
January 21, 2025
Having a reliable, cost-effective payment processing system is integral to running your business. Whether you’re looking for a new vendor or to better understand the intricacies of processing payments at scale, this handy guide has the answers. Learn about payment processing fees, payment authorization, and why some credit card payments take so long to process.
Payment Processing FAQs
What Is Payment Processing?
Payment processing is the sequence of events required to authorize, verify, and settle a transfer of funds from one party to another. Payments are processed across a range of publicly and privately owned networks, including those owned and operated by Visa, Discover, and others.
What Are the Different Types of Payment Processing?
Payment processing includes several transaction types that draw on funds or utilize credit from various institutions. Transactions using any of the following methods are considered payment processing.
- Credit and debit card transactions
- Cryptocurrencies
- Digital wallets
- Electronic funds transfers (EFTs)
- ACH payments
- Mobile payments
The most common transaction types are credit and debit payments, though it’s beneficial to offer customers a range of payment options.
How Does Payment Processing Work?
Across all types of electronic payments, a transaction includes the same basic steps, starting with payment authorization.
- Initiation – The payment process begins with a customer initiating a transaction in person, online, or through a mobile payment device.
- Payment gateway – The payment gateway transmits the customer’s payment information to the payment processor. The gateway encrypts the user’s data before connecting to the processor to protect sensitive information, including bank or credit account details.
- Payment authorization – Once a transaction is initiated, the payment processor validates the customer’s information and forwards the transaction details to the bank or credit institution to charge the customer.
- Verification – The issuing bank will check the customer’s account status, bank balance or credit limit, and approve or decline the transaction.
- Authorization response – Once approved, the business completes the sale.
- Settlement – Most businesses settle credit card transactions at the end of the business day. Until the transaction is settled, customers may see a “pending” transaction on their credit card account.
What Does “Payment Authorized” Mean?
Payment authorized indicates the payment processor has successfully validated the customer’s financial information and can forward the details to the bank or credit card issuer for verification. This authorization is sometimes visible on payment hardware at the point of sale (POS).
How Long Does a Credit Card Payment Take to Process?
Most credit card transactions take one to five business days to post to an account. A credit transaction is settled when the charge is switched from “pending” to “posted” in the account. The time it takes to settle a credit card transaction depends on the payment timing, the card issuer’s policy, and when the merchant settles credit charges with their processing vendor.
Do Credit Card Payments Process on Weekends?
Credit card payments are not processed on the weekends or most holidays. Payments made over the weekend or on holidays are typically batched together and processed on the next business day. Other types of payments, including ACH transfers, are similarly batched, and processed during banking hours.
What Are Transaction Fees?
Also known as payment processing fees, transaction fees are a fractional share of a transaction payment that processing companies keep for providing their services. The transaction fee varies by the type of transaction (for example, ACH transfer fees are usually much lower than credit card fees) and the payment processor’s rate.
What Is a Good Payment Processing Fee?
The average credit card processing fee is between 1.5% and 4% of the transaction total. That means a $1,000 transaction could cost a business between $15 and $40, depending on the customer’s card issuer. Rates sometimes vary depending on whether the payment was completed online or in person.
Can I Bill My Client for Payment Processing Fees?
Yes, most states allow businesses to pass on transaction fees to their customers. Some states prohibit charging customers for transaction fees, and more states require clear disclosure of the practice. Many businesses choose instead to incentivize customers to use cash or ACH instead of credit cards.
Check your state’s credit card transaction regulations to ensure you’re compliant.
Are Payment Processing Fees Tax Deductible?
Payment processing fees are generally considered a necessary, tax-deductible business expense. Businesses should deduct fees paid to credit card companies, payment processors, or banks associated with business transactions, including:
- Flat rate fees
- Markup fees
- Per-transaction fees
- Statement fees
If you aren’t sure if a particular fee qualifies, contact a trusted CPA for guidance.
Take The Guesswork Out of Payment Processing with BuyFin
BuyFin is here to answer all your consumer financing and payment processing questions. We’ve helped growing and established home service contractors take control of their income streams with cost-effective financial tools.
BuyFin is built with your organization in mind; we know your challenges, opportunities, and priorities. See what BuyFin can do for your team today. Contact us to get started.
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