What Is Surcharging? A Guide for Small Businesses


When it comes to credit card surcharging, there is a whole load of confusion among merchants about its implications and what it could create for their company. After all, it is only natural to think that handing over the credit card fee to consumers may decrease sales. However, simultaneously with this, companies have to manage their costs. Also, both brick-and-mortar and online retailers are often startled at just how much credit card fees can cost.

Here we will explore what surcharging is, which will help you understand the topic better and break things down into simpler terms. We will also uncover the benefits surcharging brings to businesses across all sectors.

Surcharging Explained

The surcharge is the percentage fee at checkout. This is paid by the end consumer and can be done on eligible Mastercard, Visa, and numerous other credit card transactions. Surcharge fees are normally added onto the final transaction total and itemized once it gets to checkout. Surcharging is often used by companies to process regulatory and credit card fees. However, there are lots of surcharge types that businesses in different sectors use.

When it comes to your business profits, absorbing credit card fees can have a significant impact. What’s more, credit card issuer fees can charge. Because of this, many businesses decide to hand over the credit card processing fee to their customers. Instead of raising the prices to account for the fee, including a surcharge allows your company to show consumers exactly what it costs to use a credit card as opposed to other payment methods, like a debit card.

The Rules

If you would like to implement a surcharge program into your operation, you need to be aware of all the strict rules you must follow beforehand. In fact, many companies have not seriously looked into them which can come back to bite you.

Firstly, you must be registered with all the major credit card brands. Next, you must inform consumers of surcharges on each credit card transaction. Credit card fees mustn’t exceed 4%, and you cannot profit from the fee. Nadapayments have a thorough guide on surcharging rules you can look into. They are specialists when it comes to surcharge programs and process over $1 billion in transactions every year.

The Benefits

Once you have decided you wish to pass credit card processing fees on to your customers, you must be aware of the advantages and disadvantages of doing so. This will help ensure you know exactly what you’re getting yourself into. There are primary benefits of credit card surcharging, the first of these being lower costs. Your company will not absorb the processing fee on each sale. Instead, you can pass this over to the customer. Over time, such costs can really mount up, meaning you can save a ton of money.

Another plus of surcharging is you’re able to offer your audience other payment methods that do not incur a processing fee. This gives your company the chance to elevate the customer experience by assisting them in lowering the final price to be paid. 

The Drawbacks

While there are obvious advantages to using surcharging within your company, you need to have a good think about the possible cons too. The first of these being your sales may take a hit. What’s more, surcharging may have an impact on how your company is perceived. Customers may not be fond of having to pay additional fees should they use their credit card.

Surcharging can only be used for credit card transactions too. Prepaid and debit card transactions can’t include a surcharge by law. Surcharges can also make accounting more complex. This is because surcharges don’t usually appear on statements, which means you or your accountant would have to sift through every card transaction to pinpoint which contain surcharges and which do not. Also, credit card providers differ in terms of their processing fees. 

Should I Add Surcharges?

Now you have a much better idea of surcharges and how they work, you may still be wondering whether your company should add surcharges. In the United States, only Massachusetts and Connecticut outlaw the practice. Since COVID-19, more merchants have welcomed surcharging due to more tough economic conditions.

What it really boils down to is what type of company you run. Each merchant has different circumstances. It’s wise to look at what your competitors are doing. That way, you can be sure customers know what to expect. For most companies, having credit card surcharges in place may lead to losing some custom. However, the long-term cost-saving benefits outweigh this.

In a nutshell, surcharging enables merchants to pass over the fee. This means companies that once couldn’t afford to accept credit cards now have the option to do so. Whatever type of business you run, surcharging plays a big part in the day-to-day running of the operation, especially when it comes to financial management. 

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