Understanding When To Add a Credit Card Surcharge to Purchases
As a business owner, you are probably well acquainted with operating on slim profit margins and stretching every dollar. The fees associated with accepting card transactions are one expense eating into your profits. Fortunately, there is an option known as a credit card surcharge that enables merchants to lessen the impact of these fees.
What is a Credit Card Surcharge?
Credit card companies impose fees on merchants for processing card transactions. While small, these fees add up. Some merchants pass these fees on to their customers as a surcharge. Applying a surcharge involves a set of rules and processes that vary by jurisdiction.
What Are the Rules for Surcharges?
The surcharge guidelines are mostly straightforward and don’t require major changes to your business. They include the following rules:
- Credit card surcharge notices are required at the business entrance and the point of sale. For online merchants, the notice only needs to be visible on the homepage.
- Receipts should list the surcharge amount as a separate item.
- The surcharge can’t exceed the fee associated with the card transaction.
- Surcharges can only be applied to credit cards — not cash or debit cards.
- Most card networks require merchants to notify them before adding surcharges.
Are There Alternatives to a Credit Card Surcharge?
A surcharge isn’t the only tool merchants have for recouping transaction fees. Depending on the business, its competition and its customers, the following alternatives might also be effective.
Instead of adding a surcharge to items when customers use credit cards, merchants have the option of offering a discount on cash and debit purchases. Known as “cash discounting,” the practice might seem like trickery, but it’s not. Cash discounting has the advantage of being legal everywhere — even in locations where a credit card surcharge is prohibited.
Minimum Purchase Amounts
Requiring customers to spend at least a certain amount when swiping a card can improve the bottom line. These minimum amounts must be the same for all card networks and can’t be more than $10.
Instead of worrying about how to introduce surcharges, merchants can increase their prices across the board to offset processing fees. This keeps the credit card companies happy and doesn’t burden the consumer with card vs. cash decision pressure.
When Should You Add Surcharges?
Merchants should consider the pros and cons of adding a credit card surcharge to their transactions. The obvious benefit is a higher profit margin. But that benefit must be weighed against the resistance of card networks and price-sensitive customers. You should research common practices in your industry and market region to learn whether applying a surcharge could put you at a competitive disadvantage.
Handling card payments, including understanding credit card surcharge rules, is one of the many challenges of running a successful business. Reach out to the payment industry experts at PaymentClub to make this process easier with the help of leading-edge tools and technology.