How credit card payments work
Follow these steps to put a credit card processing system in place:
You need to set up a payment gateway. Your gateway facilitates transactions from a payment portal, which may be your website or point of sale terminals in a retail setting.
The credit card payments move from the payment portal to a processing entity, typically a bank.
Here’s what happens when your customer pays by credit card:
- The transaction is approved by the processing entity
- The dollars are posted to your company’s merchant account
- Dollars in the merchant account are moved to your business bank account
Start the process by setting up a merchant account. These accounts include a setup fee that can range from $50 to $200. By setting up a merchant account, you avoid paying the higher fees that a third-party processor charges to process credit card payments.
To use your merchant account, you’ll pay a fee per transaction, or a monthly fee. If you have physical store locations, you’ll also need POS terminals.
A merchant account can be integrated with accounting software, and the combination offers some great features; You can create invoices automatically, offer a credit card payment option for invoices, accept payments by phone or through mobile credit card readers.
Best of all, the payment data and accounting activity is updated in real time.
Some businesses accept payment using ACH payments, but credit cards are becoming the preferred payment method for your customers. Your bank should be able to set up a credit card system quickly, and process payments at a reasonable cost.
To simplify your accounting, you should automate as many routine tasks as possible, including bill payment.