The Basic Setup: What You Need Before You Start
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 payment hardware or software (the terminal, reader, or online form where the customer enters their card). Most small businesses use a single provider that bundles all three together rather than shopping for each separately.
The processor charges you a fee each time someone pays by card. This fee is usually a percentage of the sale (often 2 to 3 percent) plus a flat amount per transaction (often 20 to 30 cents). Some processors charge a monthly fee instead of, or in addition to, per-transaction fees. The exact structure depends on which processor you choose and what type of business you run.
You do not need to be incorporated or have a business license to accept cards, though some processors ask for basic information about your business. You will need a Social Security number or EIN, and a bank account in your business name (or your personal account if you are a sole proprietor).
Key Takeaways
- A payment processor, merchant account, and payment hardware or software are the three components you need, and most small businesses buy them bundled from one provider rather than separately.
- Fees typically run 2 to 3 percent of each sale plus 20 to 30 cents per transaction, though some processors charge monthly fees instead.
- Square, Stripe, PayPal, and Clover are the most common processors for small businesses, each with different hardware options and fee structures.
- In-person payments use a card reader that plugs into your phone or tablet; online payments use a payment form on your website or invoice.
- Funds from card sales usually deposit into your bank account within one to three business days, though some processors hold a small percentage as a reserve.
In-Person Payment Options: Card Readers and Terminals
If you take payments face-to-face, you need a card reader or terminal. The simplest option is a mobile card reader — a small device that plugs into your phone or tablet's headphone jack or charging port. Square Reader, PayPal Here, and Stripe Reader are the most common. You tap or insert the card, the customer signs on the screen, and the payment goes through. These readers cost between $20 and $50 and work with the processor's free app.
A countertop terminal is a larger machine that sits on your desk or counter. It has its own screen and keypad, so you do not need a phone or tablet. Clover and Square both make countertop terminals. These cost $200 to $600 upfront and are better if you process many payments per day or want a more permanent setup. Some processors also offer monthly rental instead of purchase.
A third option is virtual terminal software — you log into a website, enter the card details yourself, and process the payment. This is slower than a reader and requires the customer to hand you their card, so it is less common for retail. It works for phone orders or when a customer cannot be present.
Online Payment Options: Websites and Invoices
If you sell online, you need a way for customers to enter their card information on your website. Most small businesses use one of two routes: a payment form embedded in your website or a payment link you send by email or text.
A payment form is built into your website checkout. Stripe and Square both provide code you can add to a website, or you can use a website builder like Shopify, Wix, or Squarespace that has payment processing built in. The customer enters their card on your site, and the payment processes immediately. This is the standard for online stores.
A payment link is a URL you send to a customer. They click the link, enter their card information on the processor's page, and the payment goes through. Square, Stripe, and PayPal all offer this. It is useful for invoices, quotes, or one-off payments when you do not have a full website. You can send the link by email, text, or even a QR code.
Comparing the Major Processors for Small Business
| Processor | In-Person Hardware | Online Payment | Typical Fee Structure |
|---|---|---|---|
| Square | Mobile reader ($49), countertop terminal ($299–$599) | Payment form, payment link, invoicing | 2.6% + 30¢ per in-person transaction; 2.9% + 30¢ for online |
| Stripe | Mobile reader ($10), countertop terminal ($299) | Payment form, payment link | 2.7% + 30¢ per in-person transaction; 2.9% + 30¢ for online |
| PayPal | Mobile reader (free with account), countertop terminal ($299) | Payment form, payment link, invoicing | 2.7% + 12¢ per in-person transaction; 3.49% + 49¢ for online |
| Clover | Countertop terminal ($299–$999) | Payment link, online ordering | 2.7% + 10¢ per in-person transaction; 3.5% + 15¢ for online |
Square is the most popular choice for small businesses because the mobile reader is cheap, the app is simple, and you can start accepting payments in minutes. Stripe is better if you have a website and want more technical control. PayPal works well if you already use PayPal for other business purposes. Clover is strongest if you want a full point-of-sale system with inventory tracking and employee management built in.
All four processors deposit funds into your bank account within one to three business days. Some hold back a small percentage (usually 1 to 2 percent) as a reserve for the first few months, then release it once your account is established.
The Application and Approval Process
Setting up a merchant account is faster than it used to be. Most processors let you start in minutes with just a name, email, and phone number. You can begin taking payments the same day with a mobile reader.
However, the processor will eventually ask for more information: your Social Security number or EIN, your business address, your bank account details, and sometimes your business license or tax ID. This is called underwriting. The processor uses this information to verify you are a real business and to assess risk. Underwriting usually takes a few days to a week, though some processors complete it instantly.
If you have a history of chargebacks, fraud, or bankruptcy, underwriting may take longer or the processor may decline you. In that case, you can try a different processor — each has different risk standards — or use a high-risk merchant account provider, which charges higher fees but accepts businesses with complicated histories.
Understanding Chargebacks and Fraud Protection
A chargeback happens when a customer disputes a charge with their bank and the bank reverses the payment. The customer gets their money back, and you lose the sale plus a chargeback fee (usually $15 to $100). Chargebacks are the biggest cost of accepting cards beyond the per-transaction fee.
To reduce chargebacks, keep clear records of what you sold, when, and for how much. If a customer pays for a service, send them a receipt or confirmation email immediately. If you ship a product, use tracked shipping and keep proof of delivery. If a customer claims they never received something or that the charge was unauthorized, you can dispute the chargeback by providing this evidence to your processor.
All major processors offer fraud detection tools that flag suspicious transactions — for example, a card used in two different countries within an hour, or a purchase much larger than the customer's usual pattern. You can review flagged transactions before they process and decline them if they look wrong. Some processors also offer fraud insurance, though this is usually only available to larger businesses.
Keeping Your Customer Data Safe
If you accept cards, you are responsible for protecting customer card information. You do not need to store card numbers yourself — in fact, you should not. All major processors handle the storage and encryption for you. When a customer enters their card on your website or reader, the processor receives it directly, not you.
You do need to follow PCI DSS (Payment Card Industry Data Security Standard), a set of rules for handling card data. The basic requirements are: use a secure, updated payment processor; do not store full card numbers in your own system; use a secure website (HTTPS, not HTTP); and keep your software and devices updated. If you use a processor like Square or Stripe, they handle most of this for you. If you build your own payment system, you need to hire a developer who knows PCI rules.
If you are breached and customer card data is exposed, you must notify your processor and your customers. The processor will investigate and may charge you a breach fee. This is another reason to use an established processor rather than building your own system.
Frequently Asked Questions
Can I accept credit cards without a business bank account?
Most processors require a business bank account or at least an account in your business name. If you are a sole proprietor, you can usually use your personal account, but the processor will ask for your Social Security number and may require you to register as a business. Some processors are stricter than others — if one declines you, try another.
What happens if a customer does a chargeback?
The bank reverses the payment, and you lose the sale amount plus a chargeback fee. You can dispute the chargeback by providing proof of the transaction — a receipt, shipping confirmation, or email exchange. If the processor agrees with you, the money is restored. If not, the chargeback stands.
How long does it take for money to show up in my bank account?
Most processors deposit funds within one to three business days. Some deposit daily. A few hold funds for longer if your account is new or if you have a high chargeback rate. Check your processor's deposit schedule when you sign up.
Do I have to use the processor's hardware, or can I use my own?
You must use hardware certified by your processor. You cannot use a Square reader with Stripe, for example. However, most processors offer multiple hardware options — mobile readers, countertop terminals, virtual terminals — so you can choose what works for your business.
What if I process a lot of payments and want a lower fee?
If you process more than a few thousand dollars per month, contact your processor's sales team and ask about custom rates. Many processors negotiate lower fees for high-volume businesses. You can also shop around — Clover and some regional processors sometimes offer better rates than Square or Stripe for specific business types.