What is Business Credit Card Processing?

Carol Francois

Business credit card processing is a multi-step business process that requires cooperation between the business and the credit card processing firm. Credit cards are a form of payment that allows the user to delay payment, based on the amount of credit extended by the financial institution or retail store. Businesses that allow customers to pay by credit card can increase their customer base and expand their services to the Internet.

A cashier swiping a credit card.
A cashier swiping a credit card.

When credit cards were first introduced, they were an extension of store credit. The credit card was first introduced in the United States in the 1920s to sell gasoline, with the card limited to a specific gas company. Large retail companies initially offered their own credit cards to customers to increase their market share and provide a benefit to their customers. In 1950, the Diners Club® card was invented, allowing customers to use a general purpose card that would be accepted at multiple suppliers.

In order to accept a credit card, a merchant must first subscribe to a business credit card processing firm or network.
In order to accept a credit card, a merchant must first subscribe to a business credit card processing firm or network.

It is worth noting that credit card acceptance is quite widespread in the United States, England, and Canada, but has a much lower acceptance rate in other countries. This is a combination of culture and banking practices. For example, Japan remains a cash driven society, with a significantly lower rate of credit card usage than other comparable nations. The level of acceptance of credit cards as a payment method has a definite economic impact, as consumers are limited to spending the cash on hand and not making purchases based on future income expectations.

In order to accept a credit card, the merchant must first subscribe to a business credit card processing firm or network. There are a range of networks available, with Visa® and Mastercard® being the most widely recognized. The merchant is issued a specific merchant identification number and is provided with a business credit card processing account and the equipment required to swipe the credit cards magnetic strip as part of the payment process. The merchant typically pays for this service based on usage, with service fees based on a percentage of sales processed via the credit card network.

At the point of sale, the cashier enters the sales information into the cash register, arriving at the total cost of the sale. The customer provides his or her credit card as the form of payment. The cashier swipes the card, and the card number, total amount, and merchant identification number are submitted to the business credit card processing firm. The service submits the information to the credit card holding company, which then checks the available balance on the credit card and either approves or denies the transaction. If the transaction is approved, an authorization number is sent back electronically to the merchant. The customer signs the receipt and the sale is finished.

In order to receive the actual cash for these transactions, the merchant is required to submit a summary of the day’s transactions in a batch to the credit card processing firm. The credit card processing firm then provides a credit in the merchant's bank account for the total amount of sales, less the processing fees. There is usually a two- to three-day delay between the processing of the transaction and the receipt of the credit in the company’s bank account.

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