Accepting Credit Card Payments

Before the rise of the Internet and associated technology, businesses were often besieged by companies offering phone services. The number and type of “packages” was overwhelming – and all came with complex contracts. Confusion seemed to be a marketing tool designed to extract money from small businesses. Discounts were pushed at one end, while fees mounted somewhere else.

Fast forward to the new millennium and phone service isn’t as much of an issue, but merchant account services and credit card processing can be problematic. Accepting credit cards is now part of the landscape (with nearly 80% of transactions as non-cash) and online processing the rule rather than the exception.

Top problems and complaints

Merchant accounts amount to a contractual relationship between a processor and accepting credit card payments for the small business owner. The contract obligates you to not only pay a percentage on sales, but also to meet several benchmarks. Merchants who are unaware of the possible conflicts face disappointment and financial penalties, especially when accepting credit card payments for small business or a start-up company.

The top complaint from new merchant account holders is that they weren’t aware of all the fees they would pay. While shopping for the best merchant rates, other charges were “snuck in” the contract. The two fees most merchant account providers mention are the discount rate (a percentage of a sale) and the transaction fee (a flat amount per transaction). The confusion starts when businesses don’t understand that the percentage varies depending on the method of sale and the card used. They also complain that a transaction fee doesn’t just refer to accepting payment for a sale, but any communication with the processing service. Even rejecting a credit card may generate a transaction fee.

The two main fees above are the most quoted, but there is more to the story. If you take credit cards, you quickly find out there are other fees tacked on. There may be a monthly merchant account service fee, an annual fee, a membership fee, a watts fee and a minimum fee. The last of these, the minimum fee, kicks in when you do not process credit cards up to the minimum on your contract – you are then liable to pay the difference.

Online merchant accounts sometimes entail additional fees as well. A credit card merchant contracts with a third party provider who sets up the online merchant account. This third party will add other fees, depending on the software and services they provide. Accepting credit card payments online then adds another layer of possible concerns. Complaints stem from mistakes in data transmission or problems with software compatibility or security. If you are accepting credit card payments on a website, errors can creep in because of the steps needed for Internet processing.


Secure processing is of paramount importance to everyone involved, but this too can lead to misunderstandings or complaints. In some cases, if there is a mismatch between the sales you expect (both in type and amount) when signing up to accept payment online, your account can be frozen. From the processor’s point of view, this helps reduce fraud and chargebacks.

A typical example might be someone processing credit cards with a sudden spike in sales. When you contract with a provider, you will state your expected sales volume. Selling much more than this will trigger a red flag – perhaps there is fraud? The result can be that your merchant account is frozen until the charges clear at the customer’s end. This could lead to as much as a couple of weeks of waiting (until cardholders get their next statement to review). Merchants might not be aware of this when they start to take credit card payments, but good communication with your merchant account provider should avoid this issue.

Another “worst case” is a large amount of chargebacks. Chargebacks are a type of dispute with cardholders where they claim the charge is either fraudulent or the goods didn’t match their expectations. This can happen for a variety of reasons, but if your sales include one or two percent chargebacks, you may lose your privileges and even be put on what is called a “match list.” This happens is rare situations, but the match list is a kind of blacklist that credit card providers share and use to ban new accounts. Unfortunately, for small business owners who use their own address or personal information for business, getting banned can affect their personal credit as well.

Some online merchants will offer an extremely liberal return policy to limit chargebacks. A refund doesn’t count against you (although you still pay a transaction fee) in the same negative way that a chargeback does. This is a good example of how taking credit cards can alter the way you do business.

Finally, your account may be frozen, not for a suspected security violation, but because you haven’t paid the fees due. This is unusual because most accounts are set up to deduct fees from your proceeds.  I’d advise setting up your account with your credit card processing company in this manner to avoid a pattern of overdue fees that can harm your business reputation.

Information is power

Like many areas of business, you don’t need to reinvent the wheel and you can learn from other’s mistakes. When you are investigating how to accept credit cards, it is wise to also read whatever you can about the experiences of other businesses comparable to yours. Processing credit card payments is essential to running a successful business. There is no doubt that you need merchant account services from a solid provider who gives you excellent service – even if they do not push the cheapest rates.

How to accept credit card payments is just the first step. Once you have the basics down, it’s time to look closely at what could go wrong. There is value in the banner, “We accept credit card payments,” but look before you leap. Contracts typically have a one (or more) year commitment. It will cost money to get out early if you are not satisfied.

In addition to this website, another excellent source of practical information for small business owners is the experiences of trusted friends. Be careful that you are comparing apples to apples though. Online credit card sales are a different animal than offline. There are different risks – for instance, you don’t have the credit card physically present, nor do you have a valid signature. Both of those represent more risk for you and the card issuing bank. A favorite catch phrase comes to mind here: “Learn before you earn.”