It drives me nuts when small businesses don’t accept credit cards. In this competitive environment, how can you not offer as many payment options as possible for your customers?
A law about credit card fees
As a small business owner, your job is to make your customer’s experience with your business as pleasurable and seamless as possible.
Some merchants and restaurants still don’t get this.
Worse, there are others who do accept credit cards, but then have the audacity to charge an extra fee as a penalty to those customers who choose not to pay cash.
There should be a law!
Wait, now there is. In the U.K., that is.
As of January 2018, a law banned British retailers from charging a fee to customers who pay with a debit or credit card. The law also applies to customers making a purchase online.
This is why England is considered such a civilized society.
Apparently, the surcharge has been pretty widespread there. The U.K. estimates surcharging cost customers £166 in 2015. “It’s completely unfair for someone to be hit by a hidden fee just before they are about to make a purchase, so by scrapping these rip-off charges we are helping to give power back to the consumer,” said Economic Secretary to the Treasury John Glen.
Hear, hear!
Surcharges in the U.S.
The practice also is not allowed by 10 states here in the U.S. and Puerto Rico. But many businesses in the remaining parts of the country still do this. Some businesses — to skirt the law — then offer “discounts” for using cash (instead of a surcharge for using credit).
Tomato, to-mah-to.
There’s still a lot of debate. According to the National Conference of State Legislatures, the Supreme Court gave a “partial victory” earlier this year to those challenging the New York State ban on surcharges because it could be interpreted as “regulating free speech,” and sent the law back to the lower courts for further argument. Free speech indeed.
I say, your business must accept all forms of payment!
Credit cards, mobile payments, PayPal, Apple Pay, Google Pay, cash, Bitcoin. OK, maybe not Bitcoin — yet.
Offering customers convenience
Your number one priority is customer service. In today’s world, customers want their transactions to be easy, pleasant and fast. Making me run out to an ATM machine to pay for my dinner will motivate me to never dine in your restaurant again. Charging me extra just because I have the audacity to want to use my credit card is a further insult.
Sure, credit card fees are high, and you’re the one shouldering the burden with each transaction. So here’s my advice. Do what the bigger and smarter companies do — push the costs down to your customers.
If the extra 2.5% charge is too much to bear, then figure out what these charges are costing you during the year as a percentage of all of your revenues (it will be less than 2.5% because of your cash customers). Then just increase your prices by that sliver.
Trust me, I’m not going to notice (or quibble over) the $14.50 lasagna after you’ve raised the price by 36 cents. And if your lasagna is as good as you say it is, then I’ll gladly pay!
If raising your prices makes you nervous, some businesses also require a minimum purchase amount to use credit. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 allows businesses to enforce a $10 minimum purchase for credit cards. The regulation, however, doesn’t let business owners impose a minimum purchase amount for some cards and not others. For example, you can’t enforce the minimum purchase amount for Visa credit cards and not apply it to Mastercard.
If you decide to impose a minimum purchase price for credit cards, you should also make sure you and your staff know about each card company’s rules. Visa, for example, doesn’t allow businesses to charge a minimum purchase for debit card users. With a debit card, a customer can run the purchase as credit and not have to enter their pin. So it’s best to make sure you and your staff know the differences between a credit and debit card.
Some advice if you’re charging customers a minimum purchase amount for credit cards? Make sure you’re transparent about it. Put a sign out that customers can easily see. You don’t want to make your customers frustrated that they have to add something to their order to meet the minimum amount.
There shouldn’t have to be a law against charging your customers extra for using a credit card any more than there should be a law prohibiting people from doing dopey things. But in this case, it’s pretty much the same thing.
Do you accept credit cards at your small business? Why? Or why not? Tell us in the comments!
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The only card that I really don’t like taking, but do, is American Express.
Salon owner also owns the credit card processing company that we use to process payments. The fee is passed on to the customer. If they tip on the card the owner then charges us 10% of the tip in order to collect. Is this legal?
If as long as the owner is in compliance with your state’s minimum wage regulations as to hourly/tipped workers then charging the 10% is legal.
The consumer is using their credit cards. They should be paying their own processing fees. The businessman is just trying to make a living. He doesn’t need to get charged every time he makes a sale. He is already providing a service to the community. With cards he actually never gets paid the full amount he actually charges. It’s basically theft on the banks and the consumer’s part. Most small businesses’ have a hard time making it anyway.
I love having a choice!!!
Do businesses know they are losing sales by charging extra for credit card usage? This can happen two ways. First, there are people like me who won’t buy ANYTHING from a merchant who charges extra for credit card usage.
And, people who use credit cards generally buy more when they use a credit card.
I support the business’ right to choose, also. But it can cost them more in sales than it’s worth.
Some merchants whine that they would have to raise prices by 4%, or whatever, to offset the surcharge.
Nope. Since some customers pay in cash, the business would only have to raise prices by, say, 2% to offset the fees. (So, for that $100 item, instead of charging $104 for credit card usage, charge everyone $102.)
And when you consider that some customers, like me, won’t buy anything, and cc users usually buy more than cash customers, the actual expense is even less. So on our hypothetical purchase, raising the price to $101.50 would pay for the cc expense.
I’m glad businesses have a choice in most states.
Can a company charge you 5% of the total cost of the bill?
Do you mean can you charge your customers 5% of the bill? Sure, you can do anything you want as long as your customer is willing to pay.
Informative post! This is a great share thank you.
Glad you found it useful! Thanks for the comment!
We are heading into a user pay environment. Grocery stores charge for bags. Airlines charge for checked bags and nickel and dime customers for everything (leg room, window, aisle, food). Why should cash customers subsidize credit card users? Especially why should cash customers subsidize cash back credit cards? The bloody cash back concept is inflationary and should be banned. Government should make this taxable income with a multiplier of 2 or more. Definitely offer a discount for cash after setting prices at the cash back credit card level. Let the users pay!!!
From the article — “I say, your business must accept all forms of payment! Credit cards, mobile payments, PayPal, Apple Pay, Google Pay, cash …” Why? Only cash is legal tender. Everything else is not!
Hi and responding to the question below:
I agree that there is a limit to what customers will pay. And I’m not advocating hiding any costs to your costs (although I can argue that you and I aren’t privy to the costs that make up a shirt we buy from Walmart or a burger from McDonalds).
I’m not happy about these fees going to a credit card company but in reality, is there really much that we can do about this? We can fight and protest but unfortunately there’s always going to be fees. It’s just a cost of doing business.
What I recommend is giving your customers a choice. Charge them more if you need the money to make up the fees. Raise prices with those fees baked in across all your customers. But refusing to sell to a customer because they don’t carry cash is losing that customer altogether.
Hope that helps.
From Business Owner:
My question for Gene is, why would you want hidden costs going to a private company? The credit card company’s cost me over $30k/year in processing fees. All so that my clients can get $450 in vacation points.
Educate the consumer! Expect them to understand if it means that you stay in business! You shouldn’t be paying for their vacations, and at the mercy of credit companies.
Making the consumer aware of the merchant fees is beneficial to all of us. By raising your prices to compensate for the 3%, you are only benefitting the credit card company and disguising the cost to the consumer.
And what am I missing? This is economics 101. . There is a limit to what a consumer will pay for a product. If a new tax is levied on said product, or merchant fees suddenly go up, then either the business will lose some margin, or the price will go up. Econ 101 teaches us that the new expense will be shared roughly equally between the business and consumer.
My question for Gene is, why would you want hidden costs going to a private company? The credit card company’s cost me over $30k/year in processing fees. All so that my clients can get $450 in vacation points.
Educate the consumer! Expect them to understand if it means that you stay in business! You shouldn’t be paying for their vacations, and at the mercy of credit companies.
Hi, as a previous small business owner, I understand how hefty those credit card processing fees can cut into your profit margins, you would be surprised how many merchants over pay for their credit card processing. My advice is always, allow someone else to view your credit card processing statement for your business, it’s always a good thing to get a second opinion, sometimes they add something that we like to call ‘junk fees’ and many different forms they like to skim off on your profits. I can offer anyone a free consultation and analyst review on your credit card processing and would advise you which form of platform would benefit your business. Whether traditional processing payment (where the business owner takes the hit), or a (cash discount/service charge). This new service gets a peculiar rep due to the banks hating the possibility of customers using their credit cards less (which is something they are against). But it can also save the right business a ton of money. I offer a 2 free month trial service with no contract. Feel free to contact me if you have any additional questions.
Thanks John for your advice.
I have a small Sporting Goods store and have always taken credit cards. I had a company stop in today wanting me to go with them. He was telling me about the surchargee that I can incorporate into the card machine for 3 or 4% to offset the monthly fees that I have now with my current card company. Has anyone started charging the surcharge and if so how have your customers responded to it? I also have have the Mobile Deposit where I take a picture of the front and back of the check, and it will be deposited into my account.
As a law firm, we receive deposits to our trust account by credit card, and pay the merchant services charge out of our operating account. To the extent that we use those funds to pay client expense, such as filing fees paid to the government for applications (often multiple thousands of dollars), or perhaps another professional for his services, we add on a 3% surcharge to cover the added actual expense, rounded to manage the variations in charges and the expense of managing merchant services.
We could alternatively require all payment by check, or make the client pay the filing fees or other expenses directly, but believe it serves the client better for us to be able to track their expenses.
We fully advise the client of this practice, happily receive a separate check with no surcharge for those large expenses, and do NOT charge anything extra for our legal fees or routine minor expenses incurred in our practice. We have had no complaints.
As an ethical matter, we believe it proper to do this, and that payment of client expense, other than in certain limited cases, is an unethical subsidy to a client, justifying if not requiring this procedure.
I can’t believe this article is not challenged by every responding business. It is extremely expensive to offer credit card service to any customer. Who does one think should bear that cost? I say it is a shared expense and if the customer doesn’t want to help offset the expense than shop somewhere else. Show me a company that is Ok with footing the whole cost and I’ll show you a company on its way to bankrupcy. If you are telling me business alone should bear this burden, I say lets go back to cash.
I do take the 4 Credit Cards, and CareCredit with 12 month interest free for my clients. Last week I asked my Bank about a check reader to deposit directly to my account without having to run there physically to hand them the checks. I was quoted $1200 for a new machine & $600 for used with a $45/mo charge to be able to do this. I checked with 2 other Banks and one said I just would have to scan front & back of the checks and send to them & would be deposited pronto; the other said just take a picture on my phone and it would be deposited into my account.
How have others handled this?
Hi everyone – and thanks for your comments. So just to clear up any questions: yes, I own a small business. Yes, we do take credit cards. Yes, sometimes we even take credit cards on large ticket purchases. Why? Because that’s what my clients prefer. It’s not about me. It’s about them. As I explained above, I know what my cc fees are annually and build that cost into my pricing.
Also – for those that are reluctant to accept credit cards because it will eat into your profit and you’re unable to adjust pricing then I ask: what’s your profit on a lost customer?
You’re in favor of a law that says businesses can’t charge extra (ala pass the fee onto the customer) b/c of using a credit card, but you are fine if the businesses raise their price (ala build the fee into the price). What am I missing? It’s the same thing!
At the end of the day, you’re paying the same price, whether they put the 3% in, before, or after….
I am just curious if Gene Marks has ever owned a small business. It is easy to come up with a one size fits all answer when you don’t even know what the question is. Not all businesses are able to hide the cost of credit card processing in a price increase. Also why should ALL of a business’ customers pay extra so that you don’t get your feelings hurt?
I feel that the system where everybody uses credit cards allows credit card companies to charge too many fees, and when businesses have to pass that on to their customers, the customers end up being the ones who have to pay for it.
Businesses offering discounts for cash and customers taking advantage of this, should not upset anyone except the credit card companies, (and hopefully it also does something to keep them from driving up their costs). I really don’t understand why Gene Marks would be upset by this, except that he expects all cash paying customers to subsidize the cost of the credit card paying customers, which is exactly what happens when you follow his model.
I have to wonder if Gene Marks takes credit cards for his writing fees and eats the cost…..
A law, really? Let the business decide whether to charge an additional fee or not for credit card processing. I wouldn’t do it personally, but I’m for giving the business owner the right to make that decision as long as it’s posted so the customer knows about it before paying. If the government doesn’t allow these businesses the option to keep prices lower for cash customers and charge a fee to credit card customers, they will just raise the prices on everyone to cover the additional costs. It doesn’t take a rocket scientist to figure that out the cash customers would then be paying more to cover the additional cost of the credit card processing fees for the customers who prefer to use credits cards. Let the business owners decide for themselves, and keep the government out of it.
This article is clearly one person’s opinion. There is no reference to research or statistics on the matter, and does not even try to address different business models. What this tells me is that The Hartford ‘Small Business Ahead’ blog is a useless editorial page and has no credibility.
This was an opinion piece by our columnist Gene Marks. -Elizabeth
A law. No. The beauty of our system is that if customers don’t like what they’re getting, they can go somewhere else. When this happens enough then businesses can adjust, if they need to. Let capitalism run its course. It produces much better results when left alone.
Wow, the author is pretty cavalier with profit. If your net profit is 15%, then 2.8 or 3% is significant. I’m not in the restaurant business, but it appears there are not many more demanding professions with such tight margins.
I have a small, for profit preschool. For the few families who prefer to pay by credit card, I use a PayPal account. There is no monthly fee; they take about 3.2% of each transaction. I give a 3% discount for payment by check or cash to the other clients. Essentially, I get the same revenue – the cash clients feel they’re getting a deal and the credit clients get the convenience, or points or rewards as the case may be.
Have to love it when someone who may not even operate a business tells those who do how to run it. As a contractor who sells installed flooring for commercial projects, a single transaction could result in thousands in credit card fees. And American Express is the worst-somehow they think their card is worth more than the others. You have a 50k bill and want me to take a CC? You are paying for it.
All sorts of payments are made online, and many charge for CC payments. When making these payments I always pay by e-check. And when paying my CC bills I pay the balance off every month. I even hate paying them foreign exchange fees. Did I say I hate the CC companies? Yes I do. They enslave millions of people.
I do accept cards, As I feel that it would be hypocritical of me not to, since I use my card everywhere! I just view that as part of the business expenses to pay the fees for my clients to pay in the most convenient way possible for them. I do let them know that we would appreciate cash tips whenever possible, but they really are welcome to use their credit card whenever they’s like to.
I do wonder though, when I am a patron at another business, how they get away with we quiring a minimum amount for excepting a card i.e. $10 minimum??
It is a very good idea and business smart for a retailer that mark up their own price on items they sell or service they provide but as a small insurance broker with and average of 7.5% to 12.5% commission how can we give up on 2.5% profit {besides for monthly fees etc.}
I am surprised I haven’t heard more comments about certain businesses making more sales by accepting credit cards, keeping cash flow smooth, preventing embezzlement, and convenience of not going to the bank to make deposits and risk errors. When a business doesn’t accept credit cards, I tend to buy less and perhaps leave less tip, mainly because I just don’t carry much cash anymore. Those businesses are tripping on pennies on the way to dollars. They lose much more than 3%! Also, My perception when a business doesn’t accept credit cards or wants to charge for it, is that they don’t want to report all their cash income to avoid taxes! Not a good image, even if not the case.
I run businesses that takes all forms of payment. I absorb the costs for the most part. I discount immediate payment by cash or check. What I do not see payment as a debit/ATM card. Many processors seem to offer this as an option and in most circumstances, it is a small flat fee. As a user of business ATM/Debit cards, I choose debit any time I can. I avoid using my real credit cards because the interest charged on them is high. I don’t understand why busy restaurants or stores don’t take this option. Even if I use my debit card, the accepting merchant still runs it as a credit card. Something to explore? If you don’t ask your processor, you may never know as it is most likely to their benefit to run everything as a credit card to charge the discount rate instead.
I wanted to comment on this from two perspectives.
First, as an attorney, I counsel small businesses. Those that chose to begin accepting credit cards without a surcharge experienced a very significant increase in business volume; those which did not make that choice, did not. It would appear making it easier produces more sales; and that extra profit far more than covers the charge amounts.
Second, as a customer I have discovered that I both feel insulted and end up not patronizing businesses that add a surcharge for credit cards. After all, I can get it somewhere else that doesn’t add that charge…and I do. Have to admit I was not expecting my own reaction but that’s what happened.
Totally disagree with article. The fees are typically around 3% and this adds
up quickly in a competitive environment. The banks, (credit card companies),
are holding us hostage.
They offer cash back and other incentives that we pay for.
That is what should be illegal.
I have a very competitive alternative medical practice.
I take every and any form of payment the patient chooses to make.
I have a fee schedule for services rendered.
The fee schedule is discounted for cash or check, and full price for credit cards.
The patients that pay by cash or check love the discount.
The patients that pay by credit love the convenience and the perks.
Where’s the problem?
I have a small specialty retail store where people are constantly asking me if I take credit cards (I do). Cash is so uncommon these days I can’t see not accepting them. Usually someone will buy more if they can use their credit card. To add any type of amount on top of their purchase seems like a deterrent to more sales. Yet, go to some of these retail locations owned by those less concerned if a customer comes back (vacation destination for example) and they have no problem requiring a certain amount on a card or charging additional to use one.
A friend owns a retail store where she offers you a chance at a gift certificate if you pay with cash instead of credit. Seems to work for her, the jar is always full of people hoping to win one. Meanwhile, she’s saving a ton in credit card fees.
As far as discounting for those who use cash instead of credit I like the idea of giving them something instead. A simple, free item has encouraged people to do all kinds of things. Hell, I’d pay cash over credit if I got a cool pen (with your name on it of course!) with my purchase.
I own a restaurant. My Merchant Fees run about 3.0% a month on our total credit card sales.
We are a fine dining restaurant that cannot exist without using credit cards.
I consider the 2 or 3 major cards as monopolies. They send regular multi-multi page updates in small print on their fee structure for each of what must be close to a thousand different card types. They ask if we accept these terms… I reply that I have no choice.
Here are my ‘back of the envelope’ calculations for what the Credit Card companies really charge:
The 3% fee is for a month’s credit card sales; Since the credit charges are spread over a month and are therefore only outstanding an average of 15 days, I calculate the actual monthly fee to be 6%. This translates into an annualized fee of 72%.
In addition, credit card users that do not pay off their monthly balances incur an additional 15 to 20% interest charge, bringing the total loan charge to as much as 90+% on an annual basis.
I understand that there are computer networks and systems that need to be built and maintained; I understand that credit card payment defaults need to be covered; I understand that administrative overhead must be paid for. I understand that a reasonable profit must be made.
All I wish for is either more competition to enter this market place to break up this hugely profitable monopoly, or Government authorities step in to regulate it.
Andrew Peterson with a shout-out to the Honorable Senator Elizabeth Warren
Let the client know in my competitive business of buying and selling antiques and vintage items that you are giving them an additional discount by N0T charging them a premium for using a credit card.
Barbara Johnson
JohnsonEstateSales.com
I am in a competitive business, retail selling of vintage and antique jewelry, art, and all items saleable.
It is a competitive business. EVERYONE who buys wants a “deal” The question is whether to just let them have an extra percentage via credit card use, or give a discount for cash sales. It is all virtual anyway, and questionable as to pricing. The public senses this and is quite agressive about it.
Sellers should coddle their clients. If it costs at extra 2.5%, give them that benefit. Let them know you are doing it in thanks for their business.
Barbara Johnson
JohnsonEstateSales.Com
I accept all credit cards including American Express.
I do not charge any additional fees, I live in Texas and it is illegal, however many municipalities charge “ convience fee”- I don’t understand how they can charge me these fees when in Texas it’s “illegal”, many folks do charge extra- I do not!
I
Diana, You hit it on the button. I had the same issue, I wanted to accept credit cards but it didn’t make sense since the carries don’t want to absorb the cost why would I, while I’m only a middle man and make no profit of the payment transaction.
I found the following site that solves the problem, they advertise to be legal in all 50 states since they don’t sell anything and are just the processors.
https://epaypolicy.com/
They do charge a $20 monthly fee for the service but that might be worth it for you.
Hope this helps.
I agree. When you are in a service industry with low profit margin and low demand for credit card processing it only makes sense to charge the processing fees to the few customers that want the points or miles rather then raise rates for everyone.
I’m a self-employed IT consultant, and I accept credit cards, as well as most of the electronic payment services that I’ve heard of. As the article says, the last thing a business wants to do is make it harder for customers to pay. Sure, it costs me something in fees to accept credit cards, but those payments don’t require trips to the bank (some handwritten checks don’t scan clearly enough for mobile deposit, and cash can only be deposited by going to the bank), so I get that money sooner.
Accepting credit cards benefits my business in more important ways, though: 1) It tells customers that I’m not some fly-by-night operator, and that I’m not worried about chargebacks. This boosts new clients’ confidence in me, even if they choose not to pay by credit card – and, in fact, most of my clients pay be paper check. 2) Most of my competitors don’t accept credit cards, and some insist on cash payments. This helps drive business from them to me – see #1 above. 3) Some clients spend more if they can pay by credit card.
I do not surcharge clients for paying by credit card. One of my business rules is to avoid practices that annoy clients, and a credit card surcharge would rank high on that list, probaby right after charging for not fixing anything. I build the cost into my prices, as the article suggests.
Do I enjoy sharing my fees with my credit card processor? Of course not! I naturally prefer being paid via methods that don’t involve processing fees. But my business has done better since I started accepting credit cards, and I’m not going back to not accepting them. This may not be the right thing for every business, but it’s definitely right for mine.
FYI, the credit card company charges the small business a monthly fee, and then a % for every transaction when customers use a credit card/debit card. A business could pay up to $150 per transaction if the charge is large enough.
Those fees cuts into profits, so a fee has to be charged, or the merchandise has to cost more. If the credit card company/bank didn’t charge fees, small business wouldn’t have to either .
I wonder if the author of this article has ever owned a small business?
Yes, many jurisdictions now have laws making it illegal to levy a surcharge on credit card purchases. Bankers buy politicians, and we all pay the price.
Why should I pay more cash due to credit card fees? Let CC users pay for their convenience.
You do it everyday when you walk into a large retailer. You ever go to Walmart, Meijer’s or Target?
We are a not-for-profit that rents our event space for weddings, receptions, fundraisers, etc., and we do accept credit cards for payment of venue rental – and we do charge a service fee for credit card transactions. Since our rentals start at $1995, we would lose a substantial amount of money by absorbing credit card fees. We give the options of cash, check or credit card, and make note of the service fee for credit card payments in all of our rental information.
I have thought about this in the past. I am thinking of giving a discount for cash/check instead of charging extra. Since my fees can range from $150 to several thousand dollars for a large corporate tax return, I am thinking of raising my prices 5% and offering a 5% discount for cash/check.
We are a non-profit child care facility and started “charging” for credit cards a year ago. We also haven’t raised our child care tuition for 2 years. Rather than raise our rates, we chose to save money by not spending it, one way was credit card processing fees. Our clients can pay with cash, credit card or local check. If retailers/fast food, etc. could give an option of lower prices with credit card convenience fees, some of us would appreciate it and would just pay cash. The reward cards that “pay back” customers take a hefty chunk (via increased processing fees) out of the money businesses are supposed to make, etc., I could go on and on….
Well, this may be true when you sell lasagna and your profit is between 100 to 200 percent, or when you sell sushi with the profit of a 1000 percent.
But when you sell insurance, and your commissions are 10%, shedding off 2.5% (which is in my case between 3.2 to 3.7 percent) equals a third of my income. So we’re left with nothing else but surcharge for credit card payments.
And when insurance carrier decides to absorb the cost credit card transaction – then we can talk about accepting credit cards.
We’re insurance agents and we don’t accept credit cards because we don’t set our prices, we would never get reimbursed. I’ve heard other agents charge back to the credit card fee to the customer when the policy is agency billed, we even have a premium finance company that does the same, and we love them for it. Most premium finance companies that we’ve used don’t accept credit cards. Some business startups would rather pay with a credit card and pay the fee than pay with a checking account. Sometimes paying by e-check even comes with a flat fee. We would love to accept credit cards, but we don’t pass the charge along in brokers fees or anything because 99% of the time we don’t charge brokers fees, so we have no way to recoup the costs. The demand for credit card payments is also so minimal, the monthly fees and per transaction fees would never be recouped. I’m curious how other agencies handle this, if they accept credit cards for agency billed policies and how they recoup the costs.