Which Credit Cards Should Your Small Business Accept?

Dear Your Business Credit,

I am planning to open a new restaurant. I've noticed that some businesses accept a variety of credit cards, while others will accept just one or two, usually Visa and MasterCard. Does it cost a lot more to accept a variety of cards than it does if you limit customers to just one or two?

- Steve

Dear Steve,

It's smart to carefully think through decisions like this as you launch your restaurant.

Many of us have found ourselves in situations where we forgot to make an ATM withdrawal, had only one credit card in our wallet and discovered that a store or restaurant we planned to patronize did not accept that card. The only choice in those situations, if there's no ATM nearby, is to go elsewhere.

Offering a full range of credit cards will prevent that from happening to customers at your restaurant. Generally speaking, the more options for payment you offer your clientele, the easier it will be to make sales, says Tim Peter, a consultant in Long Valley, N.J., who helps customers in the retail, hospitality and restaurant industries drive sales.

"If they want to use American Express because they want the rewards points, you'll have a better chance of making a sale," says Peter, who previously ran 27 websites for the hotel chain Wyndham Worldwide.

That said, there are fees to consider. Typically, when you open a merchant account that enables you to accept credit cards, you'll have the option of accepting a full range of cards through that account, says Seth Broman, vice president of business development at Merchant Cash and Capital in New York City, which provides working capital to small businesses. There are different types of merchant account fees. Usually, you'll pay a setup fee, as well as a monthly account fee and, in some cases, an annual fee.

Those fees don't increase if, say, you opt to offer three types of cards instead of two. "For the most part, when you apply to open a merchant services account, you'll automatically be able to process Visa, MasterCard and, mostly, Discover -- and to initiate a new American Express account," Broman says. "It's just one application you're going to be submitting."

Where the costs of accepting different cards varies is on transaction fees and per-item fees. Merchant Account Guide can help you compare the costs of various merchant accounts.

Typically, merchants pay card processors 1.5% to 3% of each credit card transaction, according to Consumer Action, a consumer advocacy group. Besides these "interchange fees," you may also have to pay a per item fee to the processor. Currently, the range of such fees listed on MerchantAccountGuide.com is 14 cents to 25 cents per transaction. If you also want to accept debit cards -- which is a good idea given how widely they are used -- interchange fees are capped at 21 cents, plus .05% of the transaction value and a one-cent fraud-prevention adjustment.

The type of cards your customers use may raise your fees. For instance, you might get charged a higher fee if a customer uses a premium card or one that offers rewards points, notes Peter. Once you agree to accept a particular type of card, such as a Visa card, you have to accept all kinds of Visa cards. You can't cherry-pick the ones with the lowest fees, according to Peter.

American Express cards work differently from MasterCard and Visa. AmEx offers both a monthly flat-fee plan -- where you can opt to pay a set fee instead of a percentage of each transaction -- as well as a plan where you pay a percentage of each transaction. In the latter case, the percentage depends on your type of business. If you run a full-service restaurant with annual revenues up to $5 million, for example, you could pay fees as low as 2.9% of each transaction, plus 5 cents on top of that. The top fee for a full-service restaurant is 3.5%, plus an extra 5 cents per transaction.

Generally speaking, says Peter, "The fees on American Express are higher." This is because American Express cards are viewed as premium cards, offered to high-end consumers, he explains. "If you're a small retailer operating on very low margins, over the course of a year, the cost could really add up," he says.

As of Jan. 27 it is possible in many states for merchants to explicitly pass along swipe fees to customers. However, doing so could discourage customers from coming to your restaurant. If you do opt to pass along fees, you must post a sign at the entrance and the checkout terminal, and include a notice on customers' receipts. And you can't add a surcharge that is greater than what you actually pay for swiping the cards.