Should You Add Service Fees for Credit Card Payments?

Adding a service charge to invoices for credit card payments is a hot topic for small business owners and accountants. While it's tempting to offset the cost of transaction fees, there are legal and ethical angles to consider before updating your invoicing practices.

Why Add a Service Charge?

Credit card processors typically charge fees between 2% and 4% per transaction. For businesses with tight margins, these fees add up quickly. Adding a service charge can help recoup these costs, but it’s not as simple as just tacking on a fee.

Legal Considerations

• State Laws Vary: Some states prohibit or restrict surcharging credit card payments. For example, states like California, Colorado, Connecticut, Kansas, Maine, Massachusetts, and New York have restrictions or outright bans (always verify the latest state laws).

• Card Network Rules: Visa, Mastercard, and other networks have their own rules. Merchants must notify the card network and their processor before applying surcharges, and the fee cannot exceed the cost of acceptance (usually capped at 4%).

• Disclosure Requirements: Many states and card networks require clear, upfront disclosure to customers about any surcharge.

Ethical Considerations

• Transparency: Always inform customers about any additional fees before they pay. Surprises can damage trust.

• Fairness: Consider whether surcharging is fair to all customers, especially those who have no other payment options.

• Competitive Disadvantage: Competitors who don’t charge extra may seem more attractive.

• Customer Loyalty: Even small fees can impact repeat business, so weigh the short-term gain against long-term relationships.

Customer Impact: The Real-World Effects of Service Fees

Before you add a service fee, consider how it will affect your customers:

• Perception of Value: Customers may see added fees as “nickel and diming,” which can make your business seem less friendly or transparent.

• Payment Choices: Some customers might switch to cash or ACH to avoid the fee, while others may be frustrated by the lack of a truly no-fee card option.

• Lost Sales: In competitive markets, even small fees can drive price-sensitive customers elsewhere.

• Trust and Loyalty: How you communicate the fee matters. Clear, upfront disclosure and offering a no-fee alternative can help maintain trust.

• Positive Spin: Framing a cash/ACH discount as a reward (rather than a penalty for card users) is often received more positively.

Convenience: The Hidden Benefit for Business Owners

• Automatic Deposits: Payments are automatically batched and deposited into your bank account, so you don’t have to spend time making manual bank deposits.
• Seamless Accounting: If you use QuickBooks Payments, the fees, payment, and bank deposit are all recorded for you automatically—no more manual reconciliation or tracking down missing deposits.
• Time Savings: The automation of both payment processing and accounting frees up valuable time, letting you focus on running your business instead of dealing with paperwork.
• Cash Flow: Faster deposits mean improved cash flow and less waiting for checks to clear.

Alternative Solution: Markup and Cash/ACH Discount

Instead of adding a visible service charge, another compliant option is to build the average cost of credit card processing fees into your standard prices, then offer a discount for customers who pay with cash or ACH (bank transfer). This is sometimes called a "cash discount" program.

How It Works:

• Increase your listed prices by the typical credit card fee percentage (for example, 3%).

• Offer a discount (equal to the fee) to customers who pay by cash, check, or ACH.

• This method is legal in all states and is generally viewed more favorably by customers, as it presents the discount as a reward rather than a penalty.

How to Set Up in QuickBooks:

1. Adjust Your Default Prices

   • Update your product or service prices to include the estimated credit card fee. Need help making bulk edits? Check out our workshop on making bulk edits to items.

2. Apply a Discount for Cash/ACH Payments

   • When creating an invoice, add a line item or use the discount field to subtract the cash/ACH discount for qualifying payments.

   • Clearly label this as a “Cash/ACH Discount” on the invoice.

3. Communicate the Policy

   • Add a note to your invoices or payment page explaining the discount: “A discount is applied for payments made by cash, check, or ACH. Standard prices include card processing costs.”

Ethical & Customer Relations Benefits:

• Customers see paying by cash or ACH as a way to save money.

• There’s no surprise fee for credit card users—just a visible reward for alternative payment methods.

• This approach is legal everywhere and keeps you compliant with card network rules.

How to Add a Service Charge in QuickBooks

If you decide to move forward and your state allows it, here’s how you can add a service charge in QuickBooks:

1. Create a Service Item

   • Go to Sales > Products and Services.

   • Click New, then select Service.

   • Name it something clear like “Credit Card Processing Fee.”

   • Set the income account to “Other Income” or create a new one for tracking these fees.

   • Save and close.

2. Add the Service Charge to an Invoice

   • When creating an invoice, add your regular products or services first.

   • Add the “Credit Card Processing Fee” as a separate line item at the appropriate percentage or flat fee.

   • Clearly label the charge so customers know what it’s for.

3. Include a Disclosure Message

   • Add a note in the invoice message or footer. Example: “A service fee is applied to cover credit card processing costs. Payment by check or ACH is available with no fee.”

4. Review and Send

   • Double-check the invoice for accuracy and transparency before sending it to the customer.

Tip: Always keep a record of your disclosures and stay up to date with state laws and card network rules.

Resources

• National Conference of State Legislatures: Credit Card Surcharges

• Visa Surcharge Rules

• Mastercard Surcharge Guidelines

• Federal Trade Commission: Payment Surcharges

Final Thoughts

Adding a service charge is a practical way to manage costs, but it’s not a decision to make lightly. Check your state’s laws, follow card network guidelines, and consider the customer experience. When in doubt, consult a legal professional or your payment processor for guidance.

Have you added a service charge to your invoices? Share your experience in the comments below!