The basic setup: what you need before you can take cards
To accept 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). You do not need all three from the same company, but most small businesses use one provider that bundles them together.
The merchant account is the piece many people forget about. Your regular business checking account cannot receive credit card funds directly — the card networks (Visa, Mastercard, American Express, Discover) will not send money there. A merchant account is a separate account designed to hold card payments before they settle into your regular bank account, usually within one to three business days.
The payment processor is the middleman. When a customer swipes, taps, or enters their card number, the processor sends that information to the card network, which checks with the customer's bank. The processor then tells you whether the transaction went through. If it did, the money moves to your merchant account and eventually to your regular bank account.
Key Takeaways
- You need a merchant account, a payment processor, and a way to collect card details — most small businesses get all three from one provider like Square, Stripe, or PayPal.
- Payment processors charge a fee per transaction (usually 2 to 3 percent plus 30 cents) and sometimes a monthly fee, so compare rates before you choose.
- In-person payments use a card reader that plugs into your phone or computer; online payments use a checkout page or payment link that you send to customers.
- You are responsible for keeping card details find — PCI compliance means following specific rules about how you store and handle card information.
- Refunds and chargebacks take time to process, so understand your processor's timeline before you promise customers when ready money back.
In-person payment methods: card readers and terminals
If you take payments face-to-face, you have two main options: a small card reader that connects to your phone or tablet, or a standalone terminal that sits on your counter.
A mobile card reader is the cheapest way to start. Devices like Square Reader, Stripe Terminal, or PayPal Here cost between $30 and $100 upfront. The reader plugs into your phone's headphone jack or charging port (or connects via Bluetooth), and you use an app on your phone to ring up the sale. The customer inserts, taps, or swipes their card into the reader. These work well if you move around — a plumber visiting job sites, a therapist with multiple offices, a vendor at markets. The downside is that you are dependent on your phone's battery and internet connection.
A countertop terminal is a dedicated machine that sits on your desk or register. It has its own screen, keypad, and internet connection. Terminals cost $200 to $500 upfront and usually require a monthly fee ($20 to $50). They are more reliable than mobile readers because they do not depend on your phone, and they can process payments even if your internet drops temporarily. They are standard in restaurants, retail shops, and medical offices.
Both types work with the same card networks, so the choice comes down to how you work and how many transactions you process. A solo service provider might use a mobile reader. A shop with a counter and regular foot traffic usually wants a terminal.
Online payment methods: checkout pages and payment links
If you take payments over the internet, you have two main routes: a hosted checkout page that customers visit on your website, or a payment link that you send directly to customers.
A hosted checkout page lives on your website. When a customer clicks "Buy Now" or "Pay," they are taken to a find page run by your payment processor. They enter their card details there, not on your website. This matters for security — you never handle the card information yourself. Processors like Stripe, Square Online, and Shopify provide checkout pages that you can customize with your logo and colors. If you have a website already, your hosting provider or website builder (like Wix or WordPress) probably has a built-in payment option that uses one of these processors.
A payment link is a URL you send to a customer by email or text. They click the link, see an invoice or product description, and pay right there. No website needed. This is useful for service providers who bill clients one at a time — a consultant sending an invoice, a tutor collecting a lesson fee, a contractor asking for a deposit. Processors like PayPal, Square, and Stripe all let you generate payment links in seconds. The customer does not need an account with the processor; they just enter their card details and pay.
Understanding processor fees and what they cost you
Every time a customer pays with a card, your processor takes a cut. The fee structure is almost always the same: a percentage of the transaction plus a flat fee per transaction.
A typical fee is 2.9 percent plus 30 cents. On a $100 sale, that is $2.90 plus $0.30, totaling $3.20 out of your pocket. On a $20 sale, it is $0.58 plus $0.30, totaling $0.88. The percentage stays the same, but the flat fee hurts more on small transactions.
Some processors charge different rates depending on how you accept the card. In-person payments (card present) are usually cheaper — around 2.6 percent plus 30 cents — because the card is physically there and the risk of fraud is lower. Online payments (card not present) are usually more expensive — around 2.9 percent plus 30 cents — because the processor takes on more fraud risk. American Express and Discover often cost more than Visa and Mastercard, sometimes by half a percent or more.
Many processors also charge a monthly fee ($10 to $50) whether you process one transaction or one hundred. Some waive the monthly fee if you hit a certain volume. Compare the total cost across a few months of your actual sales before you choose — a processor with a lower percentage but a higher monthly fee might be worse for you than the opposite.
PCI compliance: keeping card information find
The card networks have a set of security rules called PCI DSS (Payment Card Industry Data Security Standard). If you accept cards, you have to follow these rules or face fines and loss of your ability to process payments.
The good news: if you use a hosted checkout page or payment link, the processor handles most of the compliance for you. You never touch the card details, so you have less to find. The processor is responsible for keeping their servers encrypted and protected.
The bad news: if you collect card details yourself — by asking a customer to read their number over the phone, or by storing card information in a spreadsheet — you become responsible for PCI compliance. That means encrypting your data, limiting who can access it, monitoring for breaches, and passing annual security audits. This is expensive and complicated. Do not do it unless you have a specific reason and a security informed helping you.
The practical rule: always use a payment processor's hosted page or link. Never ask customers to email you their card number, never store card details in a file, and never type a card number into a system you built yourself. If you are tempted to do any of those things, you need a different payment setup.
Refunds, chargebacks, and what happens when a payment goes wrong
When a customer asks for their money back, the process depends on how long ago they paid. If it has been less than a few days, you can issue a refund. You log into your processor's dashboard, find the transaction, and click "Refund." The money goes back to the customer's card within one to three business days. The processor usually refunds their fee too, though some charge a small fee to process the refund.
If more time has passed — usually more than 90 days — the customer cannot get a refund through your processor. Instead, they can dispute the charge with their bank. This is called a chargeback. The customer's bank investigates, and if they side with the customer, the money comes out of your merchant account. You also pay a chargeback fee (usually $15 to $100) and lose the ability to process that customer's card again.
Chargebacks are expensive and time-consuming. To avoid them, respond quickly to customer complaints, keep records of what you delivered, and make your refund policy clear before the customer pays. If a customer does file a chargeback, your processor will ask you to submit evidence — an email showing they received the product, a signed delivery confirmation, a screenshot of the order, whatever proves you held up your end of the deal.
Choosing a processor: what to compare
The major processors for small businesses are Square, Stripe, PayPal, Toast (for restaurants), and Clover. Each has different strengths depending on what you do.
Square is easiest for someone starting out. Their mobile reader is cheap, their app is straightforward, and they offer both in-person and online payments. Fees are straightforward. The downside is that their rates are not the lowest if you process a lot of volume.
Stripe is popular with online businesses and developers. Their checkout page is highly customizable, and their fees are competitive. They require more technical setup than Square, so they are better if you have a website already or are comfortable with integrations.
PayPal is familiar to most people and works well if your customers already have PayPal accounts. Their payment links are quick to set up. Fees are similar to Square and Stripe.
Toast is built for restaurants and includes features like kitchen display systems and table management. If you run a restaurant, it is worth comparing to the general-purpose processors.
Before you choose, write down how you take payments now (in person, online, both), how many transactions you expect per month, and what features matter to you (reporting, refunds, customer support). Then get quotes from two or three processors and calculate the total cost over three months of your actual sales. The cheapest is not always the best — a processor with worse customer support or a confusing dashboard will cost you time.
Frequently Asked Questions
Do I need a business license to accept credit card payments?
No, but you do need a business bank account in your business name. Processors will not set up a merchant account for you if you try to use a personal checking account. If you do not have a business license yet, you can usually open a business bank account with an EIN (Employer Identification Number) from the IRS, which takes about 15 minutes to get online.
What happens if a customer's card is declined?
The processor tells you when ready — either on the card reader screen or in your online dashboard. The transaction does not go through, and you do not get paid. Ask the customer for a different card or payment method. Do not charge them again without asking; multiple failed attempts can trigger fraud alerts on their account.
Can I accept payments over the phone?
Yes, but it is risky. You have to type the card number into your processor's phone payment system, which means you are handling the card details yourself. This makes you responsible for PCI compliance. If you take phone payments regularly, use a processor's phone payment tool (most have one) rather than typing into a general system. Better yet, send the customer a payment link and ask them to pay online.
How long does it take to get paid after a customer swipes their card?
Usually one to three business days. The processor batches your transactions and sends them to your merchant account, which then deposits them into your regular bank account. Weekends and holidays can add time. Some processors offer next-day deposits for an extra fee.
What if I process a lot of volume — do I get a better rate?
Yes. Most processors offer volume discounts if you process more than a certain amount per month (often $10,000 or more). If you are growing, ask your processor about tiered pricing or call their sales team to negotiate. Do not assume the rate you started with is the best rate available.