How To Pass On Credit Card Processing Fees
Business owners must follow certain rules to charge customers for swipe fees. In most cases, businesses can only pass on up to 4% of the credit card processing fees. Companies need to make customer-paid credit card processing fees known on their doors, receipts, and at the point of sale.
Some states do not allow you to pass swipe fees onto customers. These states include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.
If you decide to pass fees onto customers, make sure you follow all federal and state laws.
Should Small Business Owners Pass On Swipe Fees
Some small businesses do not pass swipe fees onto customers. Credit card processing fees can be considered a cost of doing business. Similar operating costs are usually not passed onto customers, such as electricity, rent, and insurance. These expenses are not the responsibility of your customers.
You risk losing sales if you pass on credit card processing fees. Customers see credit cards as a convenience. Charging extra to process credit cards might seem like turning an amenity into a burden. The fees could deter customers from making purchases or returning to your business.
How Do I Add The Credit Card Processing Fee To An Invoice Without Being Charged The Processing Fee For The Base Amount And The Processing Fee
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Merchants Rights: The Legal Grounds Behind Credit Card Fees
The history between merchants and credit card networks is filled with tension and a slew of antitrust court cases. Business owners know they must accept credit cards to attract and retain customers, but the power of credit card networks to dictate the fees has created a strained relationship between the two parties.
Most of what retailers can and cannot do involving credit and debit cards is governed by their contracts with the card companies, not by state or federal law,J. Craig Shearman, vice president of government affairs and public relations for the National Retail Federation told CreditCards.com. So the question is not Is it legal? but rather, Do the card companies allow it?
On the legal side, the most recent example dates back to 2005 when a group of seven million retailers took on the card networks in an antitrust lawsuit. The merchant group accused the card networks and banks of conspiring to fix the interchange fees businesses were forced to pay for processing credit and debit transactions.
Fast forward to 2012 when this historic class-action case between Visa, MasterCard, major banks and the merchant group led to merchants gaining the right to apply a surcharge of up to 4 percent of credit card purchases. No surcharge can be applied to debit card transactions.
Reasons Some Businesses Charge A Fee
You may be wondering why a seller would charge you a fee if youve already paid for your purchase. The reason most sellers charge fees boils down to how credit card transactions work.
Card issuers charge a merchant fee whenever you use your credit card. The merchant is expected to cover this fee in order to process credit card payments. However, those fees can add up. In order for a business to avoid paying that fee every time someone uses a credit card, the fee is passed on to the consumer in the form of a surcharge.
While some merchants dont know that they can charge extra, many avoid it simply because they value their customers. It can also present a hassle for certain businesses to figure out how to impose the charges. Instead, many businesses take on the cost of processing credit card payments as a part of their overhead.
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Should Businesses Impose Credit Card Surcharges
If the state where your business is located allows surcharges, you should consider the pros and cons before imposing them. The main reason merchants add credit card surcharges is to compensate for high credit card processing costs.
Consumers generally frown upon extra fees, especially if you’re one of the only businesses in your local area to charge fees. You should weigh that small profit against the potential profit loss from turning away some customers due to the surcharges.
Finding The Right Provider
To pass on the credit card fee, businesses must comply with rules set by card brands such as Visa and MasterCard.
If your business is looking to pass on credit card fees, it is best to partner with a compliant processing provider for a turnkey solution. They will be experts so you dont have to be, automatically complying with all the rules. Further easing the process, the best providers wont lock your business into a long-term contract. And be sure to ask for compliance documentation, and be wary if they cannot produce it.
The most reputable providers will handle all the details of implementation, beginning with notifying card brands and your acquiring bank. They will help set up signage at the point of sale to keep customers informed and keep your business compliant.
One important rule is that no fee can be applied to debit cards, so be cautious of companies that dont heed this requirement. Another benefit of a compliant provider, then, is that your customers can use debit cards at no additional cost .
The surcharge adds no friction to the check-out process and will be easily understood by customers. This pricing model, already allowed in 42 states, would be quoted as, $10, with a 3.5 percent surcharge for credit.
If credit card fees are already baked into your pricing, credit card surcharging will allow your business to lower prices across the board and become more competitive.
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What Happens When A Merchant Breaks The Rules
Merchants regularly break the rules. Regulations are confusing for everybody, and some merchants innocently break the rules because they don’t understand them. Others intentionally choose not to follow them.
If a small business or mom-and-pop shop charges unauthorized fees, they may simply be unaware of the law. You may consider letting them know that you think they may be breaking the rules. Mom-and-pop shops may be less likely to have malicious intentions, and it’s in their best interest to avoid problems with credit card companies and regulators.
Large companies should be well aware of the rules, and they likely receive ongoing guidance from legal and corporate teams. Any business with a loyal following can notify customers that they prefer not to take credit cards, and the business might even be able to offer discounts for cash purchases .
If a business is blatantly breaking the rules and you want to take meaningful action, you can report the business to credit card companies. Those payment networks have signed agreements with merchants that prohibit such activity. Report violations by calling your card issuer or submit a complaint online.
Depending on the state laws in your area, you may also be able to report the merchant to your states attorney general.
How To Pass Your Credit Card Processing Fee To Your Customers
Pass your credit card processing fee to your customers is a better way to save your credit card processing fee for your company.; If you are a small merchant or a start-up then you try to avoid many fees as possible to save money. So that you can invest that money towards enhancing and developing your business.
There is no charge for using a debit card but for using a credit card you will have to pay your processing company a fee of approximately 5% or every transaction. The fees that the credit card payment processing companies charge you is unavoidable, however, there is always a way you can request your payment processor to reduce that fee.
One other way to save money is to bypass your Credit Card processing fee to your customers. You can surcharge your customers or ask them to avoid using credit cards. The following points will discuss it in a more elaborate manner:
Can Businesses Charge A Fee In Canada
Initially, surcharges were reserved for U.S.-based businesses. However, merchants in Canada filed a lawsuit in 2011 for the right to impose surcharges to offset credit card processing fees.
In 2017, merchants were granted this right. As of this ruling, Canadian merchants have been able to levy credit card surcharges under similar rules as U.S. merchants.
Weighing Pros And Cons
The answer probably depends on how those businesses gauge customer expectations, and whether direct competitors in the same market also surcharge. In a market where direct competitors dont pass merchant fees along to the customer, surcharging could motivate customers to shop elsewhere. Thats because they realize they can buy the same product or service elsewhere, without paying the added surcharge. In that case, a merchant may decide to postpone surcharging to retain those price-sensitive customers. But it is also possible that simply encouraging those customers to pay with a debit card or cash, which will not result in a surcharge, may resolve that issue.
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Convenience Fees Vs Surcharges
Sometimes businesses will try to mitigate their processing costs by charging a fee whenever a customer uses a credit card. Two kinds of fees are the most common: convenience fees and surcharges.
There are specific cases where either fee may be appropriate, but its important to know when its both appropriate and legal to use each.
How To Protect Yourself: Credit Card Surcharges
When you use a credit card to pay for goods or services the merchant is charged a fee by the credit card company. These interchange fees, also called swipe fees, are often calculated as a percentage of the amount you purchase. Some merchants may choose to recoup these fees by adding a surcharge to your purchase.
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How To Calculate Credit Card Convenience Fee
Convenience fees can be a fixed dollar amount or a percentage of the transaction amount and must be disclosed to the customer in advance.
Ways to charge credit card fees to your customers:
How to calculate a convenience fee:
If you want to earn $100 from a credit card payment, work backward from that amount, which is y:
x = / .971 x = / .971 x = ~103.30
To receive $100.00 from this credit card payment, you need to add a convenience fee of $3.30. In certain cases, youll need to double check the total for a missing $0.01 rounding error.
There are also online sources available to help you calculate a credit card convenience fee.
Encourage Cash Or Debit Cards
When your customer is at the point of sale ready to pay for the purchase, ask them to pay in cash or use the debit card instead of their credit card. In case they do not have the debit card or cash, you can ask them to check if they have the credit card that charges you fewer fees or interest. Electronic payments or bank transfers are other options you can choose.
The total fee that is charged to you by payment processing companies for each transaction consists of several fees put together to look like one single fee. This fee includes statement fees, batch fees, PCI compliance fees, etc. You can request your customers to pay for any one of these extra fees charged to you because of them choosing to use their credit card over their debit card or cash.
One other way is, by asking your customers to allow you to deduct the extra fee that you have to pay because of them using their credit card for the purchase.
- Merchant Industry LLC
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Is It Legal To Charge Customers A Credit Card Fees
Is it Legal Card Fees? As a businessowner, you are undoubtedly aware that accepting credit cards is an important part of doing business. So few people carry cash or use checks anymore that a business that does not accept credit or debit cards is likely to lose customers to other businesses that do accept plastic. And its not like business owners dont use credit cards themselves; most small businesses have company credit cards to help manage their own expenses and earn business credit card rewards.
However, opting to accept credit cards for payments costs your business money. With transaction fees as high as 4 percent, you stand to lose as much as $4 for every $100 a customer charges. In a business with a tight profit margin, like a convenience store where most transactions are $10 or less, those fees can add up over the course of a year and take a big bite out of profits.
Many merchants simply accept credit card processing fees as a cost of doing business, and customers are none the wiser as they happily swipe their cards to make their purchases. But a growing number of merchants are unwilling to keep eating credit card processing fees and are looking for ways to pass them on their customers.
Can Businesses Apply A Surcharge To Debit Card Transactions
Under federal regulations credit card issuers can only receive fees for debit card transactions of up to 21 cents, plus 0.05 percent multiplied by the value of the transaction, plus 1 cent for fraud prevention. As a result, most credit card companies prohibit merchants from surcharging debit card transactions.
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What Costs Can I Pass On To Customers For Credit Card Payments
In our;latest article, we discussed the ban on excessive surcharges, which has applied to large businesses since 2016 and will apply to all business from 1 September 2017. The ban seeks to protect consumers from businesses charging unreasonable fees for paying by card.;
To achieve this aim, the ban requires businesses only pass on to their customers the cost that the;business;is charged for processing payments known as the cost of acceptance.
The cost of acceptance is made up of various elements, and the figure may be different for each business. We take a closer look at the elements that can make up the cost of acceptance.
Do Merchants Have To Notify Consumers Of Credit Card Surcharges
Yes. Merchants must disclose any surcharges to consumers both at the point of sale and on the receipt.
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How Do These Requirements Translate To The Legal Profession
Good question! ;Assuming the;Payment Card Interchange Fee Settlement;gives you the;right to begin surcharging:
- Step two might require you to change your credit card processing practices. When a card is swiped, a receipt is generated. ;Assuming;it shows the surcharge as a separate item, and you provide the receipt to the client, you have complied with this step. ;But what;about card not present transactions where the card is not available to swipe? ;These are far more common in a law firm. Do you currently email a contemporaneous receipt? ;Maybe you should. ;Will you list;surcharges as a separate line item on;billing;statements? ;Maybe you should do that too.
- Step three may mean displaying a sign in your office, drawing prominent attention to the fees in your written fee agreement, including information on your intake form, discussing surcharges during the initial client interview, etc.
- Step six would require vigilance when working with out-of-state clients. Surcharges are illegal in California;and nine other states. Some predict this number will;grow.
Its Legal But Is It The Right Thing To Do
As noted previously, many merchants understand that they can add a credit card surcharge, but choose not to to keep their customers happy. But sometimes, slim profit margins dictate tough decisions, and passing on fees is a matter of necessity.
Some companies have found a way around the restrictions on credit card surcharges by offering a discount to those customers who pay with cash or debit card. The most common place to see this is at gas stations, where the pump displays a cash price and a credit price. Other businesses have opted to offer a flat discount to cash customers, usually based on their average transaction fee.
However, the most common way to avoid paying excess transaction fees on credit card purchases is to set a minimum purchase amount for credit card purchases. This is legal in every state, and merchants can set a minimum purchase of up to $10 for credit card users. The rule must be clearly posted, but merchants who enforce minimums report that customers generally either choose a different payment type, or buy more to meet the minimum.
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