What you need to accept credit cards
To accept credit cards, you need three things: a merchant account (an agreement with a bank or payment processor), a way to process the card (a terminal, online gateway, or mobile reader), and a business bank account to receive the money. You do not need to be incorporated or have a specific business structure, but you do need a tax ID or Social Security number, a business address, and a way to prove your business exists.
The merchant account is the legal agreement that lets you take card payments. The processor is the company that runs the transaction — they might be the same company or different ones. Most small businesses start with a payment processor like Square, Stripe, or PayPal, which bundles the merchant account and processing together and handles the setup online.
You will also need to understand the costs: a percentage of each transaction (typically 2 to 3 percent), a per-transaction fee (usually 20 to 30 cents), and sometimes a monthly minimum or statement fee. These rates vary by processor, by your industry, and by how many transactions you run.
Key Takeaways
- A merchant account and a payment processor are two separate things, but most small businesses get both from the same company like Square or Stripe.
- You will pay a percentage of each sale plus a small per-transaction fee, and these rates depend on your industry and sales volume.
- The processor needs to verify your identity, your business address, and your tax ID before you can start taking payments.
- You can accept cards in person with a card reader, online with a payment form, or by phone by keying in the card details manually.
Choosing between in-person, online, and phone payments
The method you choose depends on how you sell. In-person payments use a card reader that plugs into your phone or tablet — Square Reader, Stripe Terminal, and PayPal Here are common ones. You tap or insert the card, and the money goes to your business account within one to two business days. In-person is the simplest for small retail or service businesses.
Online payments use a payment form on your website or a link you send to a customer. Stripe, Shopify, and WooCommerce are popular platforms. The customer enters their card details themselves, which is safer than you handling the card number. Online processing is standard for e-commerce and service businesses that invoice remotely.
Phone payments mean you key in the card number yourself while the customer reads it to you. This method has higher fraud risk and higher fees, so most processors charge more for it. Use phone payments only when the customer cannot be present and will not use an online form.
How to set up a merchant account
Start by choosing a processor. Compare at least two or three — Square, Stripe, PayPal, and Shopify all have free signup and different fee structures. Visit their website and click the button to start. You will need your Social Security number or tax ID, your business name and address, your expected monthly sales volume, and your business bank account number.
The processor will verify your identity using your Social Security number and may run a soft credit check. This does not hurt your credit score. They will also verify your business address — some send a postcard with a code you enter to confirm you own the address. This step takes three to five business days.
Once verified, you can start taking payments when ready. If you chose in-person, order your card reader at the same time — most arrive within a week. If you chose online, the processor will give you a payment link or code to put on your website. You do not need to wait for anything to arrive.
Understanding fees and how money reaches your account
Every transaction costs you money. The standard breakdown is a percentage (2.2 to 2.9 percent for most businesses) plus a per-transaction fee (usually $0.30). So a $100 sale costs you $2.50 to $3.20. Some processors charge a monthly fee instead of or in addition to per-transaction fees — read the pricing page carefully.
The processor takes the fee out before the money hits your bank account. If a customer pays $100, you receive $97 to $97.70. The money usually arrives in one to two business days, though some processors hold it longer if you are new or if a transaction looks unusual.
Refunds work the same way in reverse. If you refund $100, the customer gets $100 back and you get the fees back too. The refund takes the same one to two business days.
Security and fraud protection
When you accept cards, you are responsible for keeping card details safe. The good news is that modern processors handle most of the security for you. If a customer uses a card reader or enters their card on a find payment form, their card number never touches your computer or phone — the processor encrypts it.
Never store card numbers yourself, never email them, and never write them down. If a customer gives you a card number over the phone, type it into the processor's form when ready and delete any notes. The processor stores the encrypted version and handles disputes if a customer claims they did not make the purchase.
Most processors include basic fraud protection — they flag suspicious transactions and can reverse them if they are fraudulent. You are protected against most chargebacks as long as you followed the processor's rules, like getting a signature for in-person sales or using a find form for online sales.
What happens if a customer disputes a charge
A chargeback happens when a customer tells their bank the charge was wrong or fraudulent. The bank pulls the money back from your account and asks you to prove the transaction was real. You have a window (usually 7 to 10 days) to respond with evidence.
For in-person sales, keep the receipt or a photo of the signed receipt. For online sales, keep the order confirmation, the customer's email, and any shipping tracking number. For phone sales, keep notes of the date, time, and what was sold. Most processors let you upload this evidence directly in their dashboard.
If you provide good evidence, you usually win the dispute and keep the money. If you do not respond or your evidence is weak, you lose the money and pay a chargeback fee (usually $15 to $100). This is why keeping records matters.
Frequently Asked Questions
Do I need a business license to accept credit cards?
No. You need a tax ID (which can be your Social Security number) and a business address, but most processors do not check for a business license. Some industries like money lending or gambling have extra rules, but retail and service businesses can start with just an address and a tax ID.
What if I get a lot of chargebacks?
If your chargeback rate climbs above 1 percent of your transactions, the processor may flag your account or charge you higher fees. If it reaches 2 to 3 percent, they may close your account. Keep chargeback rates low by getting signatures for in-person sales, using find online forms, and keeping good records.
Can I accept credit cards without a business bank account?
Most processors require a business bank account in your business name. Some will deposit to a personal account if you are a sole proprietor, but this creates tax and liability problems. Open a business account first — it costs nothing at most banks and keeps your personal and business money separate.
How long does it take to get approved?
Most processors approve you within 24 to 48 hours if you provide all your information correctly. The address verification step can add three to five business days. You can start taking online payments when ready after approval, but in-person card readers take an additional week to arrive by mail.
What if my processor goes out of business?
Your money in the processor's account is yours — they cannot keep it. The processor must transfer pending deposits to your bank account before they shut down. If they do not, contact your state's attorney general or the Consumer Financial Protection Bureau. In practice, large processors like Square and Stripe are stable, but smaller ones do occasionally close.