Credit Card Surcharging: Advantages and Disadvantages

Credit Card Surcharging: Advantages and Disadvantages

Credit Card Surcharging Advantages and Disadvantages
Learn more about the pros and cons of credit card surcharging for your business

No business likes to pay the processing fees that come with accepting credit cards.  For businesses that run on a tight budget, this expense may be too difficult to handle.  However, not accepting credit cards as a form of payment is also detrimental to a business as most transactions are paid for by credit cards.  This can put businesses that struggle with their profit margins in a tight spot.

One way businesses can offset credit card processing fees is by passing the cost of the fees to the customer.  This practice is known as credit card surcharging.  Customers who pay with a credit card will get charged an additional fee to help cover the processing fee for the business.  However, the decision to engage in credit card surcharging is somewhat controversial.  While it can help improve profit margins for businesses that already have tight margins, customers may not appreciate the extra fee.

In this blog, we will discuss the advantages and disadvantages of credit card surcharging for businesses that are considering taking this step.  Businesses can also help improve their profit margins by working with a professional like First MCS to implement an effective and efficient point of sale POS system.

Why Implement Credit Card Surcharging?

For businesses with tight margins, credit card surcharging can save your business the cost of the credit card processing fees.  Taking this step can save a business by keeping it profitable as you will not only save money from the processing fees, but also be able to continue to take credit card payments.  Credit cards are the most common form of payment in the U.S. as they accounted for 38 percent of point-of-sale payments in 2020.  Not accepting credit cards may hurt your business further as customers who prefer to pay by card may take their business elsewhere.

The advantage of credit card surcharging for your business is obvious as it saves you money which can increase your profit margin while still accepting credit card payments.  Make sure that you have signs informing your customers that they will be charged an additional fee for using a credit card.  If your business must implement credit card surcharging, it could be a good temporary move to help get your profits up and stabilize your financial situation.  Once your business becomes more financially stable, consider ending credit card surcharging for the convenience of your customers.

Disadvantages of Credit Card Surcharging

While credit card surcharging can benefit your business from a financial standpoint, this practice does have several potential drawbacks that can negatively impact your business.  The following are the main disadvantages of credit card surcharging:

  • Doesn’t apply to debit cards: Credit card surcharging only applies to payments made with a credit card. You cannot apply the surcharge to a payment made with a debit card, even if the card is run “as credit.”  Before implementing credit card surcharging, review your sales data to see how many payments are made with debit cards.  If your customers are more likely to pay with a debit card than a credit card, credit card surcharging may not be of much help.
  • Legality of credit card surcharging: There are currently ten U.S. states that have either a ban or restrictions on credit card surcharging, including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. If your business is located in any of these states or does business in these states, check to see if credit card surcharging is banned or restricted so your business does not violate any laws.  If you do not do business in any of these states, credit card surcharging is still an option.
  • Customer response: This is the most important thing to consider before implementing credit card surcharging as the way customers view your business can have a drastic effect on your bottom line. Many customers will not like the additional fee and it could cause them to not only take their business elsewhere, but also complain online about your company which can cause you to lose more customers.  You may even lose loyal customers who view the surcharge as a sort of penalization.  Before implementing credit card surcharging, ask your customers how they might respond to the additional fee.  If your customers react negatively to the idea, implementing a surcharge may cause more of a loss to your business than a gain.

Point of Sale and Merchant Services from First MCS

Credit card surcharging can be an effective way to help increase and stabilize profit margins, but customer backlash to the additional fee could cause your business more harm than good.  Before implementing credit card surcharging, make sure you consider the potential backlash, as well as the legality, so that you make a decision that is best for your business.

At First MCS, we provide merchant services for businesses that include point of sale (POS) systems that allow for credit card processing.  Our POS systems, equipment, and software can streamline your payment processing and integrate your sales and inventory data so you can check this data from anywhere in real time.  For businesses that want to implement credit card surcharging, we can automate this process within our POS systems.

Contact First MCS today for more information about our merchant services.

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