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How Does Credit Card Processing Work?

There are many credit card processing myths that make business owners think it will be difficult to accept credit cards.

It’s becoming more common for consumers to primarily use credit cards and even mobile payments in stores. Business owners need a way to process credit card transactions to keep up with competitors.

Credit card processing is an essential business tool. It’s how you keep your cash register running smoothly and your business running profitably.

Businesses that don’t accept credit cards could be missing out on a lot of profit.

You may be wondering how credit card processing works and what is involved with accepting credit cards. If you’re not sure where to start, we’ve got you covered.

Read on to learn everything you need to know with this helpful credit card processing guide!

What Is a Credit Card?

A credit card is similar to a debit card in a lot of ways. Customers use this plastic card to purchase goods or services. 

Instead of transferring funds from the customer’s bank account, however, a credit card allows customers to borrow funds from a lender. The customer then repays the funds over time, plus any accrued interest.

People find credit cards useful for big purchases they can’t afford up front and for building a good credit history. Most credit card companies also offer rewards for purchases like cash back or airline miles.

Credit Card Processing Explained

To your customers, paying with a credit card and paying with a debit card are similar experiences. However, for the business accepting the payment, there can be a big difference between payment methods.

When a customer pays by credit card, they swipe, insert, or tap the card using a point of sale (POS) machine. The machine then uses the business’s internet connection or phone line to send the payment information to a credit card processor.

Once the processor receives the payment information, they send the payment to the bank or creditor that issued the card. The card issuer then verifies that the customer has sufficient credit for the purchase.

Once the available credit is verified, the transaction is approved, and the card issuer initiates a transfer of funds to the business. This can take a few days or more to finish processing.

A fee, which varies by credit card processing company, is deducted from the funds transferred to the business.

Advantages of Credit Card Processing

Accepting credit cards offers many benefits over accepting cash only. Even accepting both cash and debit cards can still take away from your potential profit if you don’t take credit cards.

It’s more common than ever for people not to carry cash. By accepting credit cards, you’ll get more customers who otherwise wouldn’t be able to buy from you.

People are also comfortable spending more without the tangible feeling of handing over cash. Your customers will make more impulse buys if they can pay with credit.

If you sell expensive merchandise like electronics and jewelry, it’s unlikely that a customer is carrying enough cash to make a purchase. Even if the customer can pay by debit card, they may prefer to use their credit card for rewards points.

Allowing customers to pay by credit card also reduces the time and effort of each transaction. You don’t have to wait on the customer to count out bills, and you don’t have to count the change.

Faster transaction times make your customer’s experience more convenient. A better experience increases the chance of repeat customers.

In addition to the inconveniences, handling cash can expose you to all sorts of germs. There’s no telling how many people have recently touched a crumpled dollar bill coming from a customer’s pocket.

Viruses and bacteria can live on a dollar bill for days. Accepting credit cards is more sanitary and prevents the potential exposure to contaminated cash.

Disadvantages of Credit Card Processing

While there are many benefits to accepting credit cards, there are some drawbacks. However, the disadvantages are easily outweighed by the potential profit.

The biggest issue that prevents businesses from using a credit card processor is the fee applied to credit card transactions. Fees are generally Small, and many business owners set a minimum purchase amount for card transactions.

It can also add to your bookkeeping to implement credit card processing. It’s important to develop a strategy to keep your records organized when you start accepting credit cards.

How to Choose a Credit Card Processor

There are many factors to consider when choosing a credit card processing company. Keep your business’s needs in mind and consider these factors to make the right choice.

POS System

You likely already have some kind of POS system (Point of Sale), but if you don’t, you’ll need one to accept credit cards.

If you don’t have a POS system already, choose a credit card processor that offers POS technology. If you have a system that you’d like to keep, make sure your credit card processor’s technology can integrate with yours.

Keeping the POS in mind while shopping for a processor will save you time and money.

Fees

You’re going to have to pay some kind of fee to accept credit cards. Unfortunately, there’s no way around it. However, you can minimize your expenses by comparing companies before you make your choice. Credit card processing companies all have different pricing, so investigate fees carefully.

Recurring Billing

For industries where customers pay monthly, weekly, or annually, it’s useful to be able to set up an online recurring billing system. Businesses where this might be useful include storage facilities, fitness centers, and utility companies. Not all credit card processors offer recurring billing, so be sure to check when making your choice.

Start Accepting Credit Cards Today

Now you have the information you need to make smart choices about credit card processing services. Whether you already accept credit cards and want to switch processors, or you’re looking for the first time, it’s a huge decision.

Contact us today for more credit card processing tips and to find out more about our processing options!