As a business owner, you’ve probably wondered if there is a way to accept credit cards without fees. The short answer is no – there are costs to moving money from account to account. According to Capital One, there are an average of 1.86 billion credit card transactions globally per day. The technology to move money requires constant updating and monitoring, it needs to evolve to remain secure, and people need to oversee and support every part of the process. Credit card acceptance is a service, and like any service, you pay to use it. But your exploration shouldn’t stop there.
While there is no way to completely avoid costs associated with credit cards, there are important nuances and considerations to keep in mind before handing over your hard-earned money or turning away from credit cards entirely. If there’s no way to avoid credit card fees, you might be enticed to find the cheapest way to accept credit cards, and there are lots of promises out there of a better deal. Credit card issuers like Visa and MasterCard charge a nonnegotiable processing fee, with rates typically around 3% plus a small transaction fee. The technology partner you choose to process your transactions may tack on additional fees. Fees vary by provider, so other providers may offer at a lower rate (Project 2 Payment’s Pricing). Shopping around and reading the fine print carefully will help you understand if you’re getting the best deal for your business. Before we go too deep into pricing, a better question to ask might be, “Who pays credit card fees?”
Traditionally, the business owner pays the credit card processing fee associated with each transaction. The average cost of taking credit cards is typically calculated as overhead expenses or could be added as part of the mark-up per item. These fees are considered part of the cost of doing business as the world moves further away from cash toward digital currency.
However, there is a way to pass this fee on to your customers. It’s called surcharging or adding a surcharge to your customer’s invoice. A surcharge is a fee that a business adds on credit card transactions to help offset the cost of processing for the business owner. The customer will see a separate line item on the invoice alerting them to the fact they are being charged a surcharge fee.
Not all invoicing software tools allow for surcharging. Project 2 Payment is one of the few who can set up your business with surcharging and help walk you through the process to ensure you are in compliance laws and regulations. Before you decide to add the surcharge option, you should know the pros and cons of surcharging versus building the fees into your pricing.
PRO: Customer preference – If customers prefer to pay with credit cards, now they can, which makes the customer happy and brings more money into your business. Bankrate predicts that, as time moves on, there will be a decline in the use of cash due to the rise of online payments.
PRO: Increase your bottom line – Businesses everywhere have already taken a hit just from the rise in prices of supplies due to inflation. By passing some or most of your credit card processing fees onto your customers, your bottom line should stay steady. Your bottom line could even improve since research has shown that customers are willing to spend more when they use their credit card.
CON: Rules, regulations, and legalities – It is illegal in some states (Connecticut, Maine, Massachusetts, and Oklahoma) to add a surcharge to credit card payments. Some states even cap the surcharge fee. There are strict rules to follow that can change depending on where you do business, and if you’re caught not following the rules, you could jeopardize your business.
CON: Poor customer experience – Some customers may resent the fact that they are paying for the credit card processing fees. The perception is that they are already paying for your overhead fees in your pricing, so why should they pay extra for credit card processing? Especially if your competitors are building credit card processing into their pricing, your customers may feel a bait and switch if you provide a cheaper estimate followed by hidden fees at the end of a project. According to Small Business Trends, one of the ten most common customer pain points is complicated or surprise fees. When customers receive an estimate for the work to be done from a contractor and it doesn’t include the surcharge, that’s an unsuspected and sometimes unpleasant surprise for your customer.
Surcharging can be great when done correctly, but if you’re not in compliance with surcharging rules, you could be putting your business at risk. If you’re looking for a way to surcharge, make sure to pick a provider like Project 2 Payment that ensures compliancy, so you don’t have to worry about the details. Project 2 Payment gives you the freedom to decide how you want to handle credit card fees for your business. Reach out to see what your options are and what works best for your business.