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Does anyone impose a service fee on credit card payments to help offset high credit card fees?

Answers

Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, Inc) |

This can be difficult to do, especially if you are in a market with close competitors (retail or otherwise). At a prior employer, we handled this from a different perspective. One of our fees was lowered if you paid by cash or check. This doesn't 'penalize' people for using their credit cards, it encourages them to find a few dollars in their pocket. Keep in mind that if you accept checks as payment, it can cost more to chase an NSF than the original credit card fees.

The market/deli down the road from me has an account system for their regulars. They tally up the charges throughout the month and then get one payment. For those who clear their balances by CC it reduces the transaction fees. He also accepts ACH payments and cash. Like a credit card, keeping an account at his store has the side effect of people not realizing how much they are spending at the time, giving him a little more revenue at the end of the month. And since not too many retail outlets do this today, he has a lot of loyal customers who go out of their way to shop with him as opposed to a big box down the road.

Brandon Lee
Title: Advisor
Company: BankcardRevelation.com
(Advisor, BankcardRevelation.com) |

Hi Sara, you have a great point regarding cash vs check. What interested me were your thoughts about check acceptance. Companies like Cross Check, Telecheck, and GETI (aka Sage) offer guaranteed/warranty check products that is popular in the B2B industry. For one, the rate is lower than credit cards often between 1-1.50%. Second, the check is guaranteed by the processor so there is minimal risk. Credit cards can be disputed up to 2 years after the initial transaction.

This may be something worth looking into for business that of shunned away from check acceptance due to bad experiences. Of course, there are pro and cons to any product offering, but I can say many of our clients are quite pleased with any of these check processors I named above.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

Sara has some great ideas. When I started with our company we did and it was never a customer satisfier. We stopped charging them and attacked them by comparing vendors and paying attention to how the cards are being tendered, for example the fees were almost double for a manual entry vs a swipe.

If you can find a vendor who doesn't outsource it the cost is minimal (my fees have dropped by 25% since making this change).

Brandon Lee
Title: Advisor
Company: BankcardRevelation.com
(Advisor, BankcardRevelation.com) |

Hi Christie. Great to see a CFO pay attention to how the credit cards transactions are processed. That's a huge factor in how the interchange is determined for a business. Another simple method a lot of businesses aren't aware of is how your business is classified according the MCC. If your merchant rep isn't savvy to classification, you could be getting hit with higher interchange regardless of how you input the transaction.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

It may also be illegal in your locality to charge different prices for cash or charge.

Brandon Lee
Title: Advisor
Company: BankcardRevelation.com
(Advisor, BankcardRevelation.com) |

very true. Visa and Mastercard have different regulations that dictate percentage and industry types that are allowed to charge "convenience fees".

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

Just an observation: the other day I went to pay a parking ticket online (NYC) and when I paid via credit card there was a fee for paying by credit card. So it looks like at least one large "company" (because ticketing is one of the city's largest revenue generators) passes the cost on.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

In my experience, customers understand the fact that credit card fees are expensive and usually are willing to pay a convenience charge. If you offer an alternative of cash or check, but they choose to use a card, they will understand.

But interestingly, the reverse is not true. For example - If the customer pays $100 for merchandise and an additional $7 for a convenience charge, they accept it. However, if they cancel the order or return the merchandise, they are not happy when the refund is only $100.00. They feel they deserve the credit card fee back.

The convenience charge will work for items you can not return, i.e. gas.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Have to disagree.

You don't ask you clients to pay the discount when you factor your receivables, taking credit cards is exactly the same process.

As such it is a business expense, just as discount (interest) fees.

Brandon Lee
Title: Advisor
Company: BankcardRevelation.com
(Advisor, BankcardRevelation.com) |

Regis,

Some merchant service processors will actually refund you the entire transaction amount including the processing fees. The key word is "some", not all. In fact, very few of them do. One in particular has been pretty fair in doing so with our clients. Feel free to msg me if you want the name.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I think the answer to this is......it depends if the market (type of product and location) will bear it!. If you are a high end retailer, I do NOT think your customers will care. If you are a liquor/smoke shop on a not so affluent part of town, you might have some pushback.

Brandon Lee
Title: Advisor
Company: BankcardRevelation.com
(Advisor, BankcardRevelation.com) |

Generally, Service related industry clientele are more understanding towards convenience fees. On the flip side, retail, restaurant environments will get some push back from customers.

Mark Woollgar
Title: Partner
Company: Adams Woollgar Financial Services LLC
(Partner, Adams Woollgar Financial Services LLC) |

As Wayne alluded it is illegal in California although many do not seem to be aware of that but all that means is a massive class action lawsuit on its way.

Topic Expert
Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Check your credit card merchant agreement: does it prohibit you from charging a fee for c/card use? My understanding is that Mastercard and VISA prohibit this in their normal merchant agreements.

In Illinois for example, public agencies who accept credit card payments (e.g. annual vehicle registration) charge what they call a "convenience fee" that just so happens to approximate the card fee. But then let's not confuse government with retail or customer service:)

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

If it smells like a duck, looks like a duck and quacks like a duck, then its a duck ! LOL

Companies generally loose these types of law suits. Calling it a convenience fee to use a credit card, unless allowed by statute doesn't leave alot of room to successfully argue at the Bar...

Jim Schwartz
Title: Corporate financial advisor
Company: Wabash Financial Strategies
(Corporate financial advisor, Wabash Financial Strategies) |

In a former company, we sold equipment priced from mid six figures to low seven figures. Some companies wanted to pay with a credit card. This subject invariably arose at the time payment was due, not when sales and pricing terms were originally negotiated. No matter how low the card servicing discount, this creates a substantial, unbudgeted and probably unrecoverable profit reduction.

We never devised a solution to this problem during my tenure. Declining to accept a late-request credit card payment usually caused a standoff with the customer. Further, an unexpected credit card discount did not affect sales incentive compensation. Consequently, sales management was not supportive of efforts (which were perceived as meddling, or worse) to avoid unexpected credit card payments and didn't want to alienate a customer or risk potential future business.

In a retail setting with little or no sales documentation between you and the customer, card fees are probably a cost of doing business. For an environment where written proposals and sales contract documents are used, I think the most effective answer is to address the subject of payment methods and terms clearly in the agreements made with the customer as part of the overall original sales negotiation.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

We solved this issue at one company by just refusing to accept credit cards from the get-go. In a B2B large ticket item sale, that shouldn't be an issue.

Brandon Lee
Title: Advisor
Company: BankcardRevelation.com
(Advisor, BankcardRevelation.com) |

Jim, In the past, companies had to pay for a program called Large Ticket Program. Most of the credit card issuers have this program in place. Now the program is free, your merchant rep just has to know about it and be savvy enough to set you up properly.

We primarily deal with B2B, and some of our clientele have transactions well over 20-50k using credit cards. The trick is having the right programs in place to obtain all the information to qualify for LTP. The interchange is significantly lower. Although you still get a hit to your profit margin, it'll be less drastic.

Anonymous
(CFO/Board Advisor) |

This is both a legal and technical question. I would suggest you start by Googling "convenience fees on credit cards" to understand the complexities and road bumps. Cardfellow.com has some excellent articles and advice concerning this topic.

The short answer whether you can charge convenience fees is: Maybe, maybe not. It is a facts and circumstances analysis, and will involve discussions with your Card Association Rep.

One way to offset credit card fees is to enter into an incentive agreement with the Card Association (Visa, MasterCard, Amex). I recommend contacting your account rep from these Associations and see what programs might be available to you. Keep in mind, this could be for both accepting payment with their card, or making payment using their card. One company I was CFO for "earned" more than $100,000 per year under incentive programs.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

At one company we used the million air mile annually to offset major trade show budget for travel, making the show a budgetary neutral event

James Brandon
Title: Chief Financial Officer
Company: Hytrol Conveyor Company, Inc.
(Chief Financial Officer, Hytrol Conveyor Company, Inc.) |

Here is a link to an informative February 2013 blog on this website by Anand Goel on the subject of credit card surcharges:

https://www.proformative.com/blogs/anand-goel/2013/02/25/credit-card-surcharging-overview

As Wayne mentioned, it is a cost of doing business; however, I believe that is more applicable if the charge occurs at or near the point of sale, since credit card payment may mitigate credit risk and time value of money issues, reduce A/R administration costs, etc. What I am seeing with more frequency are banks and/or card issuers encouraging their clients to use credit cards to pay as many vendors as possible to earn rewards or cash rebates. In the typical transaction, the customer will take advantage of whatever open terms you may offer (e.g., net 30) and then pay by credit card. In that situation, you do have an unexpected cost added to the transaction. While you may realize some efficiencies in such transactions, you have to determine if the costs outweigh the benefits in your particular situation. Based on my anecdotal experience, it is the rebate that drives the desire to pay by credit card, so the mere mention of a convenience fee ends the discussion.

James Scott
Title: Consulting CFO
Company: Early Growth Financial Services
LinkedIn Profile
(Consulting CFO, Early Growth Financial Services) |

We have built the cost of accepting credit cards into our pricing, and have negotiated with vendors for low cost processing. For some small businesses, getting those points on purchases for owners is a deal maker for our sales people vs competitors who either don't take cards or charge fees. Just another cost of doing business.

Yolanda Henderson
Title: Accounting Manager
Company: Habitat for Humanity Intl
(Accounting Manager, Habitat for Humanity Intl) |

I am employed by a non-profit entity. Many of our donors include the discount fee with the donation. It is greatly appreciated. It drastically reduces our credit card fees.

(Agent, JKS Solutions, Inc.) |

Rather than charge a fee, include it in the COB and include it in the price. Then the customer is not upset.

Kevin Bailey
Title: President
Company: Logical Processing Solutions
(President, Logical Processing Solutions) |

The card companies changed their position and today you can charge a service fee. However it can only be on credit card transactions and NOT on debit card transactions. Very few of my clients charge a fee, most factor it in to their overall business expenses however some offer a discount for cash.(i.e.2%-3% off the invoice for payment in cash). It might also be beneficial to call in 3 or 4 processing companies and get an undated proposal on the fees you are paying for credit card processing.

Dabney Wellford
Title: CFO
Company: Wellford Consulting
(CFO, Wellford Consulting) |

Unless you have a really unique product with a really good price point, you are better off negotiating with the processor, or changing processors. In the northeast, customers may be more accepting, but, in the south, you will lose market share. If you have to do anything, raise the price of the goods.

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

We try to recover either with a special charge on the invoice or in quoted price. In either case, we take the cost into account when determining if we want the business.

Don Cox
Title: CFO
Company: DKI
(CFO, DKI) |

We do a considerable amount of credit card billing and consider the merchant fees a cost of doing business. Rather than charging an extra "convenience fee" we just factor this cost into our charges so that we don't give the buyer a negative perception of the billing experience.

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