Surcharging: Everything You Need to Know (2024)

As a business owner, you know the costs of running a small business aren’t always straightforward, and the costs associated with accepting card payments are no exception. Depending on the type of card you accept – be it an airline rewards card, a straightforward bank-issued credit card, or a debit card – the fees can fluctuate.

For businesses looking to accept credit cards, but keep their costs in check, there is a way to offset some of these fees – it’s called surcharging. Maybe you’ve heard of this, but you’re unsure about the specifics.

In this article, you’ll learn all about surcharging, and what it means for your small business.

What is Surcharging?

Surcharging essentially allows you to pass on a portion of your credit card processing fees to your customers.

For example, if you pay 3% per month to process credit card transactions, you can add an additional 3% to that purchase to cover your costs.

With a surcharging program, you can retain anywhere from 20-90% of your payment processing fees. Your exact percentage will likely vary, partly based on what percentage of your total payment processing fees comes from credit card payments vs debit.

Most importantly, you can only add surcharges to credit card transactions, not to debit card or prepaid card transactions.

How Your Small Business Can Benefit

Cost savings. Since surcharging allows you to offset the costs of credit card processing fees, you can boost your profit margins – especially if your business has a lot of credit card transactions.
Greater pricing flexibility. Surcharging makes it possible for you to offer more competitive pricing for customers who pay with other methods, like cash or debit cards.
Competitive advantage. Let’s say your competitors aren’t adding surcharges. If that’s the case, they might be pricing their products higher to account for credit card processing fees – which can send customers who pay by cash your way.

Surcharging Laws

Surcharging is subject to various federal and state laws. While federal law allows surcharging on credit card transactions, certain states have laws that prohibit or limit surcharging. Talk to your payment processor to make sure you’re following your state’s current regulations.

Why Surcharging Might Not be Right for Your Business

Some consumers may perceive the added fee as a hidden or unexpected cost, which could harm your business’s reputation or lead to loss of repeat customers. So, pricing your products a little higher or absorbing the credit card fees as a cost of doing business might be preferable to surcharging. You can counteract this by displaying plenty of signage at your business.

How to Implement Surcharging in Your Small Business

Here’s what you need to know to implement surcharging in your small business. We know it’s a lot, but it’s not too bad when you break it down!

Legal compliance. Ensure that surcharging is legal in your state, and maintain accurate records of surcharge amounts, should you ever need to provide this information for legal or compliance reasons
Merchant agreement. Review the terms and conditions of your contract with your credit card processor to make sure surcharging is allowed.
Notify credit card companies. You need to notify credit card companies like Visa, Mastercard, and American Express at least 30 days before you begin surcharging.
Be transparent and straightforward. You have to disclose surcharging clearly at the point of sale and itemize the surcharge on the customer’s receipt. On top of that, you might want to train your staff on explaining your surcharging practices to customers.
Limit the surcharge amount. The surcharge cannot exceed your effective rate or regulatory maximums. With Gravity Payments, your surcharge cannot exceed 3%.
Hardware compatibility. If you accept multiple forms of payment, your POS system should be sophisticated enough to remove the surcharge when customers choose a payment method for which surcharges are not allowed (e.g., debit cards).
Review periodically. Laws and customer attitudes can change. It’s a good idea to periodically review the legality and customer acceptance of your surcharging practices.

Get Started with Gravity Payments

Surcharging can lead to big savings for your small business – possibly thousands of dollars per month. But there are possible downsides, so it’s important to weigh the pros and cons of surcharging.

Our team is here to help you every step of the way. We offer modern payment systems that allow you to surcharge, and we can handle registration and reporting to the credit card companies for you.

Contact us today to find out how Gravity Payments can offer you the best payment processing solution, tailored to your business needs.

Frequently Asked Questions

Still have a few unanswered questions about surcharging? We’ve compiled the questions we’re most commonly asked by small business owners.

Can I choose when to apply surcharging?

You cannot. Surcharging is either applied to all credit card transactions, or not at all.

Does surcharging offset 100% of my payment processing fees?

It doesn’t. You still need to pay your processing fees for debit cards, prepaid cards, international credit cards, and certain card brand fees etc.

Can I surcharge different percentages per card brand?

You cannot. This needs to be the same percentage across all brands. For example, you cannot surcharge 2% for Visa payments and 3% for Mastercard payments.

Can I surcharge debit cards?

You cannot. Surcharging can only be applied to credit cards.

Is there a surcharge amount cap?

Yes, your surcharge cannot exceed 3%.

If I do a refund for a customer, do I need to refund the surcharge amount too?

Yes, the surcharge amount must be refunded back to the customer, as well.

Can I combine surcharging with other methods to offset processing fees?

No, you cannot combine surcharging with other methods such as cash discounting.