Can your business pass the credit card processing fees to customers? When you look at all of the potential solutions for accepting credit cards, one question might come up. Some people think it's possible, but others disagree. Let's take a closer look and see what we can find out about passing these fees down to customers!
Credit card processing fees are the costs incurred by a business owner to accept credit card payments. However, transaction fees, flat fees, and incidental fees are all factors determining the overall cost. Credit card processing fees typically range from 1.7 % to 3.5 % per transaction. However, the payment processor you select will ultimately determine the cost of processing credit cards for your business.
When someone purchases something with a credit card, they're paying with "credit," meaning that the customer is borrowing funds from their financial institution for the amount of the purchase. However, the actual transaction isn't completed until this borrowed money is sent to you. The business's account must first be credited before you can start using it.
There are several different ways that business owners can pass the cost of processing credit card transactions to their customers:
Flat fees: Flat fees are an agreed-upon amount that you'll pay your payment gateway or merchant services provider each month. Transaction fees coupled with flat fees add up to the total cost of accepting credit cards.
Transaction fees: This is when you require your customer to cover all transaction costs by adding them directly to the price of the goods and services they're buying. If this option is chosen, it must be made clear in your contracts and terms and conditions. Hence, there's no confusion about how these extra charges will impact purchase prices.
Incidental fees: When incidental fees occur, such as a chargeback or insufficient funds, your customer will be responsible for paying them.
Make sure that it's clear who is responsible for what: If you choose to pass on the cost of credit card processing to customers by adding transaction fees to prices, ensure that this is clearly stated in written agreements with them. This way, they will not become angry or, worse, file a chargeback with their bank, resulting in additional fees for you.
Know what your options are: Since there are three possible methods of charging customers for credit card acceptance, make sure you fully understand all three before deciding how best to proceed. There may also be some restrictions on what you can and cannot charge for, so be sure to stay within the law.
Set your prices according to your payment processing options: If you're planning on including transaction fees in product and service pricing, you'll need to put those prices before knowing the exact amount of those transaction fees. This will ensure no confusion or disagreement about what customers owe when it comes time to make a purchase.
Billing errors: If you set your credit card prices too low by accident (or on purpose), let your customer know as soon as possible. You could lose significant income if they don't notice the error and pay their final bill without realizing they were undercharged.
Passing on the cost of credit card transactions to customers has the advantage of lowering payment processing fees and increasing cash flow because payment is received quickly. Customers can take their business elsewhere if they don't like the prices you're charging.
Passing on credit card processing fees to customers has the disadvantage of potentially resulting in lost sales if the price rises. Because not everyone can afford to pay more for a product or service, some of your clients may find it difficult to purchase from you.
Customers may also try to bargain a better per-transaction price with you, especially if their purchases come with additional fees. This means lost revenue and time spent negotiating over prices.
The risks involved with Not Passing on Costs Associated With Accepting Cards as Payment are that the fees associated with the credit card market will keep increasing over time. You can expect transaction fees to rise in line with this trend, which means you'll have to cover these costs by raising your prices.
It also means that customers could lose interest in shopping at your business if they feel like they're being charged too much for their purchases. This is especially true of customers who pay for goods and services using a form of payment other than credit or debit cards—for example, cash or cheque. The price differential between different payment methods could lead people to use less expensive forms of payment when buying from you, costing you even more money.
Suppose you're hoping to avoid the risks involved in either method (not passing on credit card processing fees or including transaction fees). In that case, it may be a good idea to choose alternative forms of payment like cash, PayPal, cheque, and debit. This way, you can keep your business running free of the added costs of accepting cards as payment.
In this article, we have discussed the best methods of raising cash quickly for a small business and the pros and cons that come with each. It's always possible to use a combination of these methods to expand your company's cash flow. Still, you'll need to pick one form and use it consistently to get the most out of any cash infusion.
Contact BNG Payments to learn more.