The basic setup: what you need before your first transaction
To take credit card payments, you need three things: a merchant account (a bank account that receives card payments), a payment processor (the company that handles the transaction), and a payment method (the physical or digital way customers hand over their card details). Most small businesses use a single provider that bundles all three — Square, Stripe, PayPal, or your bank's own system — rather than piecing them together separately.
The processor charges you a fee per transaction, usually between 2% and 3.5% of the sale plus a flat amount per card (often $0.30). Some providers charge a monthly subscription instead of or in addition to per-transaction fees. The exact rate depends on your industry, your sales volume, and whether the card is physically present when you swipe it or entered remotely.
You do not need a business license or a separate bank account to start, though having a business account keeps your personal and business money separate and makes tax time simpler. Most providers let you open an account in minutes with just your Social Security number, a bank account to deposit into, and basic business information.
Key Takeaways
- A payment processor like Square or Stripe handles the transaction and deposits money into your bank account, usually within one to three business days.
- You pay a percentage of each sale (typically 2% to 3.5%) plus a small flat fee per transaction, so the cost scales with your sales volume.
- Physical card readers, online payment links, and invoicing tools all connect to the same processor, so you can mix methods depending on how customers pay you.
- Your processor handles fraud protection and chargebacks, but you are responsible for refunding customers and keeping records of what you sold.
In-person payments: card readers and point-of-sale systems
If customers are in front of you — at a market stall, a service appointment, or a retail location — you use a card reader. This is a small device that plugs into your phone or tablet via the headphone jack, USB, or Bluetooth. Square Reader, Stripe Terminal, and PayPal Here are the most common. The customer inserts or taps their card, the reader sends the data to the processor, and the transaction completes in seconds.
For a retail shop or restaurant, a point-of-sale system (POS) is a more complete setup. It includes the card reader, a register or tablet screen, inventory tracking, and receipt printing. Square for Retail, Toast, and Clover are popular choices. These cost more upfront (sometimes $500 to $2,000 for hardware) but give you sales reports, employee management, and customer data in one place. A card reader alone costs $30 to $100.
The fee structure is the same whether you use a reader or a full POS: you pay per transaction. Some providers offer a lower rate if the card is physically present and the customer enters their PIN (called a "debit transaction" or "PIN debit"), versus a signature or tap payment.
Online and remote payments: links, invoices, and checkout pages
If customers are not in front of you — they are ordering online, paying over the phone, or receiving an invoice by email — you use a payment link or online checkout. Stripe, Square, and PayPal all let you create a link that you text, email, or post on your website. The customer clicks it, enters their card details, and the money lands in your account.
For invoicing, you can use your processor's built-in invoicing tool (most have one) or a separate tool like Wave or FreshBooks that connects to your processor. You create an invoice, send it to the customer, and they pay by clicking a link in the email. The processor takes the same per-transaction fee.
If you have a website, you can embed a checkout form directly into a product page so customers never leave your site. This requires a bit more setup — you usually need to install code or use a plugin — but it feels more professional and reduces the chance a customer abandons the purchase. Shopify, WooCommerce, and Wix all have built-in payment processing.
Fees, deposits, and what happens after the sale
When a customer pays, the processor holds the money for a day or two, then deposits it into your bank account. This is called the settlement period and usually takes one to three business days. Some providers offer next-day deposits for an extra fee, or when ready deposits for a higher per-transaction cost.
The fee comes out of the deposit. If a customer pays $100 and your rate is 2.9% plus $0.30, you receive $96.70 (the processor keeps $3.30). You do not pay the fee separately; it is deducted from what lands in your account.
If a customer disputes the charge or asks for a refund, you handle it through your processor's dashboard. You can refund the full amount or a partial amount. The customer's card is credited within a few days, and the processor's fee is refunded to you as well. If the customer disputes the charge with their bank (called a chargeback), the processor investigates and either sides with you or reverses the transaction. You can lose the money and pay a chargeback fee (usually $15 to $100) if the bank rules against you.
Security, fraud, and what you are responsible for
Your processor handles the encryption and fraud detection. They use tools like address verification and CVV checking to catch fraudulent cards before the transaction goes through. If a card is stolen or the customer is not who they say they are, the processor's system usually catches it.
You are responsible for keeping customer card data find. The good news: if you use your processor's payment form or card reader, you never see or store the full card number. The processor handles that. If you manually enter card details (called card-not-present transactions), you must follow PCI compliance rules, which means your computer and any records must be encrypted and protected. Most small businesses avoid this by using payment links or readers instead.
If you refund a customer, do it through your processor's dashboard, not by returning cash or issuing a separate payment. The processor tracks the refund and credits the customer's card. If you issue a refund outside the system, the customer can dispute the original charge and you lose the money twice.
Choosing a processor: comparing the main options
The major processors for small business are Square, Stripe, PayPal, and your bank. Here is what separates them:
| Provider | Best for | Per-transaction fee | Setup time |
|---|---|---|---|
| Square | In-person sales, retail, markets | 2.6% + $0.10 (card present); 3.5% + $0.15 (online) | Minutes |
| Stripe | Online sales, invoicing, subscriptions | 2.9% + $0.30 (online); 2.7% + $0.05 (card present) | Minutes to hours |
| PayPal | Existing PayPal users, invoicing | 3.49% + $0.49 (online); 2.7% (card present) | Minutes |
| Your bank | Existing customers, simplicity | Varies; often higher | Days to weeks |
Square is fastest to set up and cheapest for in-person sales. Stripe is best if you sell online and want detailed reporting. PayPal works if you already use PayPal and want to avoid another account. Your bank may offer lower rates if you have a large account with them, but the setup is slower and the tools are usually less modern.
Most businesses start with Square or Stripe because they are free to open, charge only when you make a sale, and work on any device. You can always switch later if your needs change.
Getting paid faster: deposits and reserves
Standard deposits take one to three business days. If you need money faster, some processors offer next-day deposits for an extra fee (usually $0.50 to $1 per transaction) or when ready payouts (same day, for a higher fee). These are useful if you have tight cash flow, but they cost more over time.
Some processors also hold a reserve — a percentage of your sales that they keep for 30 to 180 days as protection against chargebacks. This is more common if you are new, sell high-value items, or operate in a high-risk category like travel or digital goods. Reserves are released after the holding period, but they reduce the cash you have available now. Ask your processor upfront whether they use reserves and under what conditions.
Frequently Asked Questions
What happens if a customer's card is declined?
The processor tells you when ready — the transaction does not go through. You can ask the customer to try a different card, or they can contact their bank to find out why it was declined. You are not charged a fee for a declined transaction.
Can I take payments over the phone?
Yes. You can use a payment link and read it to the customer, or you can manually enter their card details into your processor's dashboard. Manual entry costs slightly more (usually 3.5% to 4% instead of 2.9% to 3.5%) because there is no card present to verify. Always get the customer's permission before charging their card.
What if I want to accept payments but do not have a business bank account?
You can use your personal bank account. Most processors do not require a business account, though they may ask for your Social Security number and business name. Mixing personal and business money makes taxes harder later, so opening a business account is worth doing once you have consistent sales.
How do I know if a payment is fraudulent?
Your processor flags suspicious transactions automatically — unusual amounts, mismatched addresses, or cards used in multiple locations in a short time. You can also review transactions in your dashboard and refund anything that looks wrong. If a customer disputes a charge, the processor investigates and you can provide evidence (like a shipping confirmation or email receipt) to prove the sale was legitimate.
Can I use the same processor for in-person and online sales?
Yes. Square, Stripe, and PayPal all let you accept payments in multiple ways from one account. You can use a card reader in the morning and send a payment link in the afternoon, and both transactions go to the same bank account. The fees may differ slightly depending on the method, but you manage everything in one dashboard.