Surcharging is becoming a key strategic tool for managing credit card payment costs. Admittedly, balancing customer satisfaction with operational efficiency is often challenging for finance leaders and business owners. However, surcharging offers an innovative solution to recover credit card acceptance fees while maintaining payment flexibility for customers.
This guide will help you understand the complexities of surcharging, why it’s worth considering, and how you might begin to integrate compliant and customer-friendly surcharging practices.
What is surcharging?
A surcharge is an additional fee businesses add to the transaction amount when customers pay with a credit card. This fee covers the costs businesses incur for processing credit card payments, also known as interchange fees.
Surcharging can help businesses improve operating margins by shifting these processing costs to their customers while ensuring compliance with state laws and card network rules.
Learn more about the art and science of surcharging in this Surcharging Video.
Should you consider surcharging for your business?
According to the Nilson Report, U.S. merchants paid $172 billion in payment processing fees in 2023. This significant rise from $116 billion four years earlier underscores the growing costs associated with accepting card transactions.
Interchange fees, which typically range from 70% to 90% of total payment processing costs, have become a major concern for merchants. These fees generally fall between 1.5% and 3.5% of each transaction, depending on various factors such as card type and transaction method.
In response to these rising costs, many businesses are considering surcharging as a potential solution. However, as Kunal Patel, Billtrust's General Manager of Payments, notes, this strategy should be carefully implemented: "Surcharging is the practice of passing the full acceptance cost onto the buyer. It is a powerful tool for managing acceptance costs, but it needs to be used thoughtfully and surgically as part of a broader policy to ensure all business objectives are met."
For businesses facing these challenges, surcharging offers clear benefits:
Cost recovery
Credit card fees can take a substantial toll on profit margins, particularly for businesses managing a high volume of transactions. Introducing surcharges allows companies to recover a significant portion of these processing costs, enabling them to allocate resources more efficiently.
For example, a business handling $10 million in annual credit card transactions at a 3% processing fee could save between $60,000 and $270,000 per year by recouping 20-90% of those fees through surcharging.
Transparency for customers
Contrary to common misconceptions, surcharging doesn’t necessarily alienate customers. When done transparently—by clearly communicating fees upfront—customers appreciate the fairness and choice to switch to lower-cost payment methods, such as ACH or check.
Improved cash flow and payment behavior
Allowing customers the flexibility to pay within a particular time period with any payment method (e.g., grace period), after which a surcharge is applied, can speed up payment timelines and reduce Days Sales Outstanding (DSO).
Businesses like Carter Machinery have benefited from implementing surcharging. Their touchless payments increased by 28%, and ACH payments surged to 82% without compromising customer satisfaction.
Enabling customer flexibility
Offering customers multiple payment options—while structuring transaction costs transparently—lets businesses maintain customer satisfaction without absorbing steep credit card fees.
Enhanced profit margins
Redirecting credit card processing costs to the end user frees up financial resources. With typical B2B profit margins around 10%, credit card fees of 1.5-3.5% can erode 15-35% of profits. Surcharging helps preserve these margins. These savings can be reinvested into growth, innovation, or better customer experiences.
Looking for a better way to optimize payments acceptance? Find out more in this Tip Sheet.
Top 5 features to look for in surcharging technology
1. Simplifying compliance
Navigating the complex landscape of surcharging regulations is no easy task. The rules vary by region and are subject to frequent updates. A well-designed surcharging approach ensures businesses remain compliant with state-specific laws and avoids penalties through dynamic surcharge calculations and automatic updates when legislation changes.
2. Creating transparency and customer choice
When implemented thoughtfully, surcharging policies can foster transparency with customers, making it easier for them to understand why fees are applied. Many businesses provide customers with the option to avoid surcharges by selecting alternative payment methods, such as ACH or debit cards. This approach supports a customer-friendly experience while encouraging cost-saving payment behaviors.
3. Driving operational efficiency
Automation in surcharging processes such as identifying card types, calculating applicable fees, and notifying customers, helps businesses reduce manual workloads and potential errors. By streamlining these processes, companies can focus on more strategic priorities while still managing payments effectively.
4. Scalability across industries
Surcharging solutions have evolved to meet the needs of businesses of all sizes, including large enterprises with complex systems. From flexible configurations like grace periods to integration into existing invoicing workflows, modern surcharging strategies are designed to align with your unique operational needs.
5. Enhanced financial visibility
Comprehensive reporting tools allow businesses to track the financial impact of surcharging programs by examining metrics such as customer adoption rates and shifts to non-card payment methods. These data-driven insights enable companies to refine their policies, ensuring they optimize both cash flow and customer satisfaction.
2025 surcharging trends you need to know
The surcharging future is being shaped by technological advancements and the desire to create more adaptable policies. Businesses are exploring new ways to balance operational goals with optimal customer experiences. Here are three key surcharging trends that will help you prepare for 2025 and beyond.
Improved analytics for decision-making
Enhanced data dashboards are on the rise, offering deeper insights into surcharging performance. These tools provide businesses with the ability to measure the effectiveness of their payment policies, helping fine-tune strategies based on real-time data.
AI-powered optimization
Artificial intelligence is playing a larger role in surcharging. With AI tools, businesses can analyze customer payment behaviors and receive dynamic recommendations to optimize surcharge rates or payment options. These strategies help tailor policies to encourage timely payments, while maintaining compliance and customer goodwill.
Customized payment rules
The ability to set flexible surcharging configurations such as offering grace periods for certain buyers or customizing surcharges based on transaction types, is becoming a standard practice. These advancements allow companies to implement strategies that incentivize early payments and align with buyer preferences, ultimately improving cash flow and satisfaction.
Taking the next steps toward surcharging success
Surcharging goes beyond mere cost recovery; it can serve as a strategic advantage in today’s payment landscape. While there are complexities involved in surcharging, implementing compliant and customer-friendly practices can be a competitive advantage. Such an approach can encourage cost-saving payment behaviors while ensuring a positive experience for customers.
By partnering with Billtrust, businesses can implement surcharging in a way that balances compliance, operational efficiency, and customer satisfaction.
Contact Billtrust for a consultation or to learn more about how an optimized payments strategy can make a critical impact on your business.
FAQ
Customers who value the convenience of credit cards often continue to pay with them, even with a surcharge. The key here is communication—make the benefits of other payment options clear without forcing a decision.
No, surcharging applies only to credit cards. Debit cards cannot be surcharged in most scenarios due to regulatory restrictions.
Generally, yes—surcharging is permitted in most U.S. states and for most credit cards, but regulations vary. Businesses must adhere to strict compliance requirements from both state authorities and credit card networks, such as Visa and Mastercard. Non-compliant surcharging can lead to penalties or reputational risks, making proper implementation essential.
Not necessarily. Transparent communication about why surcharges are applied helps maintain trust. Offering non-card payment options with no extra fees can demonstrate your commitment to customer convenience.