When you accept credit cards and debit cards as payment you open your business to more clientele, faster payments, and a possible increase in sales volume. With 71% of customers preferring to use a credit card or debit card over cash, it’s a no-brainer to have your clients swipe, dip, or tap their cards to pay. However, the payment processing fees that come with accepting debit and credit cards can cut into your bottom line. In this article, we’ll give you the best tips for avoiding those pesky credit card processing fees and keeping more of your profits in-house. Tip 1 - Negotiate With Credit Card Processors Credit card processing comes with a list of fees that could make any business owner’s jaw drop. It puts a new meaning to the saying, “It takes money to make money.” The credit card processing fees that impact your card sales include: Annual account fees Interchange fees Payment processing fees Chargeback fees Software subscriptions Hardware leases Most of these won’t budge much when it comes to bargaining down the price, but there is a little-known cost that can be negotiated down – the Merchant Service Provider (MSP) markup. This cost is the MSP’s fee and it’s often adjusted to help drive sales by offering a discount. Negotiating this down works well if you have a high volume or high revenue business. This makes you an asset to the MSP. Some MSPs even go as far as to match or beat pricing from other providers. Use this to your advantage and potentially get a percentage off of the MSP fee. Tip 2 - Apply A Surcharge Surcharges are also known as convenience fees. This fee covers the cost of processing a credit card transaction and applies when customers choose to pay with a credit card instead of fee-free card payment methods. So, the customer absorbs the fee instead of the merchant. Sometimes, the best thing you can do is pass off the cost to your customers. Not in all cases though. While the logical move might be adding a fee to your customer’s purchase, surcharges have been made illegal in up to 11 states. This requires some research to find out what the laws are for your state and the states your customers do business in. You could use special software to make this process easier. If it happens to be illegal in your state, another option is to flip it around. Instead of penalizing credit card customers, you could reward them with a discount for choosing other payment methods. Many merchants incentivize cash or debit card use by offering a discount. This may mean you’ll need to reassess your pricing structure to accommodate. There are also rules you’ll have to follow when instituting a surcharge. For example, debit cards and prepaid cards can’t be surcharged so this only applies to credit card customers. There’s also a maximum surcharge fee of 4% in each state, except Colorado, which caps it at 2%. Tip 3 - Raise Your Prices To account for the extra fees, another option is to raise your prices to compensate. This usually isn’t a popular choice with customers. It even has the potential to drive them to more affordable alternatives. It’s important to know what your customer base can tolerate before deciding to raise prices. Here’s how that could impact your card processing fees. In the same way that merchant service providers are more likely to lower their fees to bring on a high-value merchant account, a payment processor will often have different fee structures based on sales volume. This means that the higher your sales are, the lower your processing fees will be. Raising your prices might also mean a lower assessment fee from your merchant account. An assessment fee is paid directly to the payment card network depending on the brand of the card used. These fees are based on the total monthly sales amount., not the number of transactions. For example, here’s Wells Fargo’s cost per transaction based on the total dollar amount of monthly card purchases: Wells Fargo Merchant Services Pricing: Total Monthly Processing VolumePer Tap, Dip, Swipe TransactionPer Online or Keyed-In Transaction$0 - $14,999.992.60% + $0.153.40% + $0.15$15,000 - $39,999.992.40% + $0.153.20% + $0.15$40,000 & up2.20% + $0.153.10% + $0.15 Source: Wells Fargo Payment Processing May 13, 2022 As you can see, the fee percentage gets much lower for merchants selling upwards of $40,000 a month. Tip 4 - Enable And Encourage Debit Transactions Most often, debit card processing is less expensive than credit card processing. This is because there’s often less risk of fraud due to multiple security features, such as EMV chips PINs Security codes For this reason, card processors charge a lower interchange fee for debit card usage compared to credit cards. It may seem small, but there’s a smaller fee for using debit instead of credit with Visa and Mastercard. Most times, the interchange fee is much higher for using American Express. This results in many businesses choosing not to accept American Express cards altogether to avoid the high interchange fee. Fee Comparisons MastercardDiscoverVisa0.137% (Transactions < $1,000)0.13% (Credit)0.14% (Credit)0.01% (Transactions > $1,000)0.13% (Debit)0.13% (Debit) Source: ValuePenguin: Assessment Fees May 13, 2022 Debit card fees have a very low per-transaction interchange fee, which saves you a ton of money for larger ticket purchases. In comparison, a credit card transaction is always a straight percentage interchange fee. Tip 5 - Increase Sales Another way to offset your interchange and processing fees is to increase the overall sales of your business. That’s because card processing companies will often offer a lower processing rate for a higher transaction volume. Merchants with smaller ticket prices and a high amount of transactions often qualify for lower interchange fees. This reduces your costs without inconveniencing your customers, which is a win-win for you since you’ll be increasing your profits and lowering your costs at the same time. Enable your customers to pay with advance payment methods including: Online payments Mobile credit card reading ACH payments to your merchant account Using these can increase your sales, which easily makes the card processing fees worth it. Fortunately, Lendio’s free accounting software for small businesses allows you to give your customers a broad range of payment options. Making it easier than ever to increase your sales and keep card processing fees at a minimum. Lendio’s free small business accounting app gives you tons of benefits: Easily accept credit card payments without the higher fees from other payment processors. Make your credit card processing simple with consistent interchange fees across all card networks – even American Express. With a low monthly fee of $19.99 for Sunrise Plus, you can take advantage of the best pricing at 2.55% + $0.30 per credit card transaction. Try Sunrise for free and see what smooth card processing can do for your business! Tip 6 - Incentivize Other Payment Methods Charging customers a convenience fee for using a credit card isn’t just frowned upon by the customers who prefer to use them. It might also be illegal in your state. Just because it isn’t allowed doesn’t mean the cost of processing the payment goes away. Instead of punishing credit card customers, reward them for choosing a different way to pay. Small businesses that don’t want to be burdened by high card processing fees will typically offer a cash discount instead. The most common example of this would be gas stations. When you go to fill up your tank at a gas station you may see a lower price for cash payments compared to the credit price. Depending on the gas station, the price difference could be significant. A cash discount program could benefit your business by encouraging your customers to go for the zero-fee option which means more money in your pocket. Just make sure you can handle the risks that come with carrying a higher amount of cash. If extra cash isn’t conducive to your business, you could also incentivize these payment options: ACH Payments Debit cards Bank transfers Is It Legal To Pass Credit Card Fees To Customers? It’s legal in some states to pass credit card transaction fees to customers. In these cases, you’ll be able to minimize the amount of card processing fees you’re responsible for. Your customers might not be too thrilled about it though. However, we need to reiterate that the practice of credit card surcharging is illegal in 11 states. A credit card surcharge is usually capped at 4%, with the state of Colorado being the exception. Rather than passing the convenience fee to your customers, you could choose to offer lower-cost card processing options. What Are The Factors That Determine Credit Card Processing Fees? Several factors determine how much your business is spending on credit card processing fees. Earlier, we covered that it’s impacted by your sales volume and the number of transactions. It's also affected by– The credit card company your customer uses Your compliance with PCI standards The payment processor service fee Customer chargebacks Accepting credit cards in person or keyed in Monthly and annual fees on POS equipment Assessment, and interchange rates Merchant Category Code (MCC) Overall, credit card processing fees can make accepting payments costly. Many different factors add to the expense, but there are also many ways to offset the cost. Negotiating with the merchant service provider and increasing the sales volume are effective ways to lower the price of accepting card payments. You can also encourage other payment methods by rewarding cash and debit customers with a discount. *The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.