution for your small business.

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