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Payment Processing 101: A Guide for Small Business Owners
A lot happens in between the time your customer swipes their credit card and then signs a receipt. If they were to ask you what’s going on behind the scenes, would you know?
Even if you already have an accountant, it’s important to understand the basics of payment processing. Here’s a guide for small business owners to feel confident in their knowledge of how credit card transactions work within their point of sale (POS) system:
When a customer swipes or inserts their credit card through or into your payment terminal, the payment terminal quickly contacts your bank to ask whether the customer can make the credit card purchase. Unlike a debit card, which is essentially like paying with cash, a credit card is a short-term loan, so authorization from all parties involved is necessary.
Once your bank has received the request, it will contact the applicable credit card network — American Express, Discover, MasterCard or Visa — to get authorization for the purchase. Some payment networks double as credit card issuers, such as American Express and Discover. Others, such as MasterCard and Visa, do not. In this case, the payment network will then contact the credit card issuer, like Chase, Capital One or Amazon, and ask if the credit card is valid and if there’s enough available credit for the transaction.
In a matter of seconds, the credit card issuer will send back an authorization code that will allow or decline the transaction. If the card is declined, the customer will have to contact their card issuer directly to find out why. You may also try the transaction again to see if there was an error or miscommunication between the card and payment terminal.
If the bank receives an approval message, a receipt will print, your customer will sign saying they agree to the purchase and the sale will be authorized — but not final. It’ll still take a matter of days for the banks, payment networks and credit card issuers to communicate again while actually processing the payment. Each party, usually your business, your bank, your customer’s payment network and your customer’s credit card issuer (if different) may charge a small interchange fee. The amount ranges depending on the merchant services provider you choose. QuickBooks Payments offers an affordable solution that integrates seamlessly with QuickBooks POS system.1
Payment terminals rely on phone lines and the internet to communicate with banks, payment networks and credit card issuers. Because of that, it is sometimes possible to hear static and screeching while waiting for a transaction to be completed. Desktop POS systems operate as a stand-alone unit meaning though it can sync to multiple-stores, it’s not dependent on the internet to save or process information on its own.
It seems so quick — customers grab their card from their wallet, swipe, sign and go. But a lot happens behind the scenes of credit card processing. Though you may not have to manually go through the steps yourself, it’s good to know why having a reliable and trusted payment processor is in your best interest.
- QuickBooks Desktop Point of Sale 18.0 integrates with QuickBooks Pro/Premier 2015-2018 and QuickBooks Desktop Enterprise 16.0-18.0. Sold separately. Payment reconciliation works with QuickBooks Pro, Pro Plus, Premier, Premier Plus, or Enterprise 16.0 and later. User must have QuickBooks Desktop Point of Sale 12.0 or higher, Quickbooks Desktop 2016 or higher, and a Point of Sale Payments account in order to use payment reconciliation.
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