The three ways to accept credit cards as a small business owner
You can accept credit cards through a payment processor (a company that handles the transaction), a point-of-sale system (hardware and software that rings up sales), or a payment gateway (software that connects your website to a processor). Most small businesses start with one of the first two because they require less technical setup.
A payment processor like Square, Stripe, or PayPal Here lets you take payments on your phone or tablet right away. A point-of-sale system like Toast or Clover does the same thing but also tracks inventory, staff, and sales history. A payment gateway like Authorize.net works best if you already have a website and want customers to pay there without leaving your site.
The choice depends on where your customers pay you: in person, online, or both. It also depends on your monthly sales volume and whether you need to track inventory or employee shifts.
Key Takeaways
- Payment processors like Square and PayPal Here charge a percentage of each transaction (usually 2.6% to 3.5%) plus a small per-transaction fee, with no monthly contract.
- Point-of-sale systems cost more upfront but include inventory tracking, employee management, and detailed sales reports alongside payment processing.
- You will need a business bank account, an Employer Identification Number (EIN), and a way to verify your identity before any processor will approve you.
- Interchange fees (what the card issuer charges) are set by Visa and Mastercard and cannot be negotiated, but processor fees vary widely and are worth comparing.
- Most processors offer a free trial or a low-cost first month so you can test the hardware and software before committing.
What documents and information you need to provide
Every payment processor will ask for your Social Security Number or EIN, your business name and address, and a copy of your government-issued ID. Some will also ask for a photo of your business location or a utility bill showing your address. Have these ready before you start the sign-up process.
If your business is a sole proprietorship, the processor will use your personal Social Security Number. If you have formed an LLC or corporation, you will use your EIN instead. You can obtain an EIN for free from the IRS website (irs.gov) in about 15 minutes.
Processors also verify your bank account by depositing two small amounts (usually under $1 each) and asking you to confirm the exact deposits. This takes two to three business days. Have your business bank account number and routing number ready when you sign up.
Payment processors for in-person payments
Square and PayPal Here are the most common choices for small businesses that take payments face-to-face. Both charge 2.6% plus 10 cents per transaction for card-present payments (when the customer's card is physically swiped or tapped). Both provide a free card reader that plugs into your phone or tablet.
Square also offers a Square Stand, a small countertop device that looks like a register, for $299. PayPal Here offers a PayPal Zettle device for $299 as well. These are optional — the phone reader works just fine for most small businesses.
Both processors deposit money into your bank account the next business day (or within two business days). Both let you issue refunds, view sales history, and email receipts to customers from the same app. Square's app is slightly more intuitive; PayPal Here integrates better if you already use PayPal for invoicing.
Clover and Toast are point-of-sale systems that also accept in-person payments. They cost more ($50 to $300 per month depending on features) but include employee scheduling, inventory tracking, and detailed sales reports. Choose these if you have staff or need to track what you are selling in real time.
Payment gateways for online payments
If you sell online, you need a payment gateway — software that securely sends your customer's card information to a processor. Stripe, Authorize.net, and Square Online are the most common. All three charge 2.9% plus 30 cents per transaction for online payments.
Stripe and Square Online are easier to set up if you are not technical. Both connect to popular website builders like Shopify, Wix, and WordPress with a few clicks. Authorize.net is older and requires more configuration but is widely used by businesses with custom-built websites.
If you use Shopify to build your website, Shopify Payments is built in and charges the same 2.9% plus 30 cents. You do not need a separate gateway. If you use WooCommerce (WordPress), Stripe and Authorize.net are the most straightforward options.
Understanding the fees you will pay
Every credit card transaction costs you money. The largest cost is the interchange fee, which goes to the card issuer (your customer's bank). Visa and Mastercard set these rates, and they vary by card type and transaction type. You cannot negotiate interchange fees.
On top of interchange, the payment processor charges its own fee. For in-person payments, this is usually 2.6% plus 10 cents. For online payments, it is usually 2.9% plus 30 cents. Some processors charge a monthly fee ($0 to $50) instead of or in addition to per-transaction fees.
If a customer disputes a charge or a card is declined, some processors charge a small fee ($5 to $15). If you process a refund, most processors refund their fee as well as the transaction amount.
Compare the total cost across processors before you choose. A business processing $10,000 per month in credit card sales will pay roughly $260 to $350 per month in fees depending on the processor and payment type. The difference between the cheapest and most expensive option can be $50 to $100 per month.
How to set up a payment processor account
Sign up on the processor's website (Square.com, PayPal.com/here, or Stripe.com). You will enter your business name, address, phone number, and email. You will provide your Social Security Number or EIN, a photo of your ID, and your bank account details.
The processor will verify your identity and your bank account. This usually takes one to three business days. Some processors (like Square) approve you when ready and let you start taking payments right away, then verify your account in the background.
Once approved, read the app or set up the hardware. If you are using a card reader, the processor will mail it to you free of charge. If you are using a point-of-sale system, you will receive the hardware and login credentials by email.
Test the system with a small transaction before your first customer uses it. Most processors let you process a test payment without charging your account. This takes five minutes and will catch any setup problems.
Frequently Asked Questions
Do I need a business license to accept credit cards?
No. You need a business license to operate legally in your city or county, but payment processors do not require one. You do need a business bank account and either a Social Security Number or an EIN. Some processors ask for a business license as proof of legitimacy, but it is not mandatory.
What happens if a customer disputes a charge?
The processor will notify you and hold the disputed amount in your account while the card issuer investigates. This usually takes 7 to 10 business days. If the customer wins the dispute, the money is returned to them and deducted from your account. If you win, the money stays with you. Most processors charge a $15 to $25 fee if you lose a dispute.
Can I accept credit cards without a business bank account?
Most processors require a business bank account because they deposit your money there. Some will accept a personal account if you are a sole proprietor, but this makes accounting harder and can raise tax questions. Open a business account first — it takes about 15 minutes and costs nothing.
Which processor is cheapest?
For in-person payments, Square and PayPal Here charge the same rate (2.6% plus 10 cents). For online payments, Stripe, Authorize.net, and Square Online all charge 2.9% plus 30 cents. The difference is in features and ease of use, not price. Compare based on where you take payments and what tools you need.
How long does it take to get paid after a customer swipes their card?
Most processors deposit money the next business day. Some charge a fee for same-day deposits (usually $0.50 to $2.50 per deposit). Weekend and holiday deposits may take longer. Check the processor's deposit schedule before you sign up if timing matters to your cash flow.