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Grow Your Business Technology

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 seems simple enough: Get a merchant account and set up your equipment, and you're good to go. But for very small businesses — such as mom-and-pop shops, one-person operations and home-based sellers — the decision to accept credit cards means having to consider some very unique needs. From the difficulty of getting approved for a merchant account to losing money from fees and facing the challenges of using the same technologies as large corporations, the road to accepting credit cards can be rough. Nevertheless, very small businesses don't have to be at a complete disadvantage. Here are five things you need to know to stay ahead.

Accepting credit cards means having to learn a whole new set of 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 on 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 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 that 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.

[MORE: Accepting Credit Cards: A Small Business Guide]

Just because you're a very small business doesn't mean your credit card processing choices 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 being able to accept 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.

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 a month in revenue.

If you don't meet strict revenue requirements, have no fear. With a little bit of digging, you'll find several credit card processors that cater to very small businesses. One such low-revenue-friendly vendor is BluePay, which offers customized solutions for business of all sizes, from mom-and-pop stores to retailers.

[For a side-by-side comparison of the best credit card processing services visit our sister site Top Ten Reviews.]

Very small businesses are held to the same security standards as big businesses. Regardless of your size and which credit card processing service you choose, you are responsible for making sure your vendor has the proper security standards and compliance in place. These standards include the Payment Card Industry (PCI) Data Security Standard, the three-digit Card Verification Value (CVV2), Secure Sockets Layer (SSL) protocol and End-to-End Encryption (E2EE).

Figuring out the costs of accepting credit cards can seem a lot like rocket science. There are a slew of 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 businesses that 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 in particular, as they add up on a monthly and per-transaction basis:

  • Gateway fee (varies)
  • Statement fee (industry standard of $10 a month, but can be as low as $5 a month)
  • Monthly minimum (varies, but may require you to pay extra if you don't meet the minimum)
  • Average discount rates (a percentage of your sale that the credit card processor keeps)
  • Transaction fee (a fixed dollar amount charged per transaction)
  • Address verification fee (a per-transaction fee charged to verify a customer's address)

Originally published on Business News Daily.

Sara Angeles

Sara is a tech writer with a background in business and marketing. After graduating from UC Irvine, she worked as a copywriter and blogger for nonprofit organizations, tech labs and lifestyle companies. She started freelancing in 2009 and joined Business News Daily in 2013. Follow Sara Angeles on Twitter @sara_angeles.

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