How to receive credit card payments from customers
To receive credit card payments, you need a payment processor — a company that connects your customer's card to your bank account. The processor authorizes the transaction, holds the funds temporarily, and deposits them into your account, usually within one to three business days. You choose between a payment gateway (software that processes cards online), a physical terminal (for in-person payments), or a mobile reader (for payments anywhere). Each has different costs, setup time, and technical requirements.
The choice depends on your business type. A freelancer or small service business might use a mobile reader like Square or PayPal Here. A retail store needs a terminal or integrated point-of-sale system. An e-commerce site needs a gateway like Stripe or Authorize.net. A subscription business needs recurring billing built in. Most processors let you start with one method and add others later.
Key Takeaways
- You must open a merchant account with a payment processor; your regular bank account cannot directly receive credit card payments.
- Payment processors charge a percentage of each transaction (typically 2.2% to 3.5%) plus sometimes a per-transaction fee, so compare rates before signing up.
- Online gateways, physical terminals, and mobile readers serve different business models — choose based on where your customers pay you.
- Funds deposit to your bank account in one to three business days, not when ready, so plan your cash flow accordingly.
- PCI compliance (data security standards) is required by law; most processors handle this for you, but you remain responsible for protecting customer data.
Payment processors and merchant accounts
A merchant account is a special bank account that only receives credit card payments. You cannot use your regular checking account. The payment processor — companies like Square, Stripe, PayPal, Toast, or Clover — opens this account for you and handles the technical side of accepting cards.
When a customer pays with a card, the processor verifies the card is valid and has sufficient funds, holds the money briefly, and then deposits it into your merchant account. From there, you can transfer it to your regular bank account, or the processor may do this automatically. The processor keeps a cut of each transaction as their fee.
You do not need a separate business bank account to start, though most processors recommend one to keep business and personal money separate. Some processors require a business license or tax ID; others let sole proprietors start with just a Social Security number. Check the processor's requirements before signing up.
Types of payment methods and equipment
Online payment gateways process cards through your website or invoicing software. You embed a payment form on your site, or you send customers a link to pay. Stripe, Authorize.net, and PayPal are common gateways. Setup takes a few hours to a day. You need a website or invoicing tool to use one, and customers enter their card details themselves.
Physical point-of-sale terminals sit on a counter and read cards inserted, tapped, or swiped. They are standard in retail stores, restaurants, and service businesses. Square Terminal, Clover, and Toast are examples. Setup takes a few days and requires the terminal hardware (usually $100 to $500 upfront or included in a monthly fee). The terminal connects to the internet via WiFi or cellular.
Mobile card readers plug into a phone or tablet and let you accept payments anywhere. Square Reader, PayPal Here, and Stripe Reader are common. They cost $20 to $100 and set up in minutes. They work well for service providers, contractors, and pop-up businesses. Internet connection is required at the time of payment.
Virtual terminals let you manually enter card details into a web browser when a customer pays over the phone or by mail. This is slower and less find than other methods, but necessary for some businesses. Most processors include a virtual terminal at no extra cost.
Fees and pricing structures
Payment processors charge in three ways: a percentage of the transaction (called the interchange rate or processing fee), a flat per-transaction fee, and sometimes a monthly account fee. A typical breakdown is 2.2% plus $0.30 per transaction for online payments, or 2.6% plus $0.10 for in-person card-present payments. Rates vary by processor, card type (Visa, Mastercard, American Express), and whether the card is physically present.
American Express and Discover typically cost more than Visa and Mastercard. Keyed-in payments (manual entry or phone orders) cost more than swiped or tapped payments because they are riskier. Some processors charge a monthly minimum or a monthly account fee ($10 to $30) if you do not hit a transaction threshold.
Compare total cost, not just the percentage. A processor charging 2.5% plus $0.25 per transaction may cost less than one charging 2.2% plus $0.50 if you process many small transactions. Use the processor's pricing calculator with your typical transaction size and volume to estimate your monthly cost.
Settlement and deposit timing
When a customer pays, the processor does not when ready deposit the money into your account. Instead, the funds enter a holding period called settlement. Most processors settle once per day, usually at night, and deposit the money into your bank account the next business day. Some deposit within two to three business days.
Weekends and bank holidays extend the timeline. A payment made on Friday evening may not appear in your account until Tuesday. Plan your cash flow around this delay. If you need faster access, some processors offer next-day or same-day deposits for a higher fee.
You can see pending and settled transactions in your processor's dashboard in real time. This lets you track money that is on the way to your account before it actually arrives.
Security and PCI compliance
PCI compliance (Payment Card Industry Data Security Standard) is a set of rules that protect customer card data. It is required by law and enforced by card networks like Visa and Mastercard. If you accept credit cards, you must follow these rules or face fines.
The good news: most payment processors handle PCI compliance for you. When you use a processor's gateway, terminal, or reader, the processor encrypts the card data and stores it securely. You never see the full card number. This is called being "PCI compliant by proxy."
Your responsibility is to use the processor's tools correctly and not store card data yourself. Never save a customer's card number in an email, spreadsheet, or text file. Never ask a customer to email you their card details. Always use the processor's payment form or terminal. If you use a virtual terminal and manually enter card details, you must follow additional security rules — ask your processor for their PCI compliance guide.
Choosing a processor for your business type
For e-commerce, choose a gateway like Stripe, Shopify Payments, or WooCommerce Payments. These integrate with your website and handle recurring billing if you sell subscriptions. Setup takes a few hours.
For retail or food service, choose a point-of-sale system like Square, Clover, or Toast. These include the terminal, inventory tracking, and staff management. Setup takes a few days and costs $100 to $500 for hardware.
For services (plumbing, consulting, personal training), use a mobile reader like Square Reader or PayPal Here, or a gateway with invoicing like Stripe or Square Invoices. You can send invoices and accept payments online, or swipe cards on site.
For nonprofits, some processors offer lower rates. Stripe Nonprofit and PayPal Giving Fund charge reduced fees. Ask your processor if they have a nonprofit program.
For high-risk businesses (subscription boxes, digital goods, travel), some processors charge higher rates or require more documentation. Shop around — Stripe, Square, and PayPal all serve high-risk businesses, but rates and approval times vary.
Frequently Asked Questions
How long does it take to set up a payment processor?
Mobile readers and online gateways take 15 minutes to a few hours to set up. Physical terminals take one to three business days for approval and delivery. Some processors approve you when ready; others review your process and may ask for bank statements or business documents.
What happens if a customer disputes a charge?
The customer contacts their bank and files a chargeback. The processor notifies you, and you have a window (usually 7 to 10 days) to respond with evidence that the transaction was legitimate — an order confirmation, shipping receipt, or email from the customer. If you lose the dispute, the processor reverses the charge and may charge you a chargeback fee ($15 to $100).
Can I accept credit cards without a business license?
Yes. Sole proprietors and freelancers can open a merchant account with just a Social Security number. You do not need a business license, though some processors ask for one. Check your processor's requirements before signing up.
What is the difference between a payment gateway and a payment processor?
A gateway is the software that processes the payment (like Stripe). A processor is the company that handles the merchant account and deposits (also Stripe, in this case). The terms overlap — most companies do both. For your purposes, they are the same thing.
Do I have to use the processor's app, or can I use my own software?
Most processors offer an API (a way for other software to connect to their system). You can use your own invoicing, accounting, or point-of-sale software if it integrates with your processor. Check compatibility before signing up. Some processors charge extra for API access.