Is It a Good Idea To Surcharge Credit Card Purchases?

Many business owners wonder whether or not it is a good idea to surcharge credit card purchases. When they ask me, I have to consider first the state they live in, and then I proceed by asking them a few questions about their own business.

NOTE: Today, there are at least 10 states where the state has written into law that it is illegal for a merchant to surcharge credit fees to the consumer.

Next, I ask the business owner, to think as a customer.

“Imagine you are the customer, you have just received an amazing service and decided at the end to pay by credit card, because you were adding additional services which cost more than you have in cash or in the bank to write a check…how would you feel about being told you had to pay a surcharge?”

Think back, way back, before you owned a business. Did you even think about the cost of using credit cards? Did you know there was even a cost to a business to process a credit card?

Most customers look at using credit cards as a normal method of payment. They don’t think of the costs that a retailer, service provider or restaurant pays to process the payment instead of cash. They want the convenience, or maybe to earn points on their purchases. Perhaps they don’t feel safe carrying a lot of cash, or they like the ease of paying for everything once a month. The reasons are endless.
Consider what is in your wallet, why and how you pay…

When I evaluate a client’s business to advise them, I start by considering a few things; besides their industry and the type of business they own, I take into consideration income from credit cards, profit margins and how their customers might perceive the surcharge. I then ask them a few simple questions, which all business owners can easily ask themselves:

1) Do you see other industry providers assessing surcharges?
2) If your competition does not surcharge, will applying one push your clients to choose another provider next time?
3) What percentage of your customers are paying by credit? (Will this go up or down if you add a surcharge?)
4) What value do you place on good will with customers and clients?
5) Do you budget credit card processing fees?
6) Did you know that you can (usually) write off credit card fees as an expense? Its tax deductible
7) Does a client or customer typically spend more when they use their credit card for payment?

To help put all of this in perspective. I’ll share a recent experience.

I attend networking events all the time. When I register for events, I’m being asked to pay online in advance using registration services like Eventbrite. I love this convenience. (Recall my ATM fee from a few weeks ago for a lunch that only accepted cash?) The only negative of it is the $3 surcharge. It seems, well, excessive on top of an investment of $18 for a networking event. What would you have thought? (Of course, that fee is far more than it is costing them…or should cost anyway.)

In the end, every business owner must take all of the expenses and the costs into consideration when setting payment policies. This should include the soft costs of those policies and their impact the business’ reputation among the community. In most cases, when companies add credit cards as a payment method, sales and revenues increase. The increased income allows for more efficiency, better buying power, increased cash flow, lower receivables and overall lower costs – even after taking into consideration the expense of accepting credit cards.

There is an old saying that you can do a 100 good things but the only thing that people will continually verbalize is the one negative thing. (A surcharge may not be the “thing” you want them to talk about in regard to your business.)

~ Mary Ann