29th September, 2016

Paying for goods or services by credit card is extremely common, as is seeing a credit card surcharge passed on by the vendor.

While it’s generally accepted, is seeing the credit card surcharge considered best practice?

The cost of a convenience

Customers love using credit cards. Cards are practical and allow customers to pay their bills quickly and easily.

According to research from Deloitte on behalf of Visa, 73 percent of clients rated faster payment as the main benefit of accepting credit card payments. Accepting credit cards means less effort chasing payments and better customer relationships – all of which lead to improved cash flow.

However, allowing the convenience of credit cards means your business will be exposed to additional fees. As a guide, MasterCard and Visa cost about 1 percent to 1.5 percent and American Express payments can cost anywhere between 2 and 3 percent.

Covering the fees

So who should be responsible for the cost of this convenience? The business or the customer?

While the customer benefits from the ease of credit cards, they see the act of passing on surcharges as an annoyance which creates tension in the business/customer relationship. Seeing a surcharge on their invoice can reduce the number of customers willing to pay by card to almost half – and can actually reduce the likelihood that they’ll pay your invoice at all.

Limiting payment methods generally doesn’t help. When customers pay by alternative methods, your collection times will increase and you’ll be chasing unpaid invoices more often.

Create a win-win solution

So, what to do?

The easiest solution is to factor the credit card surcharge into your costs. Accommodate the surcharges within your pricing, in the same way that you account for other overheads such as staff salaries and marketing costs.

It would be unlikely that a customer would be bothered by a slight price rise, but they may get angry at being nickel and dimed with surcharges. This solution will keep your customers happy while making sure you’re not out of pocket.

What does the law say about passing on credit card surcharges?

If you decide to pass on surcharges, make sure you’re in line with the new surcharging laws from the ACCC.

As of 1 September 2016, the ACCC has begun cracking down on unnecessarily high surcharges. You cannot implement surcharges on credit card payments over the actual cost of the fee. This means that the only fees you’ll be able to pass on are bank fees and terminal costs.

Currently this new law applies to all businesses that have gross revenue of $25 million or more, gross assets worth $12.5 million or more, or with 50 or more employees. However, it will apply to all businesses from 1 September 2017.