Move over cash, there’s a new medium of payment for businesses ruling the scene. This was one of the biggest takeaways from the COVID-19 pandemic. Prior to the event, cash remained the most popular payment option for businesses. But come 2020, new terms like “social distancing, ”contactless transactions,” and “stay-at-home” became the norm.

And while the world has successfully mounted a defense and started to show signs of recovery across various sectors, the effects of the COVID-19 pandemic will remain with us for yet a while. One such impact is the rise of credit card payments among small businesses.

Today, businesses that aren’t accepting credit card payments are missing out on some solid sales. In 2018, only around 36% of consumers preferred card payments over cash. As of December 2020, that figure is at 80%. With more and more people preferring the speed and convenience that comes with inserting, swiping, or tapping a card, your business must be able to accommodate these consumers, or else they simply take their business elsewhere.

Here’s why credit card payments are challenging cash’s dominance

Sure, cash is still popular. There’s nothing quite like receiving cold hard cash knowing full well that the transaction is done and that you can immediately disburse that money as you see fit. Additionally, credit card payments can be subject to disputed transactions, bounced payments, and even fraudulent activities.

And yet, the data says credit cards and other forms of electronic payments are becoming the go-to method for purchasing goods and services alike.

Here are some quick stats about credit card usage in the United States:

• There are over one billion credit cards in use
• Around 76% of consumers say they have more than one credit card
• Only 10% of consumers say they make all their purchases with cash
• The average non-cash transaction is $112
• The average credit card user has 4 credit cards
• 90% of households use more than one payment method
• The average consumer uses more than three different payment methods every month
• 38% of credit card users cite the inconvenience of carrying cash as their main reason for card use.

Source: fundera.com

Accepting credit card payments in business

Before going further, let’s look at the three main ways through which small business owners can start accepting credit card payments in their business. Which one you choose will depend on the nature of your business and how you intend to collect payments.

• In-person credit card payments — If you have a brick-and-mortar store, accepting in-person credit card payments is the way to go. you’ll need a point-of-sale credit card terminal and a card reader to set this up.
• Mobile credit card payments — If you’re a contractor or professional handyman working on-site for your clients, using a mobile card reader is probably your best option. You’ll need a mobile card reader connected to an online payment processor or powered by a point-of-sale card processing hardware.
• Online credit card payments — If you have an eCommerce website or simply prefer to bill your clients and have them settle through online payments, this is the option for you. This is also true if you’re a freelancer who mostly does business remotely, then accepting online credit card payments is the best way to go.

In all three instances, you’ll need to meet a number of requirements to ensure your credit card processing goes smoothly. These include:

Have a registered business name

You cannot start processing credit card payments without a registered business name. Most, if not all credit card processing platforms will require you to set up your business name before they can entertain your application.

Set up a business bank account

Credit card processors also require you to have a business bank account to receive credit card payments. Having a business bank account helps keep your finances separate. But most banks won't even allow you to open an account without a registered business name.

Apply for a tax ID number

In most cases, you’ll need a tax ID number from the IRS and the state in which you’re operating your business before you can start accepting credit card payments.

Why accept credit card payments on your website

The benefits of accepting credit card payments in your business are already well documented. But what are the specific advantages that you can enjoy as a business owner when you start accepting credit card payments on your website?

1. It adds legitimacy

Just having that Mastercard and/or Visa logo on your website screams “trustworthy” to your visitors. These brands are well known all over the world and it’s unlikely that they would be associated with an untrustworthy business website. This is a great way to build trust with your target audience, especially first-time buyers who have never interacted with or even heard of your site before.

2. It's faster

People wanting to make a purchase from your website can simply enter their credit card details and checkout within a couple of seconds. With other electronic payment processors like PayPal and Apple Pay, customers often have to go through additional steps like logging in and confirming the amount before they can checkout. Some people might be put off by these extra steps and not make it to the end. There are no such additional steps with credit card payments, which make it a huge bonus.

3. It allows you to sell to international customers

You don't have to restrict your business to just the people in your immediate vicinity. International customers have money to spend too, after all. By accepting credit card payments on your website, you can sell to anyone with a credit card in any country. Imagine what being able to cater to all those extra potential customers can do for your bottom line.

4. It is more convenient

Most credit card processors also accept debit card payments and other forms of online payments. This convenience and flexibility can mean the difference between a customer shopping with you and clicking the back button.

5. It can broaden your customer base

According to a survey, 83% of businesses recorded higher sales after accepting credit cards. Not only does this expand your customer base but it also improves your cash flow.

6. It allows you to remain competitive

You can be sure that your competitors are already accepting, or at least looking into accepting credit card payments on their business websites. If you want to stay competitive, you’ll have to do the same. Another thing to consider is that credit cards allow customers to pay the exact amount, instead of rounding up the figure as is prevalent in cash transactions.

This feature is extremely advantageous in eCommerce businesses because they can afford to slightly lower their prices to look more attractive and competitive. For example, if an item costs $30, the store can list the price as $29.95. The customer is drawn to your price and can pay the exact amount, while you don't have to worry about looking for 5 cents in change.

3 primary ways to accept credit card payments on your website

When it comes to credit card processing on your website, there are three primary options available to you — merchant accounts, eCommerce platforms, and third-party payment processing services. The role of each option, along with the differences between them can be confusing. So let’s break down the basics of each so you know which one to choose for your business website.

Accepting credit card payments with a merchant account

When a customer makes an online credit card payment, the money must go somewhere. That’s where merchant account providers come in. A merchant account is like a bank account that is connected to an online payment processing service that allows businesses to accept credit and debit cards, as well as other electronic payments.

So when credit card transactions are made, the money goes to the merchant account. From there, the merchant account provider will process the transaction and transfer the funds into your designated business bank account following a prearranged schedule.

A merchant account is also considered a line of credit because the funds can be transferred to your business bank account before the customer settles their credit card bill. This means the merchant account will assume responsibility for any resulting charges from the transaction. If the customer disputes the transaction or requests a chargeback, those charges will then be forwarded to the business owner and will be deducted from the balance in the merchant account before the next payout.

One of the best ways to apply for merchant services is through your bank or credit union. This way, you can satisfy all your business financing through a single financial services provider.

Merchant account + payment gateway

This is the traditional method for accepting online payments. Some of the most popular payment service providers in this category include Authorize.Net, SecureNet, and eWay. The merchant account allows you to accept credit and debit card payments, while the online payment gateway connects your website to your merchant service account. It also facilitates the various transactions involved across all parties — your merchant account, your business bank account, and the card issuer’s bank.

There are a number of benefits to using a merchant account and payment gateway, such as personalized customer service, more stringent security, and greater control over customization. However, keep in mind that there will usually be transaction fees charged from both services.

Accepting credit card payments through an eCommerce platform

Most eCommerce platforms, including Shopify, eBay, BigCommerce, and Etsy have their own built-in credit card payment processors. This means you don't have to worry about applying for merchant services. A built-in payment processor is an important feature to have in any online store because it can significantly reduce the buyer journey by streamlining the shopping cart stage through to the checkout stage.

Many eCommerce businesses that rely on payment gateways and merchant account processing services for their credit card transactions face this issue all the time. This is because upon checkout, the customer is usually directed to another page outside of the eCommerce site and to the payment page of the payment gateway. For example, if you’re using PayPal as your payment gateway, the customer will be redirected to the PayPal payment page where they will enter their payment information to complete the transaction. For many customers, this can be off-putting and can result in cart abandonment.

This is not the case with eCommerce platforms that have built-in payment processors. The checkout process is much quicker and the customer never has to leave the site to complete the transaction.

There’s no special process for this setup. As long as you build your online store on these eCommerce platforms, you can process credit card payments automatically. Of course, you’ll need to provide your banking information and other important documents (Tax ID, employee identification number (EIN), contact info, etc) to activate it.

Another thing to keep in mind is that most of these platforms charge monthly fees for this service. The pricing breakdown differs from one platform to the other, but they usually include a flat rate and a varying fee amount for each online transaction.

Accepting credit card payments through third-party payment processing services

Many website builders provide third-party applications, extensions, and plugins that allow you to offer multiple online payment options on your website. These payment processing systems are easy to set up even for business owners without technical expertise, so it’s one of the easiest solutions if your site is already up and running.

Even if you can’t get the apps, you can always integrate the API of a payment processing system from reputable service providers like Stripe, Square, and PayPal.

The good thing about this option is that it can accept multiple payment methods. Many of these payment processing companies accept both credit and debit cards, electronic payments (Apple Pay, Amazon Pay, Stripe, etc), and even cryptocurrencies. Having a website that can accept and process more than one payment method is a huge advantage. It means you can cater to a broader set of potential customers.

Some third-party payment processors also offer additional features to simplify your business financial planning. For instance, you could integrate the payment system with your accounting software to make business expenses and revenue tracking easier.

Types of credit card processing fees to expect

Setting up a credit card processor on your website comes with a number of associated costs. While the actual interchange plus or pricing structure will vary depending on what payment processing company you choose, there are a few common types of credit card processing fees that you should know about.

As you prepare to start accepting credit card payments on your website, consider how these costs will impact your cash flow and overheads.

Credit card transaction fees

These fees are charged every time your business processes an online credit card transaction. They typically consist of a flat-rate fee per transaction; a fixed percentage of each sale; or both. For example, Square charges 2.9% plus 30 cents per transaction to process eCommerce and payments.

Credit card transaction fees don’t all go to the credit card payment service provider. The issuing bank of the customer’s credit card, the credit card network (American Express, Discover, Visa, Mastercard, etc), and your business bank will also receive a share.

Annual or monthly fees

Some merchant services and payment gateway providers charge annual or monthly fees. Generally, annual fees tend to be lower because they involve long-term contracts. Some other fees might also accrue on a month-by-month basis, such as fees for collating and printing billing statements.

Hardware costs

Many credit card payment service providers offer add-on features and options to their packages, such as point-of-sale systems and mobile card readers. This allows business owners to be able to accept credit card payments in-person as well as online.

However, these hardware are not free. You will need to buy or lease the physical devices. Prices can vary depending on the type and functionality of the device and the number of devices needed for your business.

Incidental fees

The payment processor may charge a fee in certain situations. For example, when the customer disputes a transaction and results in a chargeback, the credit card payment service provider may charge a fee. Your account balance should also be able to handle instances of refunds. If the account balance is unable to cover the refund, the payment processor may charge an overdraft fee, which will be reflected in your next payout.

It may sound like a lot of fees, but the benefits of accepting credit card transactions on your website make it worth the outlay. If it looks like the fees are going to seriously deplete your profits, you could always compensate by raising your prices or adding a small surcharge for processing credit card transactions. That being said, stay informed on the federal and state regulations on credit card surcharges.

B12 Invoicing offers an all-in-one credit card payment processing solution

B12 Invoicing offers the simplest way to accept credit card payments on your website. Its credit card payment processor is powered by Stripe, meaning it boasts an advanced and highly secure processing system. Additionally, it is free to use B12 clients. That’s right. No monthly fees and no limits on the number of transactions.

The system is built directly into your B12 website so customers can make their credit, debit, and bank account/ACH payments without leaving the site.

But B12 Invoicing is more than a payments processing platform. It’s an all-in-one invoicing and payment platform that allows you to streamline your billing and accounting processes. You can use it to generate professional invoices, email them, send payment reminders, and receive payments directly into your US bank account, all without leaving your website.

It also organizes your billing and payments data into useful metrics so you can stay on top of your business’s financial health and improve cash flow.

While B12 Invoicing is free for all B12 clients, market standard processing rates still apply to all online transactions. Visit our pricing page to learn more about the fee structure.

So, to summarise…

If you’re selling online, your website should be able to accept credit card payments. It’s fast becoming an expectation among today’s customers. Plus, it makes your business look more professional, and the increased sales wouldn't hurt either.

Whichever method you choose, make sure it is the right fit for your business. Take the time to weigh the pros and cons before making your selection. In most cases, switching to a different credit card payment service provider is long and complex, so it’s best to just get it right from the start.

If you don't have a business website yet, get one on B12 now. Our website building process involves AI-powered technology, which allows us to deliver your brand new, fully-custom website in a week or two. We also offer various business management tools and services such as online booking software, SEO, copywriting, blogging, and more.

Sign up on B12 to get started today!