Surcharges, Convenience Fees, and all the confusion around them

There’s a ton of chatter online about payment processing fees, surcharges, and convenience fees, and I thought I would drop in to share some helpful information for those of you that are interested in potentially implementing these in your business.

Here’s a couple things that are necessary to know when brainstorming ways to offset the cost of payment processing:

1. There are surcharges and convenience fees. These are two very different things, with different sets of rules. How you want to run your business dictates which one makes the most sense for you. In either case, these need to be fully disclosed before payment, and you cannot charge both a convenience fee and a surcharge to the same transaction.

2. Surcharge fees can only be applied to credit cards, not debit or prepaid cards, even if the customer runs it as credit. You cannot use surcharges to make a profit, so the most you can charge as a surcharge fee is your actual cost of processing, or a maximum cap dictated by the credit card company, whichever is lower. Some states have different rules, for instance, Colorado has a cap of 2% and other states have completely banned or heavily restricted surcharges, such as California, Massachusetts, and Maine- make sure you do your research for your own state. Different credit card companies have different surcharge fee rules: Visa has a maximum cap of 3%, Mastercard is 4%, and AmEx and Discover don’t set a hard percentage cap, but AmEx requires that you treat all credit card brands equally, so if you accept AmEx, you need a set percentage for all of your credit card transactions.

3. Convenience fees are only available if you offer another form of payment, such as cash or check, or if you’re a studio that doesn’t want to offer cash or check as a payment method, ACH also works as an alternative payment method (the only downside for you as a business owner for ACH is that it typically takes a couple more days to deposit into your business checking account, but for a fraction of the price of processing- most business owners find this a worthwhile trade). The alternative form of payment needs to have zero fees associated with it.

These notes are by far not the exhaustive list of what needs to be known for charging your customers fees in order to lower the cost of payment processing, but it’s a good place to start. If you have any other questions regarding payment processing and how to possibly work this into your business, please let me know- I would love to help in any way I can.