The basics of taking credit cards from customers

To accept credit cards, you need three things: a merchant account (which lets you receive card payments), a payment processor (which handles the transaction), and a way to process the card itself — either a physical terminal, a mobile reader, or an online payment form. Most small businesses use a single provider that bundles all three together, so you sign one contract instead of three.

The process works like this: a customer swipes, taps, or enters their card details. Your equipment or software sends that information to the processor. The processor checks with the customer's bank that the card is real and the account has funds. If approved, the money moves from the customer's bank to your merchant account, usually within one to three business days. You pay a fee for this service — typically a percentage of each sale plus a small flat fee per transaction.

You do not need to be incorporated or have a business license in all states to start, though some payment processors require it. You will need a Social Security number or EIN (Employer Identification Number), a business bank account, and a way to prove your identity.

Key Takeaways

  • You need a merchant account and a payment processor to accept cards; most providers combine both into one service.
  • Fees typically run 2.2% to 3.5% of each transaction plus $0.30 to $0.50 per sale, though rates vary by processor and card type.
  • Physical card readers, mobile apps, and online checkout forms all work differently and suit different business types.
  • Your bank account must be in your business name, and you will need to provide tax identification and proof of identity to any processor.
  • Chargebacks (when a customer disputes a charge) are your responsibility to handle, so keep receipts and records of every transaction.

Payment processors and how they differ

The major payment processors — Square, Stripe, PayPal, Toast, and Clover — each work slightly differently and charge different rates. Square is popular with small retail shops and food trucks because their card reader is cheap and their software is straightforward. Stripe works best for online stores and subscription businesses because their checkout form integrates into websites easily. PayPal is familiar to many customers but charges higher fees. Toast and Clover are built for restaurants and bars specifically.

Rates vary by processor and by card type. Visa and Mastercard typically cost less to process than American Express or Discover. Swiped cards (where the customer hands you the card) usually cost less than keyed-in cards (where you type the number), which cost less than online transactions. A typical range is 2.2% to 3.5% of the sale plus $0.30 to $0.50 per transaction, but some processors charge flat monthly fees instead of per-transaction fees, which can save money if you process many small sales.

Before you sign up, compare the fee structure to your expected sales volume. If you sell high-ticket items, a lower percentage rate matters more. If you sell many small items, a lower per-transaction fee matters more. Ask each processor for their full fee schedule in writing — do not rely on their website alone, because rates change and vary by region.

Physical terminals, mobile readers, and online checkout

A physical terminal sits on your counter and accepts cards inserted, swiped, or tapped. It is best for retail stores, restaurants, and any business where customers come to you. Terminals cost $100 to $500 to buy outright, or you can lease one for $20 to $50 per month. They work offline if your internet goes down, though they sync transactions once you reconnect.

A mobile card reader plugs into your phone or tablet and lets you take payments anywhere — at a customer's home, at a market, or in a delivery van. Square Reader and PayPal Here are the most common. They cost $20 to $50 and work only when your phone has internet. They are slower than terminals because each transaction requires a separate step on your phone, but they are portable and require almost no setup.

An online checkout form sits on your website and lets customers enter their card details themselves. Stripe and Shopify are standard choices. You never see the card number — the form encrypts it and sends it directly to the processor. This is required by law for any online business and is the only option if you sell over the internet.

Setting up a merchant account and getting approved

Most payment processors handle the merchant account for you — you do not explore separately. When you sign up with Square, Stripe, or PayPal, you are creating both your processor account and your merchant account at the same time. The processor then applies to the card networks (Visa, Mastercard, etc.) on your behalf.

Approval usually takes one to three business days. You will need to provide your Social Security number or EIN, your business name and address, your expected monthly sales volume, and your business bank account number. Some processors ask for a photo ID or a copy of your business license. If you have been in business less than two years, some processors may ask for a personal may provide — meaning you are personally responsible if the business cannot pay back chargebacks or fees.

Your business bank account must be in your business name, not your personal name. If you do not have one yet, open it before you explore to the processor. The processor will verify the account by depositing two small amounts (usually under $1 each) and asking you to confirm the exact amounts — this proves you control the account.

Understanding fees and how money reaches your account

Every credit card transaction costs you money. The card networks (Visa, Mastercard) set a base fee called the interchange rate, which varies by card type and how the card was processed. Your processor adds their own markup on top. Together, these usually total 2.2% to 3.5% of the sale plus a per-transaction fee.

Some processors also charge monthly fees ($0 to $50), statement fees ($0 to $10), or batch fees (a small charge each time you close out your terminal for the day). Read the full fee schedule before you commit. A processor with a lower percentage rate but a high monthly fee might cost more than one with a higher percentage but no monthly fee, depending on your sales volume.

Money from card sales deposits into your business bank account, usually within one to three business days. Some processors offer next-day deposits for an extra fee. You will receive a statement showing each transaction, the fees charged, and the net amount deposited. Keep these statements for your tax records and for reconciling your bank account.

Chargebacks and your responsibility to customers

A chargeback happens when a customer disputes a charge with their bank instead of asking you for a refund. The customer's bank reverses the transaction and takes the money back from your account. You then have a window (usually 7 to 10 days) to dispute the chargeback by providing evidence that the transaction was legitimate — typically a receipt, a signed order form, or proof of delivery.

Chargebacks are your responsibility to handle. If you lose the dispute, you lose the money and also pay a chargeback fee (usually $15 to $100). If chargebacks become frequent, your processor may close your account. To protect yourself, keep detailed records of every transaction: receipts, signed authorizations, delivery confirmations, and customer communications. If a customer asks for a refund, process it when ready rather than waiting — a refund is cheaper than a chargeback.

Some business types have higher chargeback rates than others. Subscription services, online retailers, and travel businesses see more chargebacks than in-person retail. If you operate in a high-risk category, expect higher fees and stricter requirements from processors.

PCI compliance and keeping customer data safe

The Payment Card Industry Data Security Standard (PCI DSS) is a set of rules designed to protect customer card information. If you accept cards, you must follow these rules or face fines and account closure. The rules are simpler than they sound for most small businesses.

The core rule is: never store a customer's full card number. If you use a modern payment processor with a card reader or online checkout form, the processor handles this for you — you never see the full number. If you manually enter card numbers (keying them in), you cannot save them. If a customer calls and gives you their card number over the phone, write it down only long enough to process the transaction, then destroy the paper.

Use a strong password for your processor account, keep your software and devices updated, and do not use public WiFi to process payments. Most payment processors handle the technical compliance for you, but you are responsible for using their system correctly. If you are unsure whether you are compliant, ask your processor directly — they can tell you what you need to do.

Frequently Asked Questions

Do I need a business license to accept credit cards?

Not in most states. Some payment processors do not require one, though they may ask for proof of identity and a business bank account. Check your state and local rules, and ask your processor what they require before you sign up.

What happens if a customer's card is declined?

The processor tells you when ready — your terminal or app will display a decline message. You can ask the customer to try a different card, or they can pay another way. You are not charged a fee for a declined transaction.

Can I accept credit cards without a business bank account?

Most processors require a business bank account in your business name. Some may allow a personal account if you are a sole proprietor, but this creates tax and legal complications. Open a business account first — it costs little and protects your personal finances.

How long does it take to get paid after a customer swipes their card?

Usually one to three business days. Some processors offer next-day or same-day deposits for an extra fee. Weekends and holidays can delay deposits. Check your processor's deposit schedule before you sign up.

What if I process a lot of transactions — do rates go down?

Some processors offer volume discounts, but you usually have to negotiate. Larger businesses can sometimes get custom rates. Ask your processor whether your sales volume qualifies for a lower rate, and do not be afraid to shop around if another processor offers better terms.