[NA] Small Business question

Let'sgoflying!

Let'sgoflying!

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Dave Taylor
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Credit card sales in my small business costs me about 2%.
We were told it was against credit card company policy to either give cash discounts or add a charge to cover this cost ("we'll take away your credit card sales privilege"). But, many retailers did it anyway, usually the "cash discount" which was a lower price if you pay cash.

Now, my credit card processor is saying that's old and now we have a card terminal that will pass the charge on to the customer.
I presume there would be posted notices and adequate notice given to customers, and we'd have to include some kind of line item on all invoices to show it.

I'm very leery of how the public is going to take this. I've always resented "convenience fees", "pay to pay fees", "service fees", "processing fees".
I'd love to get a sampling of opinions from the general public before I agree to this.
 
Call it a plastic fee? To fight against the micro-plastic issue? You're saving the environment.
 
My experience working in a business with that kind of terminal was people would either choose to pay with a debit card (which bypassed the fee), or pay with credit the first time and cash every repeat visit. They had a sign up informing customers of the fee and the girl who checked everyone out would ask "credit, debit, or cash" and say that credit added a fee. Some people griped but surprisingly few. I hate the bogus fees, too, especially since so many people think paying by card is "free", so maybe passing the fee to the consumer in such a blatant way is actually a step in the direction of less financial ignorance.
 
I, for one, avoid fees and added costs wherever I can. When comparison shopping online I compare the purchase price, the shipping cost and any added fees from all the potential vendors and make my purchase from the one that offers the lowest total cost out of pocket. Frequently, that is not from the vendor that advertised the lowest "base" price for the item I want to purchase.
 
Federally, there's no restriction. As @rene86mx's article shows, some states have a restriction, but they are few.

Back decades ago, it was indeed illegal federally. The argument was that the truth-in-lending provisions barred advertising a price for something and then adding on addition charges (surcharge, interest, whaever) after the fact for using credit. Technically, a cash price that was not more prominent than the credit one usually was acceptable.

Card processors were free to have their own rules, but I've worked with tons of them (I write software that takes POS stuff), and none of the one's I have dealt with care and in fact, many allow me to just let them compute the actual charges automatically.
 
I started using cash more often for a number of reasons. The growing prevalence of credit card fees adds to them. They are exceedingly common abroad. I would just say from a customer management perspective I feel better about them when they are small, reasonable AND related (in size) to the actual charge, and conspicuously disclosed in advance of completing the transaction. My dry cleaner ticked me off recently failing on all three points.
 
This is why I only take cash, check, gold, or direct deposit. Not being in retail helps mitigate the need for plastic processing.
 
to add, this means $20K p.a.
oh, and I’m switching to accepting only bitcoin lol
 
You have to juggle whether not taking plastic will cost you money that you could have captured with either eating or surcharging the cards even at a brick and mortar store. When you're talking online stuff, you're pretty much bound to some form of electronic payment, none of which comes free, typically, although one of the non-profits that I was on the board of had a member who ran a card processor and offered us to process our stuff for free as long as I wrote the software to interface the board (another XenForo site) with his payment system. It was well worth doing.
 
retailers that nickel and dime me don't get my business (or at least don't get repeat business).
 
As others have pointed out, the old rules went away a while ago. Over a decade, IIRC.

The thing that's always cracked me up in this is that business owners don't seem to recognize that there are also costs to accepting cash. Cash has a tendency to walk out the door due to simple loss and, more commonly, theft. Cash takes employee time to process. Cash takes time or money to get to the bank (time if it's an employee, money if it's a car service that picks it up). Some banks charge a cash handling fee (small amounts typically, but part of the cost). Robbery risks are obviously higher with cash on hand. No one is robbing someplace to steal the POS. Counterfeit money is still a thing, and there is a possibility it will get better with AI being able to assist. Cash heavy businesses are more likely to be audited, which costs both time and money.

From a customer perspective, I'm using more cash lately if it will save me a couple percent. Costs me about 1% to take money out (at least if I'm valuing my time as zero). So if the fee is any more than that it makes sense for me to use currency. But from a business perspective, I've never been able to convince myself that it doesn't make sense to just accept the cards and have flat charges that don't irritate people.
 
flyingron said:
You have to juggle whether not taking plastic will cost you money that you could have captured with either eating or surcharging the cards even at a brick and mortar store. When you're talking online stuff, you're pretty much bound to some form of electronic payment, none of which comes free, typically, although one of the non-profits that I was on the board of had a member who ran a card processor and offered us to process our stuff for free as long as I wrote the software to interface the board (another XenForo site) with his payment system. It was well worth doing.
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A gentleman I knew took CC for his business, but only MC/Visa, not Amex, because the Amex fees are much higher. His merchant services rep tried to upsell him, saying "Our data shows that your customers would prefer for you to take Amex." His response was: "They're already my customers. Why should I pay twice as much to do the same business with them?"
 
I tell customers cash is preferred. We still accept credit cards (I think we're charged 0.20/transaction + 1.9%). I've thought about only allowing CCs for purchases above $5, but haven't gone that far yet. I've always hated additional fees for credit cards, so I don't do them. I'd rather increase my prices. Maybe I'll go do that...
 
Bob Noel said:
retailers that nickel and dime me don't get my business (or at least don't get repeat business).
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In what way is passing on an expense "nickel and dime"ing you?

If you use a credit card, you are causing the vendor to pay an additional fee.
If I use cash, why should I pay more so that you can get something for free?

I can understand raising all prices when things like phone or electric bills go up, but not optional items that actually cost the business money.

Yeah, I understand that people don't like it. But those people (mostly) don't go around giving stuff away for free either.
 
MonkeyClaw said:
I tell customers cash is preferred. We still accept credit cards (I think we're charged 0.20/transaction + 1.9%). I've thought about only allowing CCs for purchases above $5, but haven't gone that far yet. I've always hated additional fees for credit cards, so I don't do them. I'd rather increase my prices. Maybe I'll go do that...
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Note, that placing minimums like this is usually in violation with your agreement with the payment processor.
 
JOhnH said:
In what way is passing on an expense "nickel and dime"ing you?

If you use a credit card, you are causing the vendor to pay an additional fee.
If I use cash, why should I pay more so that you can get something for free?

I can understand raising all prices when things like phone or electric bills go up, but not optional items that actually cost the business money.

Yeah, I understand that people don't like it. But those people (mostly) don't go around giving stuff away for free either.
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Being fare to "you" isn't much of anybody's concerns. The merchant needs to decide if his bottom line is better or worse based on what he does with the credit fees. It's analogous to whether shiping is "free" or called out.
 
flyingron said:
Being fare to "you" isn't much of anybody's concerns. The merchant needs to decide if his bottom line is better or worse based on what he does with the credit fees. It's analogous to whether shiping is "free" or called out.
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Of course I know that. My response wasn't directed at the business owner, who is doing what they think they need to do to survive. It was directed at another customer that thought they deserved a service for free. A service that causes the business owner real money.
 
When I was accepting credit cards, I was set up for all of them but didn’t offer AMEX as an option. Their fees and payment cycle were stupidly bad. Occasionally I’d have someone get huffy that we didn’t offer AMEX. Too bad. It’s not like you can carry just that card and not a V/MC as well.

I didn’t charge a fee for credit cards, or offer a cash discount. The fees were baked into my pricing, since 90+% of my sales were paid by card.
 
DaleB said:
I didn’t charge a fee for credit cards, or offer a cash discount. The fees were baked into my pricing, since 90+% of my sales were paid by card.
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That was my thought, why not just factor that in that overhead cost of doing business? Why make it a customer issue? Like when some businesses offer free shipping. I know I'm still paying for it, its just baked into the price.
 
When I order a hamburger and they say "would you like fries with that" and I say "yes", Why do I have to pay extra for the fries? Why isn't that just baked (or fried) into the price of the hamburger? Why do they nickel and dime me my charging for every little thing?
 
JOhnH said:
When I order a hamburger and they say "would you like fries with that" and I say "yes", Why do I have to pay extra for the fries? Why isn't that just baked (or fried) into the price of the hamburger? Why do they nickel and dime me my charging for every little thing?
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when you order a hamburger, why don't they include a bottle of Leroy Musigny Grand Cru at no extra charge?

:rolleyes:
 
Bob Noel said:
when you order a hamburger, why don't they include a bottle of Leroy Musigny Grand Cru at no extra charge?

:rolleyes:
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Good point. That would be stupid wouldn't it? Why would a business give away a product or service for free? (like a credit card processing charge).
 
When a business charges extra for a credit card payment I might pay it once. It's a small thing but it bugs me. It bugs me enough that I'm going to look elsewhere and consider alternatives.
 
I think its going to come down to competitiveness.
If my business is the only place in the local area with a surcharge, then a certain % of customers will preferentially go to a competitor who does not have the surcharge (assuming the service is the same).
And I would have to decide if the loss of customer base is going to be worth the extra $20K income each year.
 
As a customer, I assume a business’ costs are baked into the price. When a business makes the price variable for the exact same product or service, there’s only two outcomes; a discount (positive consumer sentiment) or a markup/surcharge/premium (negative consumer sentiment.

As a consumer the business gets grace and earns goodwill when they offer me a discount, even with the knowledge the discount being offered is baked into the initial price.
 
It seems to me that there are also costs associated with cash transactions. Handling/counting the cash, preparing bank deposits, correcting cashier errors (nobody seems able to make change anymore), etc. Those costs are avoided with credit card transactions, yet they're baked into the base price. Do they equal the 2% CC fee? I have no idea.

Another consideration is that customers using a card may be inclined spend more by purchasing more items, including unplanned purchases. They spend less time checking out, they don't have to deal with errors from the high school math whiz trying to make change, they get rewards from their CC company, and overall have a more pleasant experience which may prompt their return.

Taking all that together, I have a hunch that businesses get more benefit from card transaction than the fee, or at least it's close to being a wash. I therefore resent businesses charging me 2% for using my card.

Is it really worth the 2% for a business to pizz me off?
 
There's an old saw that the sales tax saves lots of mom & pop businesses -- The implication is that not ALL sales are reported nor sales tax paid, and the business' margins are so thin that an additional ~5% on some percentage of unreported sales was the difference between the business surviving or not. I wouldn't presume that 2% of top-line revenue is not a substantial imposition.
 
I've begun using cash a lot more often because of all the "fees". The credit card surcharge is just one. I have found more than a couple of food and beverage places that tack on an automatic "tip". One place with a "scan to pay" scheme had a very slick process, with hard to read text on their mobile app, that managed to add 25% to my bill (without me catching it) for food that wasn't great and service that was less than perfunctory. All these fees are getting my back up more and more. I hate taking it out on minimum wage servers. But, at least counting change is good mental exercise.
 
midwestpa24 said:
That was my thought, why not just factor that in that overhead cost of doing business? Why make it a customer issue? Like when some businesses offer free shipping. I know I'm still paying for it, its just baked into the price.
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That's how I looked at it.
JOhnH said:
Good point. That would be stupid wouldn't it? Why would a business give away a product or service for free? (like a credit card processing charge).
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But it's not really a "product or service" that your'e giving away. It's not the customer's fault that the credit card company is dipping into the merchant's pocket. As a merchant, I was happy to have them pay by credit card, even if it did cost me a little. I didn't tack on a surcharge for my utility bill or rent or what it cost to ship parts from my suppliers. Those were all COGS and overhead. It all got rolled into the sale price.

Contrast this, of course, to phone and cable providers, rental car companies, Sirius XM, etc. -- advertise a price, then tack on fees to cover all your overhead. I think it's a scummy practice, which is why I won't do it.
 
Just personal opinion, not business advice - I avoid any place that charges me credit card fees or has lower "cash prices" just like I avoid any place that has a mandatory tip or whatnot.
 
Chrisgoesflying said:
Just personal opinion, not business advice - I avoid any place that charges me credit card fees or has lower "cash prices" just like I avoid any place that has a mandatory tip or whatnot.
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I am seeing more and more of the latter, and I now even ask if there is a cash discount. Just the other day, I got 5% off at a sandwich shop and put the difference in the tip jar.

My father always paid his invoices according to the terms “2%-10, net 30,” meaning that if he paid within 10 days, he could take 2% off the bill. He later told us that this is how he paid for Christmas, even in the lean years.

Now, the mandatory tip thing—I am with you on that. I worked for tips through college while also earning minimum wage. We were always told TIP means “To Insure Promptness.”
 
Know you customers. How you present it makes a difference to your customer base. Like a couple others here, I work in this space (FinTech development side).
Also state rules can come into play, plus the card network contracts.
I have seen merchants where it takes as much as a 5% discount to make the cash discount work. I have seen it flipped, a 2-3 percent convenience fee/surcharge drives more cash business.

Tim
 
Chrisgoesflying said:
Just personal opinion, not business advice - I avoid any place that charges me credit card fees or has lower "cash prices" just like I avoid any place that has a mandatory tip or whatnot.
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I don't advertise a lower cash price. But I can certainly haggle over one. What Uncle Sam don't know, he don't know.
 
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my experience was, some years ago now when cash was more widely used, was it was too much a hassle to have 2 prices....something like 75-80% buyers used cc, and we advertised only cc cost, no mention of cash discount and advertising a cash discount was against the merchant act agreement but wasn't real concerned about that on our scale. ...I think we eventually figured out what the cost needed to be considering % and trans fee to average smooth cost based on history. occasionally someone would ask for cash discount but insignificant #. after 2 years we swapped merchants and slightly reduced cc costs, if most of your chargers are card present you can do same with a low charge back history.
 
Let'sgoflying! said:
I presume there would be posted notices and adequate notice given to customers, and we'd have to include some kind of line item on all invoices to show it.
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I'm sorry, I thought you said this was YOUR business. So why are you "presuming" the card processor would do anything.

If you do not think your business will survive if you absorb the fee, then it would be on YOU to post signs that say there will be an additional fee for using a credit card. And I don't know your business, but I'm assuming it is your point of sale system the prints the invoice, not your card processors payment hub. So if you don't think your business will survive if you absorb the fee, then check with your point of sales vendor to see if you can get both the Cash/Debit Card and the Credit Card prices to show up.
 
Ok, so a few things here, there are critical regulatory differences. If you want to pass the cost onto the customer, you have two ways you can do it:

- Surcharging: In this case you set a fixed percentage by which an extra fee (surcharge) is added to the invoice. For example, if it were 3%, and your listed "menu price" for an item was $100, an extra $3 fee titled "Surcharge" would be added to the invoice as an individual line item.

Surcharging is pretty regulated both by the government and the credit card industry itself. One must be careful to follow all the rules precisely. Even though this industry is the bread and butter of my knowledge, I really can't even tell you what those rules are, as they vary between processors, states, cities, etc.

Key detail: You cannot charge a surcharge on a debit card. Credit card only. If you do, you're definitely violating the rules. You can get fined $1000+ per instance of violating the rules. All it takes is one customer to complain to the credit card brands (there are easy ways to report businesses in violation). FWIW - I've personally seen large successful businesses get sued out of existence over class lawsuits related to incorrect handling of surcharging.

- Cash Discounting: This is much less regulated and a bit of the wild by wild west. In this case, you must change the "menu price" of all your items to be the higher credit card price. Rolling out cash discounting by its very nature requires you change all your "menu prices". Depending on the type of business, this can be a huge hassle. Then, when someone pays via Cash, you apply a discount line-item to the invoice (for example, a 3% discount).

Key detail: You can do cash discounting on debit cards.

Personally, I think Cash Discounting, is way more customer friendly. A credit card user never feels like they're having to pay more (they're paying the listed price for the item), and a cash user feels like they're getting a deal (a discount is applied).

If you're not happy with your current processing path, or want to consider alternatives, let me know. We work with a lot of merchants in your industry.
 
@jesse

Know your customers is critical. An associate had two stores in different cities. One he went with the CC surcharge and the other went with the cash discount. He got a lot more grief on the cash discount, mostly from CC customers wanting it. He now posts CC surcharge, and specifically states it is to pay the cost for processing the CC.

I am likely even less familiar with the granular rules. I am on the systems/development side of FinTech handling multiple payment rails.

Tim
 
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