Credit card fees

[HCHTech]

I have always built the merchant fees into my normal pricing structure - i.e. included those fees in my calculation of how much our hourly rate should be. I've noticed over the last year, though that the number of folks using credit cards has increased. We're up to about 40% of bills being paid with a card. (it used to be 10%!). That means my equation no longer balances, and I've been thinking about the option of just making the client pay those fees (my merchant setup would do that automatically if I choose this option, so no more work on the front end, but that could possibly add more admin work on the back end when it comes time to balance the accounts at the end of the month, I don't know.)

One of my clients, who has a couple of hair salons, splits the fee - the customer pays 50% and he pays 50% - I guess his merchant setup lets him do that. This sounds like an interesting "meet them half way" solution, if that ends up being an option for me.

How are you handing credit card fees in your business?

 

[River Valley Computer]

In the last year our credit card usage has diminished. I would guess that now only about 15-20% use credit cards - most are using cash or checks. When they do use credit cards we add the fees onto the invoice. And knock on wood - in being in business over twenty years, we have only received one bad check.

 

[britechguy]

I guess it's a matter "of scale" when it comes to this. I've never accepted credit cards at all, only cash or check, since 2008 and, more recently, I will accept the occasional PayPal and/or Venmo payment (and if it's PayPal, done as a "to a friend" payment so as to avoid the insane fees. If I do 3 PayPal payments per year, that would be a lot).

If I were accepting credit cards, my approach would be to build the fees into my own fees, and then offering a discount equivalent to whatever percentage that happens to be for cash or check. That seems to be common around here for a number of small businesses, and small "mom and pop" restaurants in particular. One that my partner frequents offers 10% discount for cash and another I go to occasionally offers 4%.

 

[HCHTech]

One that my partner frequents offers 10% discount for cash and another I go to occasionally offers 4%.

That 10% number sounds too high, like maybe they aren't reporting that income at all, so saving the taxes as well as the fees! My fees average 3.78%, which sounds high, but I think a lot of it is down to folks using rewards cards. It has certainly never been my intent to subsidize some client's ski trip or caribbean cruise when I pay that charge every month. It never bothered me when it was two or three hundred dollars, but it was $850 last month and over $700 the month before that - so lets just say "it has my attention". I think what has me leaning towards just passing the fee onto the customer is that the amount of folks who pay with a card is unpredictable. That argues for only those folks bearing the cost of the fee. If I keep building it into my hourly rate, then the folks who don't use a card are subsidizing those who do.

I'm a firm believer in never placing an obstacle between a customer trying to pay and me, so we have always taken all cards. Surprisingly, requests for Paypal or Venmo are almost non-existant. I'm just as glad for that since I'm not keen to bring an unregulated third party into my revenue stream.

We've also been lucky - in 22 years, we've only ever had one chargeback (older residential client who ended up with dementia) and 2 bad checks (one we took to small claims court and when she didn't show she was arrested at her place of employment!).

 

[Rosco]

I tack the fee on and am upfront with each new client. I tell people that cash or check is better for us all. But too many people use only cc to not take it i feel.

 

[YeOldeStonecat]

Or...bury increased costs into your fees.

 

[River Valley Computer]

Or...bury increased costs into your fees.

That can be done but it's like making EVERYONE pay the stupid fee even though they aren't using a credit card.

 

[britechguy]

That can be done but it's like making EVERYONE pay the stupid fee even though they aren't using a credit card.

Not that I don't get what those of you who say this are saying, but this practice has been a fact of life since at least the 1970s, and across all kinds of retail businesses. Where I grew up (western PA) there was once a department store chain called Hills that started out life refusing all credit cards and having pricing ever so slightly less than many competitors, but very slightly less. That policy didn't last more than a couple of years, because they came to quickly realize that they had, using @HCHTech's words, "placing an obstacle between a customer trying to pay," and them. Credit cards had become very common by the time I left home in 1984, and these days they're far, far more common. I don't use cash much at all anymore because credit is just so much more convenient. I don't carry a balance, it's just an "electronic cash replacement" where I pay the full balance every month.

We've all been paying a fraction of a percentage point through maybe a percentage point "forever" for many merchants to cover their fees. Just as all of us have been paying a tiny fraction of the purchase cost of a Windows computer, iPhone, Android device, etc., to support universal (for some value of) accessibility on those devices. The cost of development of things like Narrator, TalkBack, VoiceOver and the like certainly is not being borne by, or could be borne by, the one half of one percent of the population as a whole that actually needs/uses it.

There are certain costs spread across us all for all sorts of things where we are not necessarily the direct beneficiaries.

That's why if I were to do something, I'd build-in to my standard fee and offer a discount for cash payers. It's just easier that way.

 

[HCHTech]

That's why if I were to do something, I'd build-in to my standard fee and offer a discount for cash payers. It's just easier that way.

I have concerns that this "easier" benefit goes away when you do anything but collect payment at the point of service. For commercial work where I am accumulating an invoice during the month, then sending it out at month end, not knowing the actual amount due for that invoice until the point of payment seems like a huge accounting nightmare to me.

 

[britechguy]

@HCHTech,

I'm not quite sure I understand your concern only because you can't compute any discount until you have an actual amount due to do that on. I've always seen discounts computed at time of payment, and even seen Excel forms used with a checkbox that, when checked, will compute it and present it as a line item on the invoice.

Of course, I don't ever collect except "when services are rendered" or afterward. When I was doing the work for the local machine shop where we got rid of their on prem server and moved over to M365 I kept tallying over the course of a couple of months. The only thing I took payment for before the end of the job was for the hardware I ordered for them. That got billed as soon as received because, as far as I was (and am) concerned, it's not my property from the get-go. I'm just performing a service to make the client's life easier.

 

[HCHTech]

I'm not quite sure I understand your concern only because you can't compute any discount until you have an actual amount due to do that on. I've always seen discounts computed at time of payment, and even seen Excel forms used with a checkbox that, when checked, will compute it and present it as a line item on the invoice.

It's probably just an uncomfortableness with that potential reduction in already stated revenue. I imagine (guess I'll have to look it up for real now) that the real answer is that I would have to create a general journal account for this as-yet-unrealized expense or negative revenue at the time of invoicing. Not recognizing it until it is realized seems like a mistake, especially if you are on the accrual method (as I am).

 

[YeOldeStonecat]

In the past, we already preferred checks...over keeping CC's on file.
But then...many banks started charging for checks deposited in business accounts...and then they offer those check scanners...for a fee...
Working with checks takes up time (which...is money).....
Keeping CC's securely on file within your PSA and billing system...automates things, doesn't take any time with your monthly billing.

IMO..it's not worth the time to try to separate having extra charges for the CC users. Just..blanket system wide increase. Yup...those customers who pay check pay extra...but it's not going to waste. Processing checks takes time and for some businesses..there is a cost there too. All of our costs across all areas are going up.

 

[britechguy]

As a complete side note, I hate accounting methods almost as much as I hate the U.S. Tax Code.

They've always been more about obfuscation than clarification and can be used "very creatively" by those so inclined.

What Shakespeare said about lawyers also applies to accountants, in my book!

 

[Diggs]

My thought was that if I was worried about credit card charges then I'm pricing my work too low.

 

[HCHTech]

My thought was that if I was worried about credit card charges then I'm pricing my work too low.

Oh, for sure. I think part of it is just a psychological reaction to the charges being (my personal definition of) high. <$500 = "Not high". >$800 = "WTF is this?!" haha.

 

[ell]

I have always built the merchant fees into my normal pricing structure - i.e. included those fees in my calculation of how much our hourly rate should be. I've noticed over the last year, though that the number of folks using credit cards has increased. We're up to about 40% of bills being paid with a card. (it used to be 10%!). That means my equation no longer balances, and I've been thinking about the option of just making the client pay those fees (my merchant setup would do that automatically if I choose this option, so no more work on the front end, but that could possibly add more admin work on the back end when it comes time to balance the accounts at the end of the month, I don't know.)

One of my clients, who has a couple of hair salons, splits the fee - the customer pays 50% and he pays 50% - I guess his merchant setup lets him do that. This sounds like an interesting "meet them half way" solution, if that ends up being an option for me.

How are you handing credit card fees in your business?

My banking app allows me to tack on a percentage to cover the fee, but I always inform my clients there is one, now I offer venmo too though, the younger folks like that.

 

[callthatgirl]

I cover the fees in my hourly rate, so I don't have to mess with calculations.