Any time you accept credit card transactions for your business, you’ll be responsible for processing fees. Since credit cards are the most preferred payment method for clients, learn what you can expect from credit card processing fees.
For most small businesses, accepting credit cards is an essential part of doing business. Though many business owners may try to avoid them, credit card transactions incur fees whether you provide services in person or are completely online.
That’s why it’s important to understand what credit card processing fees are, how they work, and some tips for lowering your fee costs when possible.
- How does payment processing work?
- Credit card processing fees
- Reducing the costs of accepting payments
- Payment processing for independent businesses
- Accept credit card payments and more on HoneyBook
How does payment processing work?
As an independent business owner, you need a secure way for your clients to pay you for the services you offer. Online payment processing using reputable and secure payment software is the fastest and safest way to get paid for your work.
There are several components involved in accepting online payments including invoices, payment gateways, credit card companies, the client’s bank, and the merchant’s bank. Another component could be the Automated Clearing House (ACH) network if an ACH transfer is being used for payment.
Credit card payment processing works in the following way:
- A client needs to pay their invoice, so it is sent by the merchant to a payment gateway.
- The client inputs their credit or debit card information and authorizes the payment.
- The payment gateway facilitates the payment from the credit card by verifying, capturing, storing, and transmitting the credit card information.
- The gateway sends an acceptance or declination message to the client.
Accepting as many payments as possible, including credit card payments, makes it easier and more convenient for clients to pay invoices. Additional options include accepting payments by bank transfers, debit card transactions, and even cash and check.
These days, 80% of clients prefer paying with a credit card, so it should be a priority for your business. With the right platform, you can track all your payments, and it takes work off your plate without having to track down checks.
Make it convenient for your clients to pay their invoices by using an all-in-one invoicing and payment processing platform like HoneyBook.
Credit card processing fees
It is important to understand the payment processing fees you are paying with every transaction and how they are calculated. That way, you can effectively manage your cash flow and reduce your expenses.
The purpose of credit card payment processing fees is to pay for the expenses of processing the payment from the client — through the banks and financial networks to your business. Fees are split and paid to the institutions that carry out the transaction:
- The interchange fee is the portion of the transaction fee that goes to the credit card issuing bank.
- The assessment fee is the portion of the fee that goes to the credit card networks, including Mastercard, American Express, Visa, and Discover.
- The gateway processor fee is the portion of the fee that goes to the payment processor for the credit card payment. This fee ranges from 1% to 4% plus $0.25 and $0.50 per successful transaction.
- Institutions can also add currency conversion fees if you accept international business.
- Payment processors or banks can charge chargeback settlement fees when a customer or client uses a card to make fraudulent purchases.
For independent business owners, credit card processing fees can vary depending on several factors. Some of these variables include the number of transactions, the type and size of the business, the accepted credit card types, and the credit card processing provider’s fee structure.
There are different types of credit card processing fees. Some processors charge a flat fee for each transaction. This type of payment might be easier for small businesses that process low volumes of transactions and frequently use this type of fee structure.
Other processors charge a percentage for each transaction. A more complicated fee structure blends a flat fee per transaction with a percentage fee. This pricing can be less expensive than flat fees for businesses with high transaction volumes.
The average credit card processing fee is between 1.5% and 3.5%. There may also be extra charges that affect the overall cost, such as monthly fees By law, surcharges are capped at 4%.
Refer to the following chart for the processing fees of some of the top payment processors.
|Payment processor||Monthly fee||Transaction fees|
|HoneyBook||$19 for Starter plan|
$39 for Essentials plan
$79 for Premium plan
|2.9% + $.25 for credit cards|
1.5% for ACH transfers
|Payline Data||$10 for online payments|
$20 for in-person payments
|Interchange plus 0.4% + $0.10 for in-person transactions + $10 per month|
Interchange plus 0.75% + $0.20 for online transactions + $20 per month
Pricing varies by card type for manually keyed transactions
|Stripe||$0 for standard|
$2 for Stripe Express
|2.7% + $0.05 for in-person transactions|
2.9% + $0.30 for online transactions
3.4% + $0.30 for keyed transactions
3.9% + $0.30 for currency conversion or international cards
|Square||$0||2.7% for swiped transactions|
3.5% + $0.15 for keyed transactions
2.9% + $0.30 for online transactions
|PayPal||$$0 for standard service|
$5 for Payments Advanced
$30 for Payments Pro
|2.29% + $0.09 for card-present or QR payments through PayPal Zettle|
2.99% + $0.49 for credit card and debit card payments
2.89% + $0.49 for online card payments through Payments Advanced or Payments Pro
3.49% + $0.49 for digital payments
|Clover||$79||2.3% to 3.5% + $0.10|
|Dharma Merchant Services||$25||Interchange plus 0.15% + $0.08 for in-person transactions|
Interchange plus 0.20% + $0.11 for online transactions
Interchange plus 0.25% + $0.08 for in-person American Express transactions
Interchange plus 0.30% + $0.11 for online American Express transactions
Reducing the costs of accepting payments
There are some strategies you may want to implement to reduce part of your credit card fee costs. You might be able to add a surcharge, which is an additional fee that your clients pay to cover the credit card processing fees. Make sure to do this only if you are located in a state where surcharges are legal, and include a disclaimer if you are legally required to do so.
It may be a good idea to shop around and examine the costs various payment processors charge. You might also be able to negotiate lower fees by proving you have a good credit history, have a large transaction volume, or have used a credit card processor for a substantial amount of time.
Here are some other ways to reduce costs when accepting payments:
- Fee negotiation: Small businesses can bargain with merchant service providers for lower costs. Businesses may be able to secure a better rate by increasing their sales volume and leveraging this increase to get a fee reduction.
- Fraud reduction: Reduce the chance of high fees by taking measures to lower your risk of chargebacks and fraud.
- Minimum transaction amounts: Small businesses can set a minimum transaction amount for credit card payments to avoid paying fees on small transactions. The minimum transaction amount can be up to $10.
Passing off processing fees to clients can give them a poor experience. Instead, shop around for the lowest transaction fees that apply to your business, then note the fees as a business expense.
With HoneyBook’s QuickBooks integration, payment fees are automatically noted as an expense.
Payment processing for independent businesses
Online payment processors make it easy for independent businesses to accept payments and for your clients to pay invoices quickly and conveniently. Accepting online payments is a way to attract clients and guarantee repeat business.
Using an all-in-one platform that combines invoicing and payment processing is another way to make invoicing and paying bills more convenient for you and your clients. You won’t have to constantly switch between sites to bill clients, communicate with them, and accept payments. Letting clients handle paying their invoices securely in one place could inspire loyalty and trust and provide clients with the best experience.
With the help of a platform like HoneyBook, you can manage all of your client interactions in one location. Sending contracts that comply with legal requirements is easy, and you’ll be notified instantly when clients sign contracts or pay invoices.
Send booking requests and proposals, or use customizable invoice templates and send clients digital invoices. Clients can conveniently use the HoneyBook platform to pay their invoices without going to another website.
Accept credit card payments and more on HoneyBook
Small businesses that accept credit card payments must cover the cost of credit card transaction fees. Independent businesses can reduce some of their costs by being aware of the different types of fees they might incur and implementing strategies to reduce them.
Online payment processing for your clients’ payments is possible through HoneyBook’s platform. On HoneyBook, you can accept multiple forms of payment, including credit cards and ACH transfers. You can mark cash and checks as paid in HoneyBook without incurring any fees, but credit cards and ACH payments are subject to transaction fees.
Compared to other payment processors, HoneyBook has some of the lowest transaction fees on the market. HoneyBook has integrated payment directly into the platform, so independent business owners are not required to look into, set up, or integrate payment processing accounts elsewhere. The HoneyBook payment platform offers benefits for independent businesses, such as automated invoice generation, adjustable payment terms, and specialized dispute support.
On the HoneyBook platform, you can:
- Use legally compliant contract templates
- Get notified when your clients sign documents
- Send proposals to clients
- Schedule bookings
- Use online invoice templates or customizable invoices
- Auto-fill your invoices with information from previous invoices
- Get notified when your clients pay invoices in real-time
- Process online payments, including ACH bank transfers
- Accept credit cards as payment from all the major credit cards
- Set up automatic payments for recurring services or retainer fees