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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View Comments (55)
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.