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Why A Credit Card Surcharge May Not Be Good For Business

President at BAMS & CRMDialer. Overseeing the growth of payment gateways, e-commerce growth hacks and SMB efficiency improvements.

As a business owner, you’re probably looking to save costs everywhere you can. One item on your monthly expense list that can add up to staggering amounts is the credit card processing fee. If you have a large volume of customers, you might end up paying thousands of dollars in credit card fees every month.

There is a neat way to bypass this issue, and it’s called a credit card surcharge. This can put some extra money in your pocket, but it also comes with its own set of challenges. Here are some drawbacks you need to be aware of if you’re considering instituting a credit card surcharge.

1. You may not be eligible by law.

As a practice, credit card surcharge is not fully legal in all U.S. states. You’ll have to carefully read your local laws to see if your state approves, and if it doesn’t—tough luck.

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Even if you sell across the U.S. or to a global audience, your credit card company is obligated to follow the laws of the state where your business is based. Make sure to do your research before attempting to apply for this feature with your credit card provider.

2. You may do more harm than good.

The main point of a credit card surcharge is to have your customers pay the fees you incur for processing credit cards. The problem is your customers may object to paying those extra few cents. Adding a premium on top of your price may not sit well with your regular—or new—customers.

An additional complication is that the surcharge only works with some credit card types (it doesn’t include debit and prepaid cards). If you want to keep a uniform price across all payment methods, you’ll need to raise prices for other payment methods such as Paypal to keep them even. Depending on the average price of your items, this could mean a significant increase that will hurt your profits rather than softening the blow from credit card charges.

Finally, a surcharge is only available up to a certain limit, which depends on your credit card provider. If you sell a lot of high-ticket items, you may not be able to make full use of a surcharge program.

3. You’re required to let your customers know.

If you’re using a surcharge, you need to notify your customers publicly that you’re adding a percentage on top of the sales price. If you want to be transparent with your customers, it’s a logical move to make.

However, this transparency allows your customers to clearly see that they have to pay for something that is traditionally paid by the merchant. If your competitors don’t use surcharges and have similar pricing, customers may switch based on this seemingly small difference.

Should I still consider credit card surcharges?

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Keeping everything above in mind, a credit card surcharge can still be an excellent way to save money, restoring thousands of dollars lost on credit card processing fees every month. The trick is to do your research first and determine your eligibility, how your customers may feel about the slight price increase and how you want to proceed with different payment methods. You may learn that the surcharge is the way to go, or you may find other ways to save money that your customers will appreciate more.

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