Last Updated on April 13, 2023 by Tabraiz
When you first start researching credit card processing, it can all seem very confusing. There are a lot of terms and acronyms that are thrown around, and it can be difficult to decipher what everything means. In this article, we’re going to take a detailed look at what credit card processing is and how it works.
At its most basic level, credit card processing is the act of accepting credit cards as payment for goods or services. In order to do this, businesses need to have a merchant account with a bank or other financial institution. This account allows them to process credit card payments and deposit the funds into their own bank account.
How to Process Credit Card Payments
In order to process credit card payments, businesses need to have a credit card terminal. This is a physical device that is used to swipe the customer’s credit card and enter the purchase amount. The terminal then communicates with the credit card processor in order to authorize the transaction and ensure that the funds are available.
Once the transaction is authorized, the funds are transferred from the customer’s credit card account to the merchant’s bank account. This typically happens within a few days.
Know About Credit Card Processing
Credit card processing can be done in-person, online, or over the phone. In-person credit card processing is the most common method and is what you’re probably most familiar with. This is where you physically swipe the customer’s credit card through a terminal.
Online credit card processing is growing in popularity, especially among small businesses. With this method, customers enter their credit card information on a secure website. The funds are then transferred to the merchant’s account.
Phone credit card processing is also becoming more popular. With this method, customers call a toll-free number and give their credit card information over the phone. The funds are then transferred to the merchant’s account.
Now that you know the basics of how payment processing works, let’s take a look at some of the fees associated with it.
Most businesses will be charged a per-transaction fee by their credit card processor. This fee is generally a percentage of the total purchase amount, plus a flat fee. For example, if you’re processing a $100 transaction, you might be charged a 3% transaction fee, plus a $0.30 flat fee.
In addition to the per-transaction fee, businesses will also be charged a monthly statement fee by their credit card processor. This fee covers the costs of generating and sending out monthly statements to customers.
Finally, businesses may also be charged an annual fee by their credit card processor. This fee covers the costs of maintaining the merchant account and processing credit card transactions.
How Credit Card Processing Works
Now that you know how credit card processing works and what some of the fees are, you might be wondering if it’s right for your business.
There are a few things to consider when deciding if credit card processing is right for your business. First, you need to think about your customer base. If you have a lot of customers who pay with cash, credit card processing might not be worth the fees.
Second, you need to think about the types of products or services you sell. If you sell high-priced items, credit card processing can be a good way to increase sales. However, if you sell low-priced items, you might not see a lot of benefit from credit card processing.
Third, you need to think about your sales volume. If you process a lot of transactions, you’ll likely pay more in fees than if you process fewer transactions.
Finally, you need to think about your business model. If you have a brick-and-mortar store, credit card processing can be a good way to increase sales. However, if you have an online store, you might not need credit card processing.
If you’re still not sure if credit card processing is right for your business, we recommend talking to a financial advisor or accountant. They can help you weigh the pros and cons of credit card processing and help you decide if it’s right for your business.