Credit card fee calculations“The check is in the mail” is an excuse that most business-to-business (B2B) companies don’t miss. In today’s economy, electronic payments of all kinds have made it easier and more convenient for your customers to pay you. For the most part, businesses embrace the change, but one element of electronic payments is a fly in the ointment: credit card interchange fees.

We share a love of plastic

Credit cards are convenient for your customers. With a credit card payment, transaction time is much shorter than check processing, and your business customers may be able to integrate credit card reports with electronic accounting systems to help automate and track expenses. And, with rewards points, kickbacks, and other perks for both individuals and companies, it’s no wonder credit cards have become the payment method of choice.

For business owners, collecting payments via credit cards has pluses, too. Your business benefits from quick payment and electronic handling of the funds. Chances are you might even use a card to pay your own business expenses.

Nibbling away at revenue

As good as this might sound, there is one drawback to accepting credit cards: interchange fees. Each time your customer pays with a credit card, your business pays a small fee to the financial institutions participating in the transaction for the use of their services and the transfer of money. Typically, the bank getting the money (your financial institution) will pay the bank sending the money (your customer’s bank).

The amount of the interchange fee is based on several variables, including which credit card brand your customer is using, which bank they work with, and where they are located. To further complicate the issue, the rate itself is usually based on a flat fee in conjunction with a sliding figure based on purchase amount. The average interchange fee in the United States is about 2%. Depending on how often your customers use credit cards to pay their invoices and how much they are paying, the fees can make a dent in your net revenue.

Beware of the “pass along”

Businesses may be tempted to pass the cost of interchange fees along to their customers either through a surcharge or by offering discounts to customers paying in cash. It makes sense; this new line item isn’t something you are used to paying, so why not try to figure out a way to limit its impact?

But before you try out a new policy regarding credit card use and interchange fees, check with your legal counselor and credit card processor because these very practices may be illegal in your state.

Rules governing the handling of interchange fees vary from state to state, but, in many cases, both surcharges and discounts designed to offset credit card charges are illegal.

For example, in the state of Colorado, businesses are strictly forbidden from issuing or imposing surcharges on purchases to cover the cost of interchange fees. However, businesses are allowed to offer discounts to incent customers to pay in cash — as long as the offer is extended equally to all customers and all customers know about it.

Knowing the laws and regulations surrounding interchange fees in your state is crucial if credit card payments are a part of your business.

Look for alternatives

Instead of trying to offset the cost of the credit card fees, a better practice is to work to ensure all accounts are paid on time — no matter how your customers choose to pay them. Prompt payment saves significant costs to your business because accounts lose value the longer they are unpaid — typically more than you would pay in interchange fees.

With a well-organized system to manage your customer credit portfolio, you can stay on top of accounts receivable, maintain positive customer relationships, and keep your accounting costs to a minimum.

Portfolio Management Services and tools help you gain control of your accounts, spot emerging risks, and identify opportunities for growth. Let us answer any questions you have. Please call us at 800-457-8244, fax us at 303-806-5360, or send a request through our website.