Small-Business Credit Card Surcharges: Yea or Nay?

In many countries, small businesses must adhere to strict rules and regulations that affect everything, from how much they can charge for a product or service to what types of goods they may sell. But in the United States, small businesses generally have more freedom to run their enterprises how they see fit.

However, just because you’re allowed to do something doesn’t mean that you should do it. This includes levying surcharges on credit card purchases.

Why Surcharges May Be a Bad Idea

Just because a small business can legally charge an extra 2 or 3 percent on a given transaction doesn’t necessarily make the practice a viable long-term strategy.

For example, today’s consumers are savvier than ever before: They know that, if they want to avoid credit card surcharges, they can probably find a merchant who doesn’t levy them. Therefore, businesses that tack on these fees may put themselves at a competitive disadvantage.

What’s more, 10 U.S. states have laws on the books that bar merchants from charging more for credit card purchases than those paid for with cash or checks.

However, the practice is legal elsewhere. A group of businesses recently filed a class-action lawsuit against Visa and MasterCard, because their merchant agreements prohibited them from passing credit card processing fees on to their customers. In July 2012, they reached an $8.55 billion settlement that included the right to assess surcharges on customers who pay with plastic.

If You Insist on Levying Fees

Some small merchants may experiment with credit card surcharges in an effort to offset the costs related to processing the cards.

One way to handle this is to couch your policy as a “discount” for customers who write checks or pay cash. This plan may lend itself well to industries that deal with large transactions, such as commercial contracting, home improvement, or consulting services.

Other small businesses may want to consider the sage advice that the most important actions are often the ones not taken. Choosing to avoid passing credit card surcharges on to customers may better support your operation in the long run.

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