What Is Surcharging, and How Can It Help My Business?

As a small business owner, you know the importance of slashing overhead costs. That includes credit card processing fees, which collectively cost U.S. businesses $160 billion in 2023 alone. Surcharging offers a way to offset these costs, which can cut down on at least some of your overhead costs. 

How does surcharging work, and is it right for your business?

Understanding Credit Card Processing Fees

To understand how surcharging works, it’s important to understand the nature of credit card processing fees. Sometimes called “swipe fees,” these are the costs that merchants pay every time a customer pays with a credit card.

The exact fee varies by credit card provider, but merchants will generally pay a flat fee of $0.10 plus an additional fraction of a percentage of the transaction. The flat rate hits restaurants and coffee shops particularly hard since the processing fee will be a higher percentage of each sale. That’s why some business owners are eager to find ways to offset or even eliminate these recurring fees.

How Surcharging Works

How does a surcharge work? A surcharge is simply an additional charge on top of a customer’s purchase. The goal of surcharging is to assess a small surcharge on each credit card transaction to recoup some or all of the money you’d be paying in credit card processing fees.

For example, if a customer purchases a cup of coffee for $4.00, you could assess a small surcharge of $0.10 to offset the surcharge associated with paying with a credit card. In this model, cash-paying customers would simply pay the original amount.

The Pros and Cons of Surcharging

Surcharging is not without its pros and cons. The following are some of the advantages and disadvantages of attaching surcharges for credit card payments.

Advantages of Surcharging

Positively, surcharging allows business owners to:

  • Cover or offset credit card processing charges
  • Encourage customers to pay in cash, thus increasing cash flow
  • Create a simple plan that doesn’t require a dual pricing model

The greatest advantage of surcharging may be its simplicity, as you’ll only need to attach an extra fee to every credit card purchase.

Disadvantages of Surcharging

Despite these benefits, there are some drawbacks to surcharging, such as:

  • Customers may resent being charged more for using their credit card
  • Surcharging is not legal in every U.S. state
  • Some credit card providers prohibit surcharging

Given the sheer popularity of credit cards, attaching a surcharge can damage your brand reputation if you don’t properly communicate your policy.

Dual Pricing: An Alternative to Surcharging

Are there alternatives to surcharging? Absolutely. Many merchants opt for a dual pricing model, sometimes called a “cash discount” program. 

In this model, you’ll display two sets of prices, one for credit card customers and one for cash-paying customers. That way, you’ll still recoup the cost of transaction fees without alienating customers with an unexpected surcharge.

Staying Compliant

The key is to partner with a company that can help you roll out a surcharging system, or, alternatively, develop a cash discount program. Simpay Select Plus is a fully-compliant system that allows you to create dual pricing or assess surcharges on credit card purchases. Adopting one of these strategies can help you take control of your business — and your profits.

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