Someone, somewhere, once said cash is king, but tell that to the millions of wallets empty of anything other than plastic. Being able to accept credit cards is more than just a convenience to potential customers – it helps to mark your business as legitimate.

You will have to manage two or three basic questions to accept credit cards without a headache. First – what kind of merchant account should I use? Second – what kind of credit card processing equipment should I use? And, third – what kind of software should I use for Internet transactions?

Your business may be completely online, with no storefront to speak of. If so, you probably don't need a credit card reader. Similarly, if you don't sell anything online, you probably don't need to worry about whether your shopping cart software will mesh with your merchant account.

But your choice of merchant account itself is critical. Larger banks can be reluctant to offer merchant accounts to smaller home-based businesses. Often, you need to go through a third-party service provider. There are benefits to having a merchant account with a bank – the set-up fees are a little higher, but the credit card transaction costs are lower.

If you're a newer business, however, a third-party merchant account – like those offered by Sage – might do the trick. Credit card processing companies will often set up a merchant account for you for a small fee, as long as you use their equipment and network to handle payments.

Merchant accounts

The technical, financial term for what we generally think of as a checking account is a demand deposit account. That’s a bank account from which you can make withdrawals without giving the bank any prior notice.

The merchant account is a two-way system – your credit card company can add money to it, and take money out for fees and chargebacks. To apply, expect to provide the same information you would if you walked into a bank to open an account – proof of identity, tax ID numbers, financial statements, and the like.

Credit card processing companies make money by charging a fee per transaction for handling credit card payments. Often, the fee is a small figure – say $0.10 to $0.30 per transaction – plus a percentage of the transaction. The percentages can range from 2.25 to 3 percent for home and small businesses. If a company is charging more than that, you should make sure it can justify the price with some kind of measurable, superior service ... or check your credit rating. Processing companies will charge higher fees to businesses with poor credit or those working in fields with high financial risks.

A dime a transaction may not sound like much, but for companies operating on razor-thin margins, a few pennies can make a difference. Gas stations, for example, often make less than a dime in profit for every $3 gallon of gas sold.

A retail point of sale terminal – the thing customers swipe their cards through – can cost from $35 to $250 or more. It needs to be able to connect to the Internet or to a phone line, although some versions have a wireless system for transmitting information. Try not to lease equipment if you can – lease terms are often costly, long-term contracts.

Software for processing credit cards online ranges in cost from free to hundreds of dollars. The most important thing for you is for that software to be compatible with the merchant account you use. Free may look good at first, but there's value in using a software vendor and a merchant account with broad compatibility, in case you find that you want to switch services later.

Word of warning – do not process credit card data through a computer without maintaining a good, up-to-date firewall with antivirus and antispyware programs! Your customers will thank you when the hackers hit the next guy instead.

Credit card processors will require you to maintain the Payment Card Industry Data Security Standard – to be PCI-compliant. That means that your computers, phone lines, and credit card processing equipment need to be secure. The details can be found on http://www.pcicomplianceguide.org. Every company taking credit cards needs to be up to speed, but the requirements become more stringent depending on how many payments a company processes every year.