If you own a business, it's absolutely essential that you accept credit card payments. The truth is that cash isn't king any longer. Most people don't even carry cash anymore. Instead, they carry plastic. And they expect companies to accept it.

To get your company setup to accept credit card payments, you need to find a merchant account provider to open a account with. At first glance, you might think all payment processing companies are the same. They aren't.

Not only do the rates the companies charge vary greatly from one company to the next, but so too does the quality of service you get.

Above all else, you need to make sure the merchant provider you choose is experienced and knowledgeable. You don't want to choose some new, inexperienced company that doesn't have a track record of providing great payment processing solutions for businesses.

The company you choose should have the specialized knowledge that allows them to create a customized package for your business. Remember, payment processing isn't a one-size-fits-all deal. What works for one business might not work for another.

That's why it's so important to make sure that the company you choose takes the time to truly get to know your business. They should understand what your needs are so they can match with the right pricing plan for the best possible results.

Of course, price does matter. Your business can't afford to overspend for payment processing each month.

When choosing a merchant provider, check the rates. Compare the rates from various companies to make sure you're getting the best possible rate. Choose a company that offers guaranteed low rates, so you know for sure you're getting a good rate.

You also need to pay attention to other fees. A lot of credit card processing companies will show a low rate up front, but they'll bombard you with a range of hidden fees, driving the total rate way up. Make sure you're not spending a bunch on application fees, setup fees, and cancellation fees.

That's why it's so important to read the fine print in your agreement before you sign it. You want to make sure you know exactly what your rates are, and you also want to be sure that you're not getting roped into a long-term contract that penalizes you heavily if you break it later on.

Don't ever rush into an agreement with a payment processing company. You want to be absolutely certain that you choose a service provider that offers great service at the best possible prices.

Starting businesses, especially when they are new players on the market should do their utmost to satisfy customers. One of the means to enhance customer satisfaction is introducing small business credit card processing.

There are many advantages of introducing new business debit card processing. First of all, it gives customers one more payment option what, believe it or not, increases satisfaction level. The truth is that customers, especially in the US are used to using debit cards for all sort of shopping and they get frustrated if they are devoid of this option.

Small business credit card processing is also a good way of enhancing company's reputation. Businesses that implement new technologies are perceived as more innovative and professional. If a company decides to implement mobile or wireless credit card processing it can be even more impressive. Apart from creating a good impression it can be also very useful and create competitive advantage.

Let's imagine a small business, for example a local Italian restaurant that offers a wide variety of pizzas. As it delivers pizzas for free, a fair share of its income is generated by take away food. For this Italian restaurant an introduction of small business credit card processing can encourage more customers. The idea of delivery orders is to stay at home. If customers are forced to go out and look for an ATM machine they can as well dine out. Thanks to the over-mentioned solution they do not have to go out so they are more likely to make a purchase in this particular Italian restaurant. In this case, small business credit card processing won a new group of customers for the restaurant.

This is only one of many examples how small business debit processing can increase customer satisfaction level and help in targeting new audiences.

Another important thing about debit card payments is the safety of transactions. It is impossible to completely eliminate the risk of fraud connected with credit card usage but it can be reduced especially if the company chooses a cell phone solution. Small business credit card processing conducted with a use of a mobile phone is a safe option in a sense that the whole process is done without writing down debit card details. Again, small companies that offer safe payment solutions are much better perceived and are more likely to be selected by customers.

Taking all these advantages into account it is possible to say that small business credit card processing is a beneficial solution and can be a source of additional income, enhanced reputation and increased customer satisfaction level. That is why small companies should consider it if they want to grow their businesses and successfully face their competitors.

There are pros and cons to accepting credit card payments. credit cards image by Aleksandr Lobanov from Fotolia.com

Business owners are faced with the decision of whether to accept credit cards for purchases. There are several pros associated with taking credit cards, including a increase in sales and the ability to meet the expectations of customers. There are also some cons, including some additional expense and being susceptible to credit card fraud.

Increased Sales

A benefit of accepting credit cards is that customers may make larger purchases. Since customers aren't required to have the cash at the time of purchase, they may be more inclined to buy something that they might not otherwise consider. Credit cards give them the option of paying for the item over time if they can't pay the balance when the bill is due.

More Marketing Options

Credit cards are not only an advantage but a virtual necessity if you plan on doing business online or over the telephone. Depending on the product or service you are selling, you might be able to conduct your business completely online without the need to set up a traditional store front --- but only if you accept credit cards. Customers can view the product online, make the purchasing decision and complete the transaction by using their credit card.

Meeting Expectations

Another advantage to accepting credit cards is that you'll be meeting the expectations of your customers. Unless they're in a very small store or business, many customers plan to make a purchase with their credit card and will expect that you will be able to accept it. This saves customers the frustration of having to track down an ATM or other payment source on short notice.

More Hassles and Less Freedom

A drawback to accepting credit cards is that the process requires additional bookkeeping and processing steps. Independent-minded business owners may not like the idea of having to follow the rules and processes of a large credit card carrier.

Additional Expenses

Another disadvantage to accepting credit cards is that it results in additional expenses. There are costs associated with acquiring and installing the necessary equipment, and the credit card companies charge a small fee for each transaction. Businesses who process a large amount of smaller sales may find the costs prohibitive.

Fraud

Accepting credit cards carries the risk of fraudulent activities. You can't always tell if the user is the actual owner or the card or someone who has obtained it illegally. When dealing with telephone or Internet transactions, the possibility of fraud is even greater.

Many customers now rely on credit and debit cards for common purchases. Stockbyte/Stockbyte/Getty Images

Because many customers prefer to use credit or debit cards instead of cash, merchants can benefit from a merchant account that allows the processing of credit and debit payments. Credit card processors often meet this need, but with services that can include a barrage of fees, contract requirements and processing considerations. To ensure the best arrangement, merchants should prepare to navigate complex merchant account agreements.

What Are Your Fees?

Credit card merchant accounts often come with myriad fees and charges that can include both monthly and per-transaction costs. Monthly costs -- like access fees, gateway fees and statement fees -- vary considerably from one provider to the next, and some providers may charge high fees while others charge none at all. Some providers also allow merchants to avoid a monthly statement fee by retrieving statements online, but others may charge for online retrieval. In addition, many credit card processors charge a fee on each transaction, though the structure of this fee can vary. Some providers charge a fixed rate per transaction, others charge a percentage of the transaction amount, and some charge both a fixed and percentage fee. Credit card processing agencies typically disclose fees on their websites or in merchant literature, but according to the financial organization Intuit.com, some processors do not publish complete rate charts.

What Cards Can I Accept?

A merchant's expectations may vary considerable when signing up to process credit cards. According to the merchant information website MerchantSeek.com, most processors handle Mastercard and Visa transactions, and many also allow merchants to accept Discover and American Express. Some processors also handle more esoteric credit cards like JCB and Diner's Club, and a few processors allow merchants to issue and accept their own gift cards and private label payment instruments. MerchantSeek.com cautions merchants, though, that many overseas processors cannot handle domestic cards like American Express and Discover, so business owners should thoroughly investigate a foreign provider.

Do You Require a Contract?

According to the business organization MerchantCouncil.com, some credit card processors require contracts that make it difficult for merchants to cancel services without incurring large fees. MerchantCouncil.com encourages merchants to work with processors that do not require contracts. If a contract seems unavoidable, merchants should review the provisions to become familiar with cancellation fees and escape clauses.

Do You Support Web Payments?

A merchant who accepts payments online or over the phone may benefit from a virtual, web-based credit card terminal. These terminals can offer easy accessibility and lower equipment costs. According to MerchantSeek.com, some processors do not offer virtual terminals; in addition, some processors do not support processing through online e-commerce shopping carts. For this reason, business owners should ask about the availability of electronic payments before setting up a processing agreement.

The credit card industry is a multibillion dollar business that has grown even in tough economic times thanks in part to the use of debit checking cards with credit capabilities. Entrepreneurs looking to join the industry can set up a credit card processing business with just a little preparation.

Difficulty: Moderate

Instructions

1)Contact your local Small Business Bureau or chamber of commerce to obtain information about becoming an LLC or other corporation, then register as an official business to ensure you are protected on a personal level.

2)Contact several banks in your area, explain that you would like to set up a credit card processing business and ask if they offer any type of "reseller" program. These programs allow companies to package the banks' processing services as their own while paying fees back to the bank. In order to run a processing service, a bank must be involved. Tell the banks you want to act as an "authorized agent" for their processing services under your company's own brand.

3)Provide the banks with a full business plan, which includes the type of businesses you plan to target along with any finances you have available at your disposal. Also include any high risk areas you plan to avoid, such as "adult entertainment" venues and some types of online vendors, as they tend to lead to fraud and therefore incur losses over the long run.

4)Choose the bank with which you will work.

5)Contact a terminal processing company to find terminals that you can buy and stock at your location. Verifone is the No. 1 choice for most processors due to its strong track record; however, you will need to verify with your partnering bank which terminals will work with their systems. You then have the option to sell the devices outright or lease them via a leasing agency.

6)Contact a leasing agency to find a partner that is willing to extend leasing terms for your processor leases. Leasing a $395 Verifone device for $39.99 per month over 24 months will net you much more capital than selling it for $500 upfront. Leasing agencies are typically any lease-based company willing to underwrite the terminal lease terms for a percentage of the profits. Your sponsoring bank may even offer its own services.

Tips & Warnings

Requirements for setting up a processing business can vary from bank to bank, so be sure to investigate several options and understand the guidelines the bank you choose uses.

Customers have grown accustomed to paying with credit cards, so it is a good idea for your business to accept credit card payments. This will lessen the possibility that customers who do not carry cash will be unable to purchase your product. In addition, customers paying with credit cards often spend more than those who pay with cash.

Choosing a Merchant Processing Company

Merchant processing companies handle credit card transactions, transferring funds from customer accounts into yours. Merchant processing fees can be expensive, but they are usually worth the cost because the service they provide expands your customer base. Merchant processing companies charge fees per transaction as well as percentage fees on the overall amount of your sales. If you own a business such as a coffee shop that processes many small transactions, choose a company with a low fee per transaction, even if the overall percentage that you pay is higher. If you own a business, such as a construction company, that processes a limited number of large transactions, choose a merchant services company with a low overall percentage rate, even if your fee per transaction is higher.

Processing Customer Transactions

When your customers pay you with credit cards, you must enter their credit card information into the terminal that you lease or buy from your merchant processing company. If your business handles transactions over the Internet or the phone, you must key in your customers' credit card information by hand on your terminal's keypad. If your business handles transactions from customers who are physically present, they will hand you their cards for you to swipe into your machine. The machine will then prompt you to enter additional information, such as the amount of the sale. Most credit card terminals will then print a receipt for the customer to sign, although this is not strictly necessary for small transactions.

Procedures for Tracking Credit Card Transactions

If you own a retail store, your cash register will have a key that tracks credit card transactions, along with a separate key for cash sales and another one for checks. At the end of the day when you close each batch of credit card sales, or prompt your terminal to send the day's transactions to the bank, check to make sure that your batch total matches the total on your register tape. If there is a discrepancy between these figures, identify the source of the error by reviewing your credit card transaction receipts.

Procedures for Saving Credit Card Paperwork

Save all of your copies of customer credit card receipts, as well as batch totals. Organize receipts by day, week or month, depending on the volume of credit card transactions that you handle. Keep these receipts in a safe place because they contain customer credit card numbers.

Bank Accounts

To use an online credit card processor, you will need to open two accounts. One will be your merchant account for your business and the other will be a checking account from your bank. After the transaction has finished processing, the money will be placed into your merchant account.

Payment Gateway

When customers visit your website, they will add the product to the shopping cart and checkout. The customers will then walk through the process of adding their mailing address and credit card information to complete their online shopping. The orders will be sent to the payment gateway to be processed. The transactions will be forwarded to the banks that issued the credit cards and they will verify the credit card and information that was provided on the order forms.

Verification

As the customers wait on the shopping website, the banks will make deposits into your business account, and inform the shoppers that their order was accepted. Some websites will display a tracking or order number that buyers will use to check on their orders. If the bank sends back information that the card has been declined, the website will notify the buyers that there is a problem with their card or the information that was provided.

Credit Card Processing Fees

Websites such as PayPal and Google Checkout offer a free and easy way to add a shopping cart and payment processing without the use of banks and merchant accounts. One reason to use these accounts is due to the fact that credit card processors charges fees to use their system. You will need to contact each processor because the fees will differ depending on the company. Some of the fees that you may need to pay include a onetime charge when you open the account and another charge for each transaction.

Many simple methods exist to process credit card transactions three credit cards image by Aleksandr Ugorenkov from Fotolia.com

Small businesses cannot always afford the most modern conveniences. Furthermore, credit card processing can be very complex. You have to apply and be approved for a merchant account. Processing equipment must be purchased or leased. Additional criteria exist if you want to accept all major credit cards. Once you process cards, some companies require that you process a minimum monthly amount or you are assessed a fee. Third parties have facilitated credit card processing.

Epay solutions

Online companies transfer money between individuals that have accounts with them. They are called electronic pay, or epay, companies. One requirement to open an account with epay companies is an email address. The customer opens an account and you email an invoice or money request. The invoice or money request is paid by credit card. Processing is done by the epay company and the funds are deposited into your account. The financial information of the customer is never disclosed. You are charged a fee if your account is categorized as a business account instead of a personal account. All credit cards are accepted by epay companies and no premium is charged to accept payment from a particular credit card.

Search Engine

Certain search engines have commerce solutions. Opening an account through their sales engine allows you to accept credit card payments. Processing of the credit card is done by the search engine. Funds are deposited directly into your bank account. No special information is required to sign up for a sales account and you can sell anything. The customer does not have to sign up for a membership. The credit card information of the customer is never displayed. Payments are tracked. You can offer refunds. All credit cards are accepted with this payment method.

Money Wires/Money Orders

If a consumer is not interested in making a purchase using a credit card, they can be invoiced or billed for the total amount and send you a money wire or money order to pay. You pick up the funds at a local branch with valid identification or receive the money order at your business address. Sending a wire is an additional cost absorbed by the customer. Educate your customer on the cost. If sending a money order, notify your customer that goods will not be shipped until their money order clears.

How to Avoid Paying Too Much

The merchant service industry is a very tricky business and to be honest, it is almost designed to fool you. This is why most merchant account providers will attempt to lock you into a 3 yr. contract. They want to hide those fees and once you signed on they will milk you dry until they find the next victim. First thing is to find a reputable company that does not have a contract or set up fees. Remember quotes are pretty worthless unless it's the paperwork you are actually signing on and then you must read it very carefully. If a company truly has no contract it should be advertised on their website, if not proceed with extreme caution. If you have never seen a credit card processing statement you are in for a real treat. It is not like your electricity bill where everything is fairly straight forward. There can be much information that is hidden to make it look like you are paying very little when in fact you are doing the opposite.

The Right Solution For You

There are many different solutions one can use to process credit cards. The most common are point of sale credit card terminals, E-Commerce (website), phone orders (keying in the numbers), mobile credit card processing. You want to asses where most of your business comes from to set up your merchant account correctly. In other words are most transactions going to be swiped or keyed in. Another point is even if most will be swiped but your per transaction amounts over the phone will be larger you may want to be set up for keyed in credit card processing. The reason is: if you are truly taking most of your monies from keyed in but you are set up to be a swipe account you will end up paying higher fees.

Mobile Merchant Services

New technology has allowed companies to accept credit cards on-the-go more affordable then ever before. There are applications that can be downloaded to your smartphone that will turn it into a wireless CC machine.This application works fine for smaller businesses but for someone who needs receipts printed and has a large volume of customers a mobile credit card machine would be the best solution. Many companies have high wireless monthly fees so best to do your homework to compare them. Remember there is a provider that is right for you and can provide great pricing.

You face various questions when you start looking for a credit card processing service such as Will the service really help my business?, How much will it cost?, Can I rely on them?, Are they trustworthy?, etc. The internet is a good source for searching out credit card processors. But how do you decide which processing service will best fit your business needs?

Here is a breakdown of the key deciding factors in selecting a credit card processing service for your business:

Credit card processing fees

The fee charged is naturally a critical consideration. You want a service that is affordable and well worth its cost. The types of fees charged by processors vary but the most common are explained below:

Startup fee: Many firms do not charge this fee. For those that do, the fee is around $250. This is a "one time" fee.

Gateway fee: If you have an e-commerce website, you will need a payment gateway to accept credit or debit card payments. The gateway fee is charged monthly and ranges from $10-$50.

Statement fee: Some card processors charge a statement fee that ranges from $9-$10 per month.

Monthly minimum fee: A monthly minimum fee ranging from $20 to $30 is charged to ensure minimum earnings from their clients.

Transaction fees: This fee is charged by all service providers. A fixed amount that varies from 24 cents to 35 cents is charged per transaction. In addition, the service also charges a per transaction percentage that averages around 2.14%-2.40%.

Address verification fees: Address verification is an additional security measure against credit card fraud. Some credit card processing services charge a fee for each address verified. This can cost your business 5-10 cents per address. Desirable features in a credit card processing service

The next step is to find out whether the service provider serves all your business requirements. Match your needs with the solutions provided by the service.

Type of credit cards accepted

You need to verify the most common credit and debit cards used by your customers or the card types you would like to accept. Then, check if the card processor accepts them. The most common are Visa, MasterCard, Discover, and American Express.

Types of services

A credit or debit processing service should offer all the services needed to manage card payments in stores or e-commerce websites. Find out if the service offers:

merchant account

virtual terminal

e-check services

point-of-sale (POS) terminals

shopping cart

recurring billing

reasonable payment clearing period Credit card processing security features

Credit and debit card transactions are vulnerable to fraud and thefts. Card processor should provide basic security features such as:

fraud protection

CVV2 checking

real time processing

address verification

SSL and encryption Customer support services

What makes credit and debit card processing services dependable? A very low error rate and easily accessible customer service. They should be able to render help when you need it without losing time. Some features that should be part of the processor's offer are:

customer support numbers, email, fax, and work times (24x7 is always preferable)

guaranteed response times

toll-free telephone number

live online chat, if needed Businesses should weigh costs and services before finalizing a credit card processing service. The deal should not only fit your business financially but also meet all your requirements.

Installing the credit card machine is easier than most people think. The machine is hooked up to a phone line and can be used as a credit card machine for purchases or as a way for people to receive money like from an ATM machine. The convenience is for the customers, but allows the businesses to do business in more ways than just with cash transactions.

Difficulty: Easy

Instructions

Things You'll Need

Phone line

Credit card machine

Printer paper

Electrical power

How to Install a Credit Card Machine

1)Setting up the credit card machine will require a phone line. This can be a dedicated line or work off a current phone line. If the credit card machine works off a business line, it will tie up the phone line up while the transaction is going through. Plug the power cord into a standard electrical receptacle.

2)Insert paper roll in the back of the credit card machine and thread into the machine. Hold down the paper feed button until the paper appears. It is very important to use the paper that the credit card machine requires. The transaction is printed with a laser instead of ink.

3)Set up the credit card machine with the bank. Call the bank and set up the account according to their directions. It is important to follow all the steps that they give. This will ensure that the machine is set to the owner of the business. A pin number will be given to enter after everything is complete.

4)Enter the pin number and a screen will display that the pin number has been accepted. The credit card machine will then be ready for operation.

5)Test the machine with a private debit or credit card. This only has to be a small amount. The credit card machine should take the card number and ask for the last four digits of the card number as conformation. Enter the amount of the transaction and press enter. If the transaction is approved a slip will print out for the credit card holders signature. Then it will ask if a receipt is needed. If everything goes smoothly, the credit card machine is correctly set up.

Tips & Warnings

Make sure the phone line is open to finalize the transaction if using a shared phone connection.

If problems arise with the machine, call the bank immediately to correct the problem.

The Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is set to cap debit interchange fees on October 1, 2011 leading to lower debit processing costs for businesses.

However, many merchants won't see the savings that result from the capped debit charges. Instead, their credit card processor will rake in the dough.

Every blogger and journalist that knows just enough about the Durbin Amendment to be dangerous is preaching to their readers about the windfall of savings coming October 1st as a result of the Durbin Amendment.

Unfortunately, these authors are going to have a lot of explaining to do on October 2nd when their followers don't see a decrease in their debit card processing fees.

This unintended outcome is the result of a major oversight by the Fed when drafting the Durbin Amendment. You see, interchange is the fee that banks charge businesses when they accept a debit card issued by the bank.

So, the Feds thought capping the debit card interchange fee that banks are able to charge would lead to lower processing costs for merchants. It sounds like a logical conclusion, but the Feds failed to consider who's actually paying interchange fees.

The majority of businesses in the United States don't pay interchange fees directly to the banks that issue credit and debit cards. Instead, businesses pay a fee to credit card processors and processors essentially pay interchange to the banks (via acquiring banks).

So, the debit card fee cap imposed by Durbin will actually benefit credit card processors more than business since processors are the ones that actually pay issuing banks. Ultimately, processors will pay a lower debit fee to banks, but they are still free to continue charging businesses at pre-Durbin rates and fees.

The pricing model that allows processors to game the system is called tiered or bundled pricing. Tiered pricing allows processors to sit between businesses and interchange fees, and it allows the processor to manipulate interchange rates before they reach merchants.

Businesses that pay processing fees via a tiered or bundled pricing model will likely not see a decrease in fees as a result of Durbin.

The only businesses that will see a cost decrease as a result of the Durbin Amendment are those that pay credit card processing fees under an interchange pass through pricing model. Unlike bundled pricing, pass through functions in such a way that processors are not able to manipulate interchange charges. As the name implies, under a pass through pricing model interchange fees are passed directly to businesses and the processors charges are kept separate.

If your businesses doesn't currently pay credit card processing fees via an interchange pass through pricing model, it's time to find a new processor. Not only will your business realize the savings as a result of the Durbin Amendment, processing costs on the whole will decrease dramatically.

The moment you allow your business to start accepting credit cards as a form of payment is the moment you open up a new world of payment possibilities. Giving your customers more ways to pay for the goods and services you offer means creating for yourself more revenue-earning potential.

The reason for this is that, whether your company focuses on business-to-consumer (B2C) or business-to-business (B2B) sales, credit cards are the de facto standard for the way that many customers make purchases.

Credit cards present businesses with the opportunity to take advantage of "float" - meaning that they can enjoy the benefits of a good or service right away but not have to pay interest on it for up to 30 days. On the other hand, many individual consumers prefer using credit cards to make purchases via their cards in order to rack up special rewards such as shopping or mileage points.

Many business owners are wary of contracting with a merchant services company to set up credit card processing because they are concerned about having to pay a portion of each transaction to that company (which is true - they will). But, not getting a credit card machine due to the fact that you have to pay fees is an example of being penny wise and pound foolish. That is because, despite the fees, companies that accept credit cards are able to make more sales than they would otherwise - plain and simple.

If you would like to find the right credit card machine for your small business, here are 5 tips that can help you choose wisely:

1. Should I care if my current machine is getting old?

If you already have a credit card machine, you may be thinking that your old machine will suffice. This may be true, but maybe not. For example, if the magnetic strip reader on your machine is less sensitive than it used to be, you may end up having to manually key in some of your transactions. This could be costing you money. Also, some of the older terminals may not be able to process debit card transactions.

2. Can my Point of Sales (POS) system act as a card reader?

Some payment processing services merchants may be able to integrate your existing point of service (POS) terminal with their payment processing gateway, since many POS systems do have built-in card readers. Check with your POS provider to find out for sure.

3. What are the main types of credit card terminals?

If you believe you need to buy your own terminal, consider one of the three main types of terminals: traditional, wireless, and virtual. Traditional terminals are the kind you have seen and used at other merchants for years. Wireless terminals are very similar to these, but they of course allow full mobility - meaning you could process transactions in your car. And, virtual terminals allow you to skip the machine altogether, processing transactions instead through software on your computer.

4. Do I need a wireless terminal?

Most people need a traditional terminal - or a virtual one if you will not be physically handling cards. But, in some cases you may instead need a wireless terminal.

Wireless terminals offer strong advantages for people always on the move (e.g., taxi drivers), seasonal businesses (e.g., Christmas tree sales). All of them have built-in printers for easier processing of receipts.

5. What about debit cards?

Some machines allow you to process debit cards, some don't. Remember that debit cards are an increasingly-important payment method for millions of people. To be able to process debit cards, your machine has to provide a keypad for processing customers' personal identification number (PIN).

Consider these answers to 5 frequently-asked-questions (FAQs) about choosing the right credit card machine for small business.

According to Merchant Council, most business owners have to pay an additional fee for each completed credit card transaction. As this can become costly over time, some merchants are choosing to pass the fee on to their customers.

History

Prior to 1984, the Truth in Lending Act passed a law that prohibited additional surcharges from companies to credit card holders. After 1984, that ban expired and no new legislation was passed. This allows merchants to charge an additional fee equal to their "discount" or processing fee charged by the bank for each completed credit card transaction. According to Financial Guide, merchants pay an average discount or processing fee of 1.5 percent to 5 percent of the total purchase amount. The fee also can be as high as 8 percent to 10 percent of the total amount.

Function

The discount or processing fee charged to merchants is what they pay to service providers to process credit card transactions. Fees and rates vary by provider. However, the processing fee is standard with any merchant account. Small businesses that lack credit card volume can lose money paying merchant fees, so they may incorporate a convenience charge to their customers who pay with credit cards.

Considerations

While it is legal for merchants to pass a credit card processing fee on to their customers, they cannot do the same for cash or personal check purchases. In fact, many merchants offer consumers a discount when paying in cash.