Merchant Surcharging: Is It the Right Strategy for Your Small Business? | Transaction Services

Merchant surcharging is a process that involves assessing a checkout fee each time a customer uses a credit card to pay for a purchase. While the practice is common in a number of settings, it pays to think the process through before you decide to apply this type of fee. Here are some aspects to mull over and project how such an action would impact your business.

Minimizing the Impact of Processing Fees

You already pay your card processor for the ability to accept credit and debit cards. While your plan does allow you so many transactions per month for a fixed rate, you sometimes exceed that number and end up paying a higher fee for each additional transaction. There’s no doubt that adding a surcharge or checkout fee to the customer’s total would help you offset the cost of accepting credit cards.

What’s the Competition Doing?

It never hurts to find out what similar businesses around town are doing. How many of them are charging checkout fees, and what type of schedule are they using? If you find that none of your direct competitors are using this approach, choosing to add a surcharge to customer purchases could put you at a disadvantage. This is true even if you offer the lowest prices in town for the same goods and services.

How Much Can You Charge?

The amount you can charge for a checkout fee varies from one jurisdiction to another. Before you decide to make the switch, talk with an attorney who can provide you with information relevant to your area. You may find that current restrictions on the charges reduce the benefits to a point that you would rather not bother with the process. On the other hand, the current limit could mean you do generate enough revenue from the additional charge to make it worth your while.

Customers Must Know in Advance

Current laws do require that business owners notify customers that there will be a fee assessed if credit cards are used to pay for purchases. This allows the customer an opportunity to use a debit card, some type of prepaid card, or cash instead. Your attorney can help you determine what type of notification is considered acceptable in your area. For example, posting a sign by the register that clearly spells out that a surcharge of a certain percent is applied to every credit card purchase may be all you need to do.

Surcharges for One Card but Not Others

You may be surprised to learn that it is possible to add a checkout fee for a specific type of credit card while not applying the fee to other cards. Some merchants use this approach to offset the higher processing charges associated with a specific type of card. If you decide to go this route, the information you post for your customers must specify that the surcharge only applies to that one card and that the other major cards you accept are not subject to the charge.

It’s up to you to decide if adding a surcharge to each purchase is in your best interests. Consider the benefits in terms of generating more revenue versus the potential impact on the number of customers who come your way. Once you weigh all the factors, it’ll be easier to make the decision that’s right for you and your operation.