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Credit Card Surcharges

A Guide to Credit Card Surcharging For Small Businesses

Credit card surcharges are fees that business owners add to credit card transactions to cover the cost of accepting credit card payments. The key thing to know is that not every state allows businesses to apply surcharges, and even where applying surcharges is legal, merchants must follow clear-cut protocols.

Below we’ll walk you through what surcharging is, how it works, and how to apply surcharges at your business.

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What Is a Credit Card Surcharge?

Credit card surcharges are small fees that merchants tack on to credit card transactions. Every time you accept a credit card payment at your business, you’ll get charged credit card processing fees. By applying surcharges (or “surcharging”) every time a customer pays by credit card, you pass that cost on to the customer.

Also known as a “checkout fee,” surcharging is just one way you can reduce the impact of credit card processing fees on your bottom line, and it is legal in most states if done correctly. Note, however, that you cannot add surcharges on debit card transactions in any state.

How Does Credit Card Surcharging Work?

Credit card surcharging works by allowing merchants to add a fee at the point of sale whenever a customer chooses to pay with a credit card. The fee could be a flat rate or a percentage. Either way, credit card surcharges allow business owners to recoup the cost of credit card processing fees.

State laws vary in terms of how a business owner can practice compliant surcharging. Plus, you’ll need to notify card brands that you’ll be surcharging and prepare your place of business. But the overall idea is that you, the merchant, can pass on your processing fees to customers by applying a surcharge fee at the point of sale whenever your customer pays with a credit card.

What States Allow Surcharges?

The practice of adding credit card surcharges is still officially illegal in 10 states and one territory:

  • California
  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • Puerto Rico
  • Texas

It’s worth noting that anti-surcharging laws have been challenged in several of those regions, but for now, it is still illegal in each state and territory listed above.

Credit Card Surcharging - How to Get Started

Once you’re sure your state allows credit card surcharges, you’re in a position to take steps toward making it happen. Here’s how to get started and some best practices to make sure your operation applies credit card surcharges smoothly.

Notify your acquiring bank and each card brand you accept.

Contact your merchant account representative and make arrangements to send out a written notice to your acquiring bank and the card brands whose cards you accept at your business. Each bank and card brand will have its own procedures, but you’ll typically need to give a 30-day notice.

Here you can find a Visa surcharge notification form and a MasterCard surcharge disclosure form.

Disclose that you surcharge at your place of business.

Once you decide to apply surcharges to your credit card payments, you’ll be required to post a sign at the entrance of your business and at every POS terminal. The sign at your entrance should indicate that you charge checkout fees.

The sign at your point of sale should indicate the percentage or amount of that fee. You can use or model these Visa disclosure sign samples.

Update your POS software to include surcharges.

Your customer’s receipts should include a separate line item for surcharges. Your surcharges must also be reported to your payment processor and card networks. Get in touch with your processor to update your software accordingly if needed.

Figure out how much you’ll surcharge.

This is crucial because your business cannot make a profit off surcharges. Officially, your surcharges are capped either at 4% or the actual cost of processing—the lower of the two is where you should set your surcharge fee. Calculating your credit card processing effective rate is one way to help estimate an appropriate surcharge fee for your business.

There are some caveats. You can choose to apply surcharges to a specific card brand (e.g., only Visa cards) or to a specific type of card (e.g., only rewards cards)—you can’t do both, though. In either case, the above covers the gist of how to get started.

Should You Add Credit Card Surcharges at Your Business?

Surcharging at your place of business is a decision you’ll have to make based on a few factors. There are several ways to alleviate the burden of credit card processing fees, but if you’re leaning toward surcharges, here are some considerations:

  • Do your competitors surcharge? If you’re the only one in your niche or market who applies credit card surcharges, you might lose customers before they ever step foot in your store. Consider researching your competitors’ practices to see if surcharging is common or not.
  • How will your customer base react? If you’re already in business and thinking about adding a surcharge, you might get some pushback from your customer base—especially if most of them pay with credit cards. You’ll need to decide if the benefits of credit card surcharges outweigh the potential drawbacks in your day-to-day interactions with customers.
  • What product do you sell? If you have a particularly loyal customer base or a product that is especially unique, you might get away with adding a surcharge. If your customers are loyal to your brand, they might be more inclined to pay a checkout fee. On the other hand, a 3% surcharge will add up if you sell products that are particularly expensive.

At the end of the day, the decision to apply credit card surcharges or not depends on how you want to do business and what your business can afford in the long run. this isn’t an exhaustive list of considerations, but the bottom line is that adding a credit card surcharge tends to lead to lower average tickets and flustered customers.

If your goal is to avoid taking on the brunt of credit card processing fees, you have plenty of other options, as well, including cash discounts, convenience fees, or even just building your average processing costs into your pricing across the board.

Credit Card Surcharge FAQs

What is the average surcharge amount?

The average surcharge amount lines up with the average credit card processing fee, which is about 1.3%-3.5%. Remember, your surcharge cannot exceed the cost of processing credit card transactions.

How do I calculate my credit card surcharges?

While there’s no definitive answer, a good way to figure out what you should surcharge is to calculate what you’re paying in processing fees. A fairly accurate way to gauge your typical processing fee is to calculate your average card processing effective rate over the course of a few months.

Can I add a surcharge on debit card payments?

No, you cannot add surcharges on debit card payments. You can only add surcharges on credit card purchases.

Is there a limit to how much I can surcharge?

Yes, there is a 4% limit to surcharges (2% in Colorado). But the true limit is that your surcharge cannot exceed what you pay in processing fees. So if your processing fees are 3%, your surcharges should not exceed 3%.

What’s the difference between surcharges and cash discounts?

Surcharges and cash discounts are not the same thing. Basically, a surcharge is a fee you apply to credit card transactions at the time of purchase. A cash discount program allows business owners to build fees into their prices prior to any transaction, and any customer who chooses to pay with cash will receive a “cash discount.”

Can I completely eliminate card processing fees?

Credit card processing fees are non-negotiable. Every business that accepts credit cards will have to cover the cost of interchange fees and card brand fees, but applying a surcharge to credit card transactions can virtually eliminate those processing fees.

What if I have businesses in multiple states?

You can apply surcharges in the states where it is legal. You cannot, however, apply surcharges in states where it is illegal.

Get a Free Credit Card Processing Consultation

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