Credit card processing is a very complex chain of events that involves many different people and exchanges of information. While it is not absolutely necessary for you as the small business owner to understand every aspect of a transaction, it can be helpful to understand the basics of how small business credit card processing works. By understanding the fundamentals behind credit card processing, you will be in a better position to make decisions concerning this matter.

There are wide varieties of ingredients if you like, that go into any credit card transaction. Of course the transaction begins when the customer places the order, but there are also many other players involve including the sending bank, the receiving bank and the merchant service provider. In the following paragraphs we will take a look at the role of each.

Here is a brief overview of what has to take place before you, as a small business owner, can begin receiving payments via credit card.

The first step in the process involves you as the business owner opening a merchant account with a small business credit card processing Merchant Service Provider. After you have set your account up you will be ready to accept payments, but in order to accept a payment, someone has to send it—your customer. In order for the customer to be able to send payment via credit card, they will need to apply for and open a credit card account.

Once you are ready to accept payment and you customer is ready to send payment the process can begin. Here is a basic overview of the chain of events that we can a 'credit card process.'

First, the Merchant (you) accepts the credit card for payment of products or services.

Next, the issuing bank (the customer's bank) sends the payment to your Merchant Services Provider.

Last, the acquiring bank (your bank) processes and accepts payment from the issuing bank, and sends you your payment—minus transaction fees.

Now that you understand the basic process of how a credit card transaction occurs, from your customer to your Merchant Services Provider to you, you now need to look at how many transactions you expect to process in any given month. It is important to estimate this number as closely as possible because an over-estimate will cost your business money and here is why. There are different 'tiers,' for lack of a better word, of payment processing accounts. First, is your most basic level which features a call in number, which enables you to manually process the transactions by calling a toll free telephone number, although this option is not a real time credit card processing solution, it does offer some benefits to the business owner. The next step up is a virtual terminal, which often can be used in combination with an online shopping cart, this solution would be considered to be a real time credit card processing solution. Last, is the most expensive option—a swipe terminal, which is meant for use in a bricks and mortar business.

The first type of payment processing account is meant for small businesses who typically process lest the ten customer orders per week. Since the volume of transactions is so low, the business owner is able to spend a few minutes manually calling a toll free number in order to process the payments. This can be a great option for businesses who are just starting out, especially if you need a payment processing solution, but you do not need the full service package that are offered by more expensive merchant accounts. This solution is the cheapest—typically costing the business a fixed rate for each credit card transaction.

The next step up is a virtual terminal, which was designed especially for online based businesses, which employ an online shopping cart on their website. This type of account is more expensive then the call in option, usually costing between one and two hundred dollars per month, plus a small fee for each transaction.

Last is a swipe terminal, these are seen in convenient stores and they are similar to automated teller machines. This enables the owner of a brinks and mortar business to accept credit cards. Because you will need to buy or lease the equipment, this is the most expensive credit card processing solution. In addition to the cost of the equipment, there is often a monthly base rate fee and a per transaction fee.

Now that you know the basic process of a credit card transaction, and what solutions exist, you will be in a better position to choose the small business credit card processing solution that fits your needs.