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Grow Your Business Finances

Credit Card Processing: What Very Small Businesses Need to Know

Credit Card Processing: What Very Small Businesses Need to Know
Credit card processing can be tough for very small businesses. / Credit: antb / Shutterstock.com

Credit card processing may not seem complicated, but very small businesses – like mom-and-pop shops, one-person operations, and home-based sellers – have a lot to consider when they accept credit card payments.

The road to accepting credit cards isn't easy. Getting approved for a merchant account, using the same technology as large corporations, and keeping up with the ever-changing security protocols and requirements can be harrowing tasks in their own right – altogether, the hurdles can seem insurmountable.

Very small business owners don't have to feel as though they're at a complete disadvantage. Here are five things about credit card processing you need to know to stay ahead.

Accepting credit cards means having to learn a new vocabulary to understand how your money is being moved and by whom. But for most resource-strapped very small businesses, the focus is more on getting their system set up than being concerned with such details and industry jargon. Nonetheless, to save yourself any future headaches should a problem arise, it's important to at least have some idea of what goes on behind the scenes.

To start, Intuit, the creator of the accounting software QuickBooks, identified the following four key players in credit card processing:

  • Merchant bank: The financial institution that provides merchant account services to facilitate transactions to bank accounts. (Note: There is a difference between merchant banks and aggregators. Credit card processing services, such as Square and PayPal Here, are aggregators that may create merchant accounts and process credit card transactions, but they are not banks or financial institutions.)
  • Processor: Essentially the third-party middleman that takes on merchant bank responsibilities, facilitates credit card transactions, and routes credit card information to the right payment networks and merchant accounts.
  • Issuing bank: The financial institution that issues credit cards to consumers.
  • Card payment brand: Credit card brands like Visa, MasterCard, American Express and Discover.

[Read related article: Accepting Credit Cards: A Small Business Guide]

Just because you're a very small business doesn't mean your credit card processing options are limited. It all depends on your type of business, how and where you intend to conduct it, and how much streamlining you'll need in order to make running it a lot easier.

For instance, if you are a mobile business, spend a lot of time attending trade shows or otherwise want the flexibility of accepting credit card payments anywhere, a mobile credit card processor is the best choice for you. And if you have an e-commerce store, consider a shared commerce point-of-sale (POS) system that integrates credit card transactions with your accounting and customer relationship management (CRM) software to automatically consolidate offline and online sales data.

Editor's note: Looking for a credit card processor for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have Business.com, provide you with information from a variety of vendors for free:

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Despite the many credit card processing options available, one drawback to being a very small business is that it can be a challenge to meet vendor requirements – if your business doesn't generate enough revenue, credit card processing companies may reject your application. Revenue requirements vary widely, but some credit card processors expect at least $10,000 in revenue a month.

If you don't meet strict revenue requirements, have no fear. With some digging, you'll find credit card processors that cater to very small businesses. One such low-revenue vendor is BluePay, which offers customizable solutions for businesses of all sizes, from mom-and-pop stores to retailers. Others include Helcim, Stripe, and PayPal Credit Card Processing.

[For a side-by-side comparison of the best credit card processing services, visit our sister site Business.com.]

Very small businesses are held to the same security standards as big businesses. Regardless of your size and which processing service you choose, you are responsible for ensuring your vendor has strict security standards and compliance measures in place. These standards include the Payment Card Industry (PCI) Data Security Standard, the three-digit card verification value (CVV2), secure sockets layers (SSL) protocol, and end-to-end encryption (E2EE).

In fact, new PCI changes implemented June 30, 2018, require that all e-commerce merchants update their security measures by using either TLS (Transport Layer Security)  1.1 or TLS 1.2 to better encrypt credit card and customer information transmitted between their server and browser.

Figuring out the costs of accepting credit cards can seem like rocket science. There's myriad fees involved, ranging from percentages to actual dollar amounts that vary based on the type of transaction or processor.

These fees are especially important for very small business merchants who are concerned that credit card processing costs might cut heavily into their bottom line (for instance, mom-and-pop shops that require a minimum purchase amount to use a credit card).

Here are the types of fees very small businesses should pay attention to as they add up on a monthly and per-transaction basis:

  • Payment gateway fee: Similar to terminal fees, these fees apply to e-commerce businesses to process customers' credit card information (fees vary).
  • Statement fee: Fees charged to cover the printing and mailing costs for credit card statements (the industry standard is $10 a month but can be as low as $5 or as high as $15 per month).
  • Monthly minimum fee: Fees charged to merchants who don't reach their transactional total for the month or the year (varies but may require you to pay extra of you don't meet the minimum).
  • Average discount rates fee: A percentage of your sale that the credit card processor keeps (rates vary).
  • Transaction fee: A fixed dollar amount charged per transaction.
  • Address verification service (AVS) fee: If you have an e-commerce business, you'll be charged an AVS fee on every transaction.
Julianna Lopez

Julianna Lopez is a freelance writer, editor, and social media marketer. She loves all things New York, books, movies and theater. If you're interested in her services, you can reach her at lopez.julianna6@gmail.com