Let Your Customers Pay with Credit Cards

Accept credit cards and empower your businessFor any small business starting out, cash flow can be a major issue. It seems like we’re always stuck somewhere between the past-due bills and outstanding invoices. One of the best ways that a small business can ease the flow of funds from customer accounts to their own is by providing the ability to pay with a credit card.

For online merchants who sell products this is a no-brainer. But service providers should consider this option as a way to get paid faster, especially when dealing with other small businesses trying to handle their own cash flow problems.

A lot of entrepreneurs will go right to the bank to set up this service, but in my research that was usually the worst option in terms of fees and commitment. When I looked at setting up a merchant account with Washington Mutual the processing fees were much higher, and they wanted me to sign a two year commitment, with a $250 termination fee. Add to that a monthly service fee and it was going to cost me nearly $100 to process a $1,500 charge to one of my clients. When I saw that I nearly choked. $100 for some computers to pass a few packets back and forth, and change the balances in a few accounts?!?! I don’t think so ….

Here are a few easy ways to get started accepting credit cards, without the hassle or expense of setting up a merchant account with your bank.


The payment service from ProPay is geared towards the small business that only has a few credit card transactions a month, and small ones at that. The service is very affordable to start out, but the trade off is the amount you can process per transaction, and per month. In addition, the percentage charged on transactions is pretty high, starting at 3.5% for the basic level of service. For a small business just starting out and desperate for a way to process cards, this could be a good way to go, but watch out for the higher fees as you cross your processing limits. The tiered levels of service give businesses more options, but if you need to process more than a few times a month, or for more than a couple thousand dollars, you’re probably better off elsewhere.

PayPal Merchant Services

PayPal’s merchant services integrate nicely with their existing payment services to offer businesses a more unified place to manage these types of payments. PayPal also offers a wide variety of ways to process the card. You can send email invoices, or let customers submit payment directly through your site. I haven’t completed the process of setting up a merchant account and processing a card, but the fees associated with the service are some of the lowest around. Once Google starts charging for their service, it will be worth taking a second look.

Google Checkout

Last year Google launched their PayPal competitor and offered customers $10 off their first purchase when they used the service. The service has been widely adopted by online merchants as an alternative payment method. In addition to the payment service, Google Checkout also allows users to create and send invoices via email. The emails contain a link to a page where customers can submit their payment. The transaction is processed, and funds appear in your associated bank account in about 48-72 hours. In an attempt to draw customers to the service, Google is offering to process cards without a fee through the end of the year. If you’re an online merchant just getting started this is definitely the way to go. With the holiday shopping season coming up, this could mean literally thousands in savings on processing fees. Once the new year rolls around, Google’s service will still be competitively priced, and it will still be free to non-profit organizations who use it to process donation transactions through the end of 2008.

I ended up going with Google and processed my first transaction for free – no charge at all! I’ll keep doing that while I can and will reevaluate the services when Google starts charging me next year. My clients are already singing the praises of the service and thanking me for letting them keep their cash on hand. Now I get paid faster than ever before, and that makes me sleep better at night.

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Aaron Smith on software technology for small businesses About: Aaron Smith is the owner of Mixotic LLC. Aaron started his own business after seeing so many of the businesses he had worked for struggling with their technology, trying to figure out what tools to use, how to use them, and how to train staff. He believes that companies that don’t explore new technology solutions give up a competitive advantage.


Aaron Smith

20 Reactions

  1. Very useful article Aaron. Both the general points concerning cash flow benefits of accepting plastic as well as the pros & cons of various merchant service alternatives was quite fruitful.

    To build on your list, I might add the following positive outcomes associated with ccard revenue:
    • Lowered A/R balances means a reduction in the firms required minimum operating cash level, freeing that portion for reinvestment into higher return uses, increasing the overall profitability of the firm.
    • Lower bad debt expense associated with A/R transactions that have/must be written off.
    • Increases the transparency of the small businesses financial statements used by current or potential external stakeholders.
    • Significantly reduces the firms average collection period (ACP), for that portion of total receivables and reduces total company ACP as well on a weighted basis.
    • Market evidence to suggest credit card financed revenue allows firm to increase prices a rate greater than firms without credit card payment options.

    Again, very informative and worth while read.

  2. the real question is when would be the conversion rate higher? when you set up the merchant account and capture the transaction on your own site (where you can pretty much control the number of steps required et al), or if you go with one of the services you suggest. let’s assume, for example, that we are dealing with products that have low prices (e.g. under $50.00). in months and months of looking for this answer, i couldn’t find anybody with any credible evidence for one or the other. if you are able to address this in this or another post, it would be super useful to small merchants like myself to find out which way does the deck stack. thanks in advance.

  3. Our business, Patron Saint Media (http://PatronSaintMedia.com) is a marketing and branding company for growing businesses and we have found that a better way is to sign up with an Authorize.net account. The rates are low and the monthly cost is also. You can process cards with a virtual terminal using the website. We actually do all our invoicing using Cashboard (http://getcashboard.com) and it’s actually pretty helpful. We can email our clients an invoice and the email has provided a link to pay online.

    Another service is Freshbooks (http://freshbooks.com) they can either send email or snail mail invoices for you. Very cool. It also supports a lot of payment gateway API’s.

    So hey that should do it for you. PayPal and Google Checkout aren’t as pro as Authorize.net and makes the client’s jump through too many steps. Besides PayPal has it just set up recently that if you process more than 1,000 a month then you have to sign up for a merchant account with them. At that point you can get a more competitive rate with Authorize.net

  4. I am responding your post and the comment about authorize.net above. First let me start by saying I agree with your post, that new businesses should use one of the services you list. When you are a new business owner, doing very little in monthly sales volume, you are going to receive the worst terms available for a merchant account. So it is best to wait until your monthly credit card volume is up to at least $5000 before getting one.

    Out of the three options you list I suggest choosing Google check out. First, it is a good product and secondly, when you do grow enough to get your own merchant account you can still use it. In other words you will not have to switch to authorize.net or some other payment gateway/shopping cart if you don’t want to.

    Regarding authorize.net – they are not a merchant account provider. All they offer is a payment gateway or shopping cart. You must have a merchant account, set up with another institution, to utilize it. Authorize.net will charge you a monthly gateway fee ($5 – $15/Month) plus a per transaction fee ($.04 – $.10/each). Authorize.net is what the big boys use and it is a wonderful product.

    So when you ready, how do you pick a merchant account provider? Read my blog post here and if you have any questions feel free to ask while you are there:


    By the way I am an account representative for a mid sized merchant account provider that specialized is a price model called “straight pass through.”

  5. Hey Good Job Aaron!!!

    This site gives a corner to those people who are thinking of giving a start to business.

    My opinion is a authorize.net is better than the remaining two… Coz if it comes to Paypal ,
    we need to open the merchant account and its a paid site.. And now a days google also started charging to open a new account… At first its creditable to pay 10$ for customers for the first purchase. The price will go on increasing for the second purchase… Then a small business man like me had to look for other alternative….

    anyways i would like to thank you for the valuable information….

    I have seen one more site which gives creditable information about credit cards….


    Its all about pros and cons of credit cards.. especially designed for students ..
    check it out….

  6. @Robb = We don’t have a merchant account. I mean we have our business account and Authorize.net set up and it works great for us. and what’s a $15 a month fee when I can get that client to pay is couple thousand dollar bill asap. Our rate is super low because we received a competitive rate. I shopped around and the person that is helping us is basically giving us an account .10 of a % above wholesale. Our per transaction fee is really low also.

    Best of all it’s one less hoop that a customer has to jump through. That’s what it’s all about is creating a seamless approach. Especially if you are a service professional.

    With Authorize.net I can use that for a shopping cart, invoicing system, I have much more flexibility because in these days business apps are moving more online. And near every developer will develop with the Authorize.net Payment gateway and API before they will for PayPal.

    So With that I have an infrastructure to be more flexible with only one account. Just my opinion.

  7. I had no set up fee… $20 per month and 1.09% per transaction with like 10cents or 20 cents per transaction cost.

  8. Thanks for the great suggestions from Tony and Robb!

    I hadn’t looked at Authorize.Net’s service, but have already sent them inquiries on pricing. Cashboard is a new one also, though not quite in the same line. Their Authorize.Net integration looks pretty phenomenal, which is exciting.

    I’m already working on a financial management tools article, and I’ve added these to the review list.

    Thanks again for the useful info!

  9. I stand corrected – you obviously can get a merchant account directly from authorize.net.

    However – I do want to state that 1.09% is highly unlikely since that is below significantly below cost directly from Visa and MasterCard. If a business were to have such a rate they would hammered with other rates and fees.

    Here are the rates my company, US Merchant Services, charges when using authorize.net:

    One-Time Set-up: $99
    Monthly Gateway Access: $10
    Per Transaction: $0.05

    Standard Merchant Account Rates:

    Monthly Statement/Support: $7.50
    Visa/MasterCard per Transaction: $0.20
    Base Visa/MasterCard Qualified Discount Rate: 2.25%
    Not only do we have a lower base rate but we do not pad surcharges.
    Monthly Minimum Discount: $0*
    Early cancellation fee: $0
    *This means that at the end of the month, you will only be charged for the volume you run through the account.

    If this is all foreign stuff to you please check out my blog and you will learn a ton!

  10. Here’s some additional pricing info for Authorize.Net, straight from the horse’s mouth. Below is a summary of the fees for each service. There are a few different options available.

    Authorize.Net Payment Gateway Pricing:

    Option 1:
    One-Time Set-up: $99
    Monthly Gateway Access: $20
    Per Transaction: $0.10

    Option 2:
    One-Time Set-up: $99
    Monthly Gateway Access: $50
    Per Transaction: 2000 transactions free each month, $0.10 per transaction thereafter

    If you are planning on processing 5,000 transactions or more a month, they can offer you even better pricing than that listed above.

    Standard Merchant Account Rates:
    Monthly Statement/Support: $9.95
    Visa/MasterCard per Transaction: $0.25
    Fixed Visa/MasterCard Qualified Discount Rate: 2.39%
    Monthly Minimum Discount: $25*
    *This means that at the end of the month, Visa/MasterCard will charge you either 2.39% of all your transactions or $25, whichever is higher.

    Additional Value Added Services:

    eCheck.Net Processing:
    $0.00 Setup Fee
    $0.35 per transaction

    Discount Rate:
    0.75% if you are processing between $0 and $4,999.99
    0.70% if you are processing between $5,000.00 and $49,999.99
    0.60% if you are processing between $50,000.00 and $199,999.99
    0.55% if you are processing more than $200,000.00
    $10.00 monthly minimum

  11. That’s probably the most valuable information on this page Tony!
    Knowing that they will waive certain fees is essential in pricing these services. Washington Mutual eventually agreed to waive their setup fee, and eliminate the 2 year commitment, but by that time it was too late.
    It just goes to show that with all of these options, it pays to investigate…and negotiate!

  12. I was getting ready in a week to use Pay Pal to process my clients credit card transactions, because I thought they had the best deal. You have given me some other good options to consider.

  13. this is a very helpful post especially a great option for those planning to use this services.

    I would like to share this site, hope this can be a great help: http://www.businesscreditcardsite.com

  14. I really appreciated this post on paying with credit cards without using a merchant account. It’s something that every entrepreneur should be aware of.

    We have a large subscriber base and we featured this post on our site under the Sales and Marketing category on our content site http://www.northstarthinktank.com.

    Thanks again for the useful information!

  15. My blog, How To Get Good Credit Gab, provides the opportunity to share thoughts, ideas and experiences about obtaining good credit and emphasizes the importance of building and maintaining good credit and the perils of personal financial mismanagement.

    Please consider adding this video you your site:

  16. I support this views and method, this is very great.

    To build on your list, I might add the following positive outcomes associated with ccard revenue:
    • Lowered A/R balances means a reduction in the firms required minimum operating cash level, freeing that portion for reinvestment into higher return uses, increasing the overall profitability of the firm.
    • Lower bad debt expense associated with A/R transactions that have/must be written off.
    • Increases the transparency of the small businesses financial statements used by current or potential external stakeholders.
    • Significantly reduces the firms average collection period (ACP), for that portion of total receivables and reduces total company ACP as well on a weighted basis.
    • Market evidence to suggest credit card financed revenue allows firm to increase prices a rate greater than firms without credit card payment options.

  17. Great suggestions Aaron.

    Lot’s of people go straight to their bank to open a merchant account and usually it’s just because it seems like the logical place to go.

    Going to your local bank doesn’t mean you’re going to get ripped off and it doesn’t mean your going to get a great deal either. You should still do your homework and compare the programs from the merchant account providers that you are considering.

    Banks simply resell services for Merchant Account Processors.

    Authorize.net is a reseller. It’s a internet payment gateway first, and a processing company reseller 2nd. You’re not going to get expert support for the merchant account side of things from authorize.net, but you will be using one of the leading payment gateways available today.

    Seeing how this post was written a number of years ago, there are lots more options available now and authorize.net is no longer the only one.

    If you want to look at comparing merchant accounts check out my site for guidelines. I’ve been in the business for 10 years and know the industry like the back of my hand.

    My advice in short is to know ALL of the fees that you are being charged(not just the advertised rates) and to manage your Effective Rate each month.

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