March 1, 2023
Recent changes in regulations now allow retailers to add surcharges to credit card sales or offer discounts for cash. With costs going up, there is a trend for businesses, especially small and medium size retailers, to add credit card fees to sales.
Before jumping on the bandwagon, take the time to consider two key factors before making a decision that can affect your business:
- Is it legal in my state?
- Is it a smart business decision?
Credit Card Surcharges
Let’s address the legal question first. In the U.S., this is determined by state and federal law. So, the first step in deciding is to check your state’s regulations. If it is legal, there likely are specific rules that govern how this can be applied. Many state statutes are very specific on how much can be recovered from your customer. Just applying a 3% surcharge to all card transactions may violate the letter of the law. Actual fees vary from card to card, but the merchant does not know the exact charge until their processor settles the month. You may be allowed to charge an average percent across the board. How likely is enforcement? It’s impossible to know this answer, but is it worth the risk? As the practice grows and becomes more common, it’s more likely for consumer groups and politicians to challenge it.
Surcharges cannot be applied to debit cards. This creates a logistical problem for retailers. Having the cashier check the card it not reliable. With today’s processing hardware, the cashier may not even handle the card. When the customer is paying using an electronic device, such as Apple Pay, you cannot differentiate between credit and debit. In the POS system, credit and debit are processed the same. To stay in compliance, this should be handled through your payment processor.
In virtually all situations, transparency is required. This means the customer must be aware of the surcharge prior to the transaction and the surcharge should be shown on their receipt.
Cash Discounting
Offering cash discounts gives your customer an incentive to use cash. While surcharging a credit card may be perceived as punitive, cash discounts certainly are seen as an incentive. A common method to recover fees, while not appearing to punish credit card users, is to raise retail prices to cover the cost of these fees and offer a discount for those who pay by cash. Regardless of the method selected, the goal of the retailer is to recover their card fees.
There may be rules in your state that regulate cash discounts; be certain to check before implementing either method.
Making this Work in your POS
Regardless of the method you decide on, if any, it’s important that implementation at your POS is seamless, meaning the cashier does not need to make any additional entries; if there is a surcharge, it’s applied based on executing a charge transaction. The same applies to cash discounts.
Most POS systems provide a method of surcharging a charge transaction or applying a cash discount. Retail Management Hero’s POS system does this effortlessly with the right credit card processor. RMH POS system will seamlessly apply the surcharge, or discount, based on the transaction type, and note it on the receipt.
Don’t Win the Battle, but Lose the War
Before making the decision to apply surcharges to credit cards, consider all the factors and do your research. The key question is, “How will this affect my business?”
Net profits are based on gross sales less the cost of goods and a multitude of expenses. These include rent, utilities, payroll, maintenance, insurance, internet, supplies, etc. Credit card fees are one of those expenses, so why are we singling out this expense over all the others? Retailers constantly adjust prices to reflect product cost and rising expenses. We don’t add surcharges when our rent increases or payroll or insurance. I perceive the difference is that credit card fees are “in your face” and obvious when we receive our monthly statements, so it’s easy it’s an easy target.
But is it good policy? In a future blog, we’ll address this from the customer’s point of view and how it can affect your business. Winning the battle means recovering your credit card fees at the point of sale. Most customers will simply not question this and pay it. But losing the war may mean they make their next purchase elsewhere.
If you would like to learn more about RMH and the full range of benefits of our POS system, or if you’d like to schedule a free demo, contact us by filling out our secure contact form.