The basics of receiving credit card payments
To receive credit card payments, you need a merchant account — a contract with a bank or payment processor that lets you accept cards and deposit the money into your business account. The processor acts as the middleman: the customer's card is charged, the processor verifies the funds, and the money lands in your account (usually within one to three business days). You pay a fee for this service, typically a percentage of each transaction plus a small flat fee per transaction.
You do not need to be a large company. Sole proprietors, freelancers, and small businesses can open merchant accounts. The processor will ask for your Social Security number or EIN, basic business information, and sometimes bank statements to confirm you are legitimate. The approval process usually takes a few days to a week.
There are three main ways to accept cards: in person using a card reader, online through a payment form on your website, or over the phone by manually entering card details. Each method has different equipment needs and different fee structures.
Key Takeaways
- A merchant account is a contract with a payment processor that lets you accept cards and deposit the funds into your business bank account.
- You pay a percentage fee (usually 2 to 3 percent) plus a per-transaction fee (usually 20 to 30 cents) on each card payment you receive.
- In-person payments use a card reader or point-of-sale terminal; online payments use a payment form or shopping cart; phone payments require you to manually enter the card number.
- Popular processors for small businesses include Square, Stripe, PayPal, and traditional banks, each with different fee schedules and features.
- You are responsible for keeping card data secure and following PCI compliance rules, which most modern processors handle automatically.
In-person payment methods and equipment
If you accept cards face-to-face, you will need a card reader or point-of-sale (POS) terminal. A card reader is a small device that plugs into your phone or tablet and reads the card's chip or magnetic stripe. A POS terminal is a standalone machine that sits on your counter. Card readers are cheaper and more portable; POS terminals are more durable and often include a receipt printer and cash drawer.
Most card readers cost between $30 and $300 upfront, depending on the brand and features. Popular options include Square Reader, Stripe Reader, and PayPal Here. You connect the reader to your phone via Bluetooth or headphone jack, open the processor's app, and swipe or insert the card. The app shows the transaction, prints a receipt, and deposits the money into your linked bank account.
POS terminals range from $200 to $1,000 or more and are usually rented or leased rather than purchased outright. They are common in restaurants, retail stores, and service businesses. Some processors bundle the terminal with the merchant account; others charge a monthly rental fee on top of transaction fees.
Online payment methods for websites and invoices
If you sell online or send invoices, you need a way to accept card payments through your website or email. The most common methods are a payment gateway (a form that appears on your website), a shopping cart (if you sell multiple items), or an invoice payment link (if you bill clients one at a time).
A payment gateway is code you embed on your website that securely collects card information and sends it to your processor. Stripe, Square Online, and PayPal are popular gateways for small businesses. You paste a few lines of code into your website, and a payment form appears. The customer enters their card details, and the processor handles the rest.
If you use invoicing software like FreshBooks, Wave, or QuickBooks, you can often add a payment button directly to your invoices. The customer clicks the button, enters their card details, and the payment is recorded in your accounting software automatically. This is the simplest method if you bill clients individually rather than running a store.
Shopping carts like Shopify, WooCommerce, or BigCommerce are built for selling multiple items. They handle the product catalog, inventory, and checkout process. You connect a payment processor to the cart, and customers pay at the end of checkout.
Understanding fees and how money reaches your account
Every card payment costs you money. The fee structure is usually a percentage of the transaction plus a per-transaction fee. For example, Square charges 2.6% plus 10 cents per transaction for in-person payments, and 2.9% plus 30 cents for online payments. Stripe charges 2.9% plus 30 cents for online payments and 2.7% plus 5 cents for in-person payments. Traditional banks often charge higher percentages but may offer lower per-transaction fees if your volume is high.
Some processors charge monthly fees ($10 to $50) for access to their platform, even if you do not process any payments. Others charge no monthly fee but take a larger percentage per transaction. Compare the total cost across your expected monthly volume, not just the advertised rate.
Money usually deposits into your linked business bank account within one to three business days. Some processors offer next-day deposits for an extra fee. If a customer disputes a charge or a card is declined, the processor will notify you and may hold the money while the dispute is resolved.
Security and PCI compliance requirements
PCI compliance is a set of security standards that protect customer card data. You are legally required to follow these rules if you accept cards. The good news is that most modern processors handle the technical work for you.
If you use a card reader, payment form, or shopping cart provided by your processor, the processor is responsible for keeping the card data encrypted and secure. You never see the full card number — the processor shows you only the last four digits. This is called tokenization, and it is the standard way modern processors work.
If you manually enter card details (for phone or mail orders), you must use a secure method. Never write down card numbers or store them in an unencrypted spreadsheet. Instead, use your processor's phone payment tool or a secure invoicing form. Your processor will guide you through the correct steps.
You are also responsible for keeping your devices and passwords secure. Use a strong password for your processor account, enable two-factor authentication if available, and do not share your login with employees unless necessary. If an employee leaves, change your password immediately.
Choosing between different payment processors
The right processor depends on how you sell and how much you value convenience versus cost. Here is how the main options compare:
| Processor | Best for | In-person fees | Online fees | Monthly fee |
|---|---|---|---|---|
| Square | Small retail, service businesses, invoicing | 2.6% + 10¢ | 2.9% + 30¢ | None |
| Stripe | Online stores, SaaS, high volume | 2.7% + 5¢ | 2.9% + 30¢ | None |
| PayPal | Existing PayPal users, invoicing | 2.7% + 5¢ | 3.49% + 49¢ | None |
| Traditional bank | High volume, established businesses | Varies (often 1.5–2.5%) | Varies (often 2–3%) | $25–100 |
Square and Stripe are popular with small businesses because they have no monthly fee, low per-transaction costs, and simple setup. PayPal is a good choice if you already use PayPal for other reasons. Traditional banks may offer better rates if you process thousands of dollars per month, but they require more paperwork and a longer approval process.
Setting up your first merchant account
The process is straightforward and takes about 15 minutes to start. First, choose a processor and visit their website. Click "get your free guide" or "Sign Up" and enter your business name, your personal name, your Social Security number or EIN, and your business address. You will also provide your bank account details so the processor knows where to deposit money.
The processor will ask a few questions about your business: what you sell, how much you expect to process per month, and whether you have had a merchant account before. Answer honestly — processors use this information to assess risk, and lying can result in account closure later.
Most processors approve accounts within a few hours to a few days. Once approved, you can immediately start accepting payments. If you are using a card reader, you will download the processor's app and pair the reader to your phone. If you are using a website, you will receive API keys or a payment form code to add to your site.
Keep your processor's contact information and your merchant account number in a safe place. You will need them if you have questions about a transaction, need to issue a refund, or want to change your fees.
Frequently Asked Questions
What happens if a customer disputes a charge?
The customer's bank will contact your processor and ask for proof that the transaction was legitimate. You will receive a notice and have a chance to provide evidence — an order confirmation, shipping receipt, or email from the customer. If you can prove the transaction was authorized, you keep the money. If you cannot, the money is returned to the customer and you may be charged a dispute fee (usually $15 to $100).
Can I accept credit cards without a business license?
Yes. Sole proprietors and freelancers can open merchant accounts with just a Social Security number. You do not need a business license, though some processors may ask for one if you operate under a business name. Check your processor's requirements before you sign up.
What is the difference between a debit card and a credit card payment?
From your perspective as a business, there is almost no difference. Both are processed through the same merchant account, both charge you a fee, and both deposit into your bank account on the same timeline. The difference is on the customer's end — debit cards draw from their bank account immediately, while credit cards create a bill they pay later.
Do I have to accept all card types?
No. You can choose to accept Visa and Mastercard but decline American Express or Discover, though this is uncommon. Most processors bundle all major card types together, so you accept all or none. Declining cards may frustrate customers, so most businesses accept all types.
What if my processor goes out of business?
Your money in the processor's account is protected by the FDIC up to $250,000 (if the processor is FDIC-insured). However, you should keep your own records of every transaction in case you need to prove what happened. If a processor closes, switch to a new one and notify your customers of the change if you are using payment links or invoices.