If you’re an accounting or finance professional, chances are you’ve heard of surcharging. But what is it, and how can it benefit small and medium-sized businesses (SMEs)? Let’s take a closer look. Put simply, surcharging is adding a fee to customers who pay with a credit card. While this may seem like a burden at first glance, there are actually some very compelling reasons for SMEs to consider implementing surcharging policies. In this article, we’ll explore the concept of surcharging in more depth and outline some of the potential benefits for businesses.
Surcharging is an accounting term that refers to the practice of charging an additional fee for accepting a payment processed through a credit card. This fee is not charged by the company processing the payment, but rather by the merchant themselves as a way to recoup their charges from accepting such payments; in accounting terms, it’s essentially a form of cost recovery. Although this practice has become more common in recent years, restrictions and regulations around where and with what payment methods can carry a surcharge vary across country and even state borders.
Why Surcharging?
In short, surcharging is a way for businesses to recover the costs of accepting credit card payments. As electronic payments continue to outpace traditional methods of payment, surcharging is a smart and practical way for businesses to recover the costs associated with accepting credit card payments. For merchants, it can mean additional revenue to cover their merchant fees, allowing them to reinvest that money back into the business – whether that means investing in new technology or even giving consumers an extra incentive beyond conventional discounts. Companies who take advantage of this short-term solution can create long-term success by leveraging their finances more precisely and propelling their business forward.
In leveraging surcharging, SMEs can see an increase in revenue from customers paying with cards, rather than cash or check. Additionally, surcharging allows businesses to reduce their credit card processing fees and acquire more cost-effective alternatives for making payments. In addition to improved profitability, the implementation of surcharging also helps business owners dissuade customers from paying with high-interest cards if those too are available options. Not only does this help keep customer loyalty intact but it also reduces merchant costs simultaneously. Clearly, surcharging is an effective tool for merchants looking to improve their bottom lines while additionally delivering better customer experiences.
Surcharging Best Practices
As businesses increasingly seek to maximize their revenues, surcharging has become a viable and increasingly popular strategy for doing so. But it is important that companies clearly communicate the extent of their fee amounts in order to ensure customers understand the charges. Accordingly, businesses that elect to implement surcharging must first notify their customers in advance and then display the exact fee amount; this ensures customers are completely aware of what they will be charged when engaging in a purchase or transaction. By incorporating these smart and forward-thinking measures into their surcharging activities, businesses can rest assured that their customers’ rights are respected while still achieving the desired financial outcomes.
Surcharging Versus Raising Prices
With the rising cost of goods and services, small businesses may be tempted to raise prices in order to sustain profits. However, savvy business owners may want to consider alternative methods such as surcharging — also referred to as a convenience fee — which allows them to increase revenue without permanently altering the price of their products. By recognizing certain customer behaviors that indicate ready-to-buy customers, businesses can confidently implement surcharges and see an increase in profitability. Coupled with smart marketing via platforms like social media, businesses who surcharge are investing into the future success of their enterprise while maintaining fair and marketable prices.
Surcharging is a great way for businesses to increase their profits without raising prices. By charging an additional fee for using a certain type of credit card, businesses can effectively recoup the costs associated with accepting electronic payments. Processing fees can also be lowered when customers are presented with the option to pay by cash or debit instead of credit. Although surcharging is not currently allowed in all countries, it is a perfectly legal method of payment in many jurisdictions. When done correctly, surcharging can be a great way for small businesses to increase their profits without raising prices. Lockstep Receivables offers a turnkey solution that makes it easy for businesses to start surcharging their customers today. Get started today and see how you can increase your bottom line with Lockstep Receivables.
