You’ve decided your small business must accept credit cards. Most people don’t pay with cash or checks anymore. You’d prefer to be paid in cash because you’d be paid immediately. Being paid by check wouldn’t be too awful either because you could just walk down to the bank to get your money. But, then you run the risk of the check bouncing. But, what about credit cards? How do you get paid when someone swipes that little piece of plastic?
How Does Accepting a Credit Card Work?
When a customer pays for something with their credit card, they’ll first swipe the card or insert it in your POS system. The card information will be sent to the processing network, then the issuing bank (like Wells Fargo, Chase, etc.) will check to make sure there’s enough credit
available for the transaction.
The credit card association (Visa, MasterCard, Discover, orAmerican Express) will then run anti-fraud checks. If there’s enough creditavailable and the transaction isn’t flagged as fraudulent, the transaction willbe approved.
All of this is done in seconds. So, unlike with checks, you’ll know immediately if you’re going to be paid for the purchase or not.
After the transaction is approved, your credit card processor will process the transaction and pay interchange rates; they’ll also take out their rates. Then, they’ll release the funds to your merchant account.
This last step can take longer because there’s a good chance you’ll submit all your transactions in one batch at the end of the day. That just makes sense because you’d waste a lot of your time if you submitted each transaction individually. Then, after you submit all your transactions, it can still take a few days for the funds to actually be deposited into your account.
What about Debit Cards?
The process for accepting a debit card is very similar to accepting a credit card. The only difference is that the process is a little bit easier for the banks because they just have to check that there’s enough cash in the customer’s account.
The interchange rates are also lower because there’s less risk involved.
What’s a Merchant Account?
So, the last step in the process is the funds being released to your merchant account. What is a merchant account?
A merchant account is a bank account that allows you to accept debit and credit cards. Without one, you would never get paid after a credit card or debit card transaction.
After the funds have been deposited into your merchant account, they’ll be transferred into your business bank account. This transfer is usually on a set schedule, like weekly, bi-weekly, or monthly.