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Are Credit Card charge fees just the price of doing business?

Posted by Linda Chambers on Mon, Jun 02, 2014 @ 10:00 AM

This question came up recently on a contractor Facebook page and I think it is a good one to address since it effects almost all pressure washing contractors.

How do you pass the cost of credit card processing on to customers?

First you must look at how much business you do each year that is paid by credit cards, and what cards are being used. This way you will know if you should even bother with it.

If you are doing say $250,000 dollars a year of business and only about $10,000 of that is charged on cards so is that $300 or .0012% of your total sales worth that much for you to change your whole way of doing business?

Because legally that is what you have to do. Did you know it is illegal (against your signed contract) to charge any customer a credit card processing fee just for them to pay with a credit card? Well it is. Credit Card companies lobbied for this years ago to stop retailers from deterring their card carrying customers into paying via other methods, thus losing them money. It is part of every credit card contract except Discover. You must sign these before you are able to process these companies cards and if you are found to have broken them, it can cost to a lot in fines and loss of excepting them as payment. It is also part of the Truth in Lending Act. The Federal Truth in Lending Act states: 167, (2) “No seller in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means.”

The way around this is easy but not always simple. You must offer a cash or check discount instead. In other words you must build in the 3% or what ever your processing fee is going to be, some cards are higher, like AMEX, and then give the majority of your customers the discount off the total when they pay. This can make for added headaches in bookkeeping and with automated bookkeeping systems like QuickBooks. This means you must build a line item for a cash or non-credit card discount for each invoice that is not paid by credit card.

The only other way around this is to build the 3%, as a cost of doing business, into your normal pricing to cover any instances when a card would be used. But if the majority of your customers do not pay by CC, do you want your other customers to shoulder that burden and extra cost? Plus it would not be a fact you would want to advertise to your cash customers.

When I first came to Soap Warehouse this is what was done but it caused so much book keeping trouble and since a large number of our customers already paid by credit card it was not worth trying to do the cash discount route. Last year we spent just over $4,000 in all merchant and banking fees connected with credit card processing. A small amount when figured against sale totals, so this cost is just one of others like product packaging that is worked into total product cost from the beginning so we do not even have to think about it later on. For most 5 gallons of items the amount figures out to be less than 30 cents each. Not an amount I feel would cause a customer not to buy a product. Product packaging far out weighs that small cost usually running $2.50 to $10 per item of added cost. But you can not sell or ship a soap product with out the bottle, jug, pail, box or drum. These costs are just as necessary as the cost of the ingredients to make them, and the labor to produce them.

Here is an article to continue reading about this issue:

http://www.merchantcouncil.org/merchant-account/operation/pass-fee-customer.php

Tags: Business, Credit card fees

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