Table of Contents
Whether you are a full-time small business owner, or occasionally run a pop-up store, you’ve probably wondered how you can stay relevant in our increasingly cashless society.
One way to help ensure that you are meeting your customers’ needs is by taking card payments.
Here, we look at ways to accept card payments, either in person, using a card machine, or over the phone.
How to take card payments
The two main ways to take card payments are with a card machine or with a virtual terminal.
You can use a physical or virtual card terminal to take card payments face to face or over the phone.
How do I take payments with a card machine?
If you want your business to take a payment with a physical card machine, your customer needs to insert their card and input their PIN, or tap the reader for a contactless payment. They may also be able to use their mobile device for contactless payments.
At the time of writing, contactless card payments are limited to £100 per transaction. If a customer uses their device to pay, they may be able to spend more than this using a service such as Apple Pay or Google Pay.
You can get different types of terminals to suit the needs of your business.
Some card terminals need to be plugged in and connected with an Ethernet cable, which may suit you if you run a business with a fixed till point. Other types of card terminals work on Wi-Fi and bluetooth – perfect if you need to walk between tables in your café to settle customer bills, for example.
You can even get card readers that can take card payments on-the-go via a mobile data connection. This may suit businesses that are looking to take card payments by machine at markets or trade fairs, for example.
If you don’t currently take card payments but want to start, you may be able to buy or rent a card terminal, depending on the provider you choose. Each provider offers different types of card machines.
How do I take card payments with a virtual terminal?
A virtual terminal is a way of converting your phone or laptop into a card terminal so that your business can take card payments over the phone – without the customer needing to be present.
To use a virtual terminal, you have to log in to your merchant acquirer’s online platform. You can then manually input the transaction value and your customer’s card details.
This is different from a physical card terminal, where the customer would tap their card on the reader or insert it and enter their PIN. Instead, with a virtual terminal, you type in the details on the card including the card number and the expiry date.
You can then charge the required amount to the customer’s card directly from your device, and send them a receipt if needed.
How do I take card payments over the phone?
Sometimes, your customer may not be present for a transaction. In this instance, it’s possible to take card payments over the phone.
You will still need either a physical card machine or a virtual terminal that uses your computer to take card payments over the phone.
You’ll have to input the:
- transaction amount
- customer’s long card number (the 16-digit number on the front of the card)
- CVV (the three-digit number usually found on the back)
- card’s expiry date into your terminal
- billing address to which the card is registered
If these details are correct and the customer has sufficient funds, the transaction will then be processed and the card payment will have been taken over the phone.
What do I need to take card payments?
To take card payments, you will need the following:
- A merchant account. You can set one up directly with a payment processing provider or you can use a payment services facilitator instead.
- An internet connection. Card payments rely on the internet to communicate the process.
You may also require these devices:
- A card terminal. You can get a card machine from the company that processes your payments.
- A device such as a laptop or smartphone. You may be able to use a device as a virtual terminal instead of having a physical card terminal.
Which of these you use will depend on whether you want to take a card payment using a card machine or over the phone.
» MORE: What is a merchant account?
Do I need a business bank account to accept card payments?
Your business will definitely need a bank account of some kind to take card payments. Your business won’t be able to take card payments unless it has either a business or personal bank account.
When you take a card payment from a customer, their money will be held in a merchant account. The money is then paid into your business’s bank account after a short period of time.
Sole traders may use a personal bank account for their business transactions, in which case your money will be paid into that from the merchant account.
Limited companies and partnerships are legally required to keep their business finances and personal accounts separate so using a business bank account is necessary. Many sole traders may also find it beneficial to open a business bank account – allowing them to separate business income and expenses from personal spending.
» MORE: Do I need a business bank account?
How do card payments work?
There are a number of processes which happen behind the scenes whenever your business takes a card payment.
Below are six typical steps that typically occur in order:
- A customer uses their card at the merchant (your business).
- A notification is sent to the merchant’s acquirer or payment facilitator.
- The acquirer asks the customer’s card provider (such as Visa or Mastercard) if sufficient funds are available.
- The card provider asks the customer’s bank if the customer has enough money.
- If there is enough money in the customer’s bank account, an acceptance notification is sent back and the transaction goes through.
- If the customer doesn’t have enough money, the transaction is declined.
As a business, you may be charged payment processing fees by the payment facilitator and the card provider. These may be a set percentage of each transaction, and your provider may bill your fees monthly by direct debit.
How much will it cost my business to take card payments?
Providers may give you a personalised quote, which takes into account factors such as how much you expect to take annually in card payments and how long your contract is.
The cost can also depend on what functionality you need from your card machines – whether you’re taking a mobile card machine up and down the country or using a fixed terminal in your shop, for example.
The cost of taking card payments can vary. There are a number of potential costs to bear in mind when considering whether to take card payments and which provider to choose.
- Handset cost: You may have to pay up front for the cost of your terminal.
- Machine rental: You may have to pay a monthly fee for your card terminal. This can be more expensive for terminals with more functionality (such as portability).
- Transaction fees: Your provider may charge a fee per transaction, which can vary depending on the type of card used or the type of transaction (whether the cardholder is present or not, for example).
- Refunds: Providers may charge a fee for refunding money to customers.
- PCI compliance: You may be charged a fee for the provider’s PCI compliance services that helps ensure your card transactions – and the sensitive data that is processed with them – are managed responsibly in accordance with legal requirements.
- Card type: The fees you pay may vary depending on which card types you accept, such as Visa, Mastercard and American Express (Amex).
Providers may also set a minimum monthly fee, chargeable if you don’t meet their monthly transaction limit.
What is the cheapest way to take card payments?
If you’re looking to take card payments, cost will likely be one of the main factors you consider.
Small and micro businesses may find that using an aggregated merchant account is a cheaper option than opening their own merchant bank account.
Payment facilitators that offer these accounts may be able to negotiate lower rates for smaller enterprises, as they are negotiating on behalf of all the businesses that use their services.
However, larger businesses may be able to negotiate their merchant account rates directly with a bank or provider. You may be able to avoid payment facilitator fees this way. As your business expands, you may find that another provider better suits your needs.
It’s worth doing your market research to compare a variety of providers to find one that best suits your business. The cheapest option for taking card payments may not always be the one to match your specific requirements.
» MORE: How to grow your business
How do I start taking card payments?
One of the first steps toward taking card payments is choosing your set-up. You could choose to use a payment facilitator, a third party provider that manages the entire process, or you could work directly with a payment services processor with a merchant account established directly with a merchant acquirer.
This may involve doing online research and getting quotes from different providers to find one that suits your business needs. You may need to give details about your business, including annual turnover and average transaction value.
If you’re happy with your quote, you can sign a contract with your chosen provider. You can then set up your card terminal and you should be ready to take card payments from customers.
If you have any questions or problems, it’s worth reaching out to your provider for support.
Do businesses have to accept card payments?
It’s up to individual businesses whether or not to accept card payments. Some businesses may find that they prefer to only take cash payments. You may find it easier to keep track of just one payment method, for instance.
However, not accepting card payments could cut off your business from a significant portion of your potential customers.
» MORE: Is Britain becoming a cashless society?
Can businesses charge customers to pay by card?
You cannot charge customers for paying by card.
According to the Consumer Rights (Payment Surcharges) Regulations 2012, fees for paying by debit or credit card (to cover fees charged by payment processing companies) are prohibited in most circumstances.
Image source: Getty Images
Dive even deeper
Is Etsy the Right Platform for Your Business? Four Questions to Help you Decide
by Amy Knight
Public Liability Insurance: What is it and What Does it Cover?
by Duncan Ferris