Credit Card Processing for Restaurants: A Complete Guide

As a restaurant owner, you understand the importance of accepting credit cards. In today's digital age, most customers prefer convenient and easy payment methods, and credit cards are one of the most popular choices. This article will provide some insight into accepting credit cards at your restaurant.

Understanding Restaurant Credit Card Processing

How does a credit card interacting with your restaurant POS system turn into a payment in your bank account? Let's lift the curtain and take a peek behind the scenes.

How Are Credit Card Transactions Processed?

Each step of the credit card transaction process is crucial in ensuring seamless payments for your restaurant. While it may seem like a mystery, it’s actually a straightforward process. Here are the three major steps:

Step 1: Authorization

When your customer uses their credit card, the first step begins. The card details are swiped, inserted, tapped, or entered into the system, and the payment processor relays this information to the cardholder's issuing bank for authorization. The bank evaluates the transaction, checking for sufficient funds and potential fraud red flags, before sending a response back to the processor.

Step 2: Clearing

If the transaction receives the green light from the cardholder's bank, the payment processor forwards this validated transaction to the relevant card network, such as Visa or Mastercard. The credit card network then communicates with the restaurant's acquiring bank to finalize the transfer of funds.

Step 3: Settlement

Finally, the settlement process takes center stage. The funds from the approved transaction eventually reach your restaurant's bank account, typically within one or two business days. This marks the completion of the credit card transaction.

How to Reduce Credit Card Processing Fees for Restaurants

Before you start sweating over credit card processing fees, know there are strategies to trim down these costs. When you choose a company that provides both the POS system and payment processing, you can achieve a lower total cost since there is often cost-savings associated with consolidating vendors.

Implement Cost-Saving Measures

There are options available on many POS systems to help offset your business expenses. Typically, a standard pricing model will show one transaction total on the POS system or receipt, regardless of the payment method. As a result, your restaurant pays the credit card processing fee out of pocket.

However, there are several methods that you can use to reduce your costs:

• Dual Pricing: Using the “dual pricing” model, you can display both a cash price and a non-cash price on the receipt. The cash price can be discounted, meaning the non-cash price can be higher to help offset your expenses.
• Supplemental Fees with Discount: The “supplemental fee” method charges a fee to all transactions, regardless of how the customer pays. Think of service fees, delivery fees, etc. However, you also have the option to discount any transaction of the supplemental fee as you see fit. It’s important to note that this is not a surcharge.
• Cash Discount: The “cash discount” method means offering a discounted price for cash transactions instead of card transactions. However, the stipulation is that you must display the non-cash price as well as the cash price. This ensures that you stay compliant with Card Association regulations.

Typically, the Dual Pricing model is the most common and compliant. If you do decide to implement one of these methods, then you’ll need a POS provider that supports these options. SkyTab’s Advantage Program supports all three of these cost-saving methods.

Monitor Chargeback Rates

Keeping track of your chargeback rates can help identify patterns and areas for improvement. High chargeback rates can lead to additional costs and fees, so it's crucial to analyze the reasons behind chargebacks and take steps to reduce them.

You should also educate staff on fraud prevention and chargeback management; this can help reduce costs associated with chargebacks and declined transactions. Ensure staff understands how to spot fraudulent transactions and respond to chargeback requests.

Closing the Tab on Restaurant Credit Card Processing Fees

If you want your restaurant to accept credit card payments, then their associated fees are unavoidable and simply a cost of doing business. However, understanding and managing these fees can help reduce costs and improve profitability.

As a restaurant owner, it's essential to always look for ways to improve your restaurant operations — and that includes regularly reviewing costs and fees. Choosing the right payment processor, implementing cost-saving measures, and monitoring transactions can all help reduce processing fees.

Disclaimer: This content is provided solely for informational purposes and is not intended to serve as accounting, tax, legal, or other professional advice. You are solely responsible for your own compliance with laws and regulations. You should contact your accountant, attorney, or other relevant advisors for advice specific to your circumstances.