Sellers Can Now Charge Extra For Credit Card Buys — But Will You?
Time - Business and Money
The 7-year fight between merchants and credit card companies over interchange fees on credit cards has finally been resolved.... The relevant news for the rest of us is that the settlement gives stores something they’ve been seeking for a long time: the right to charge customers more if they want to pay with a credit card. Read more: http://business.time.com/2012/07/17/retailers-get-7-25-billion-customers-get-surcharges/#ixzz2JIQP7hZw
In recent discussions with customers and users of SYSPRO ERP software several standards and questions have come up.
- Customers are not charged using credit cards for purchases.
- Credit card charges and fees are taken as cost-of-selling.
- Customers expect not to be charged when they use cards.
- Pay by Cash and check sales are less popular and seen as inconvenient.
- Buyers are encouraged to use any means to process a sale.
- Vendors are welcoming a customer transaction at any cost.
Sellers, typically, have not charged you for using credit cards because they consider it a cost-of-selling or customer service. They charge-off accounts receivable balances against Sales Processing or Bank Fees. All of which are percentage based fees. These percentages range from 2.5% on the low end, to upwards of 4%. These fees are based on the total dollar amount of a transaction and are, in essence, like sales tax to the seller, however this is added on top of those other sales costs to the seller.
Consider a company selling $20M per year gross sales. At the low end; 2.5% fees adds up to a whopping $500,000 in non-reimbursable selling fees/costs. If usage fees are on the high-end at 4%, the cost is $800,000.
Considering these processing charges, attached behind the scenes, are thought of as usual and normal. Customers who purchases from manufacturers, distributors and retailers using credit cards are either unaware of these costs to the sellers consider it the seller's problem may be in for a surprise. This new ruling will allow sellers to up-charge credit-card buyers for their usage and reward cash or pay-by-check buyers with the priced as sold.
Since this is post-sale charge the intricacies of software systems and customer awareness will necessarily take a while to resolve and standardize. Particularly in interstate, intrastate and international sales where systems must agree across control boundaries to account properly for these costs and charges. I think it may become like a freight charge for shipping a package; there will be retail rates and wholesale rates.
Update: July 2012: Since 10 states — California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas — have laws against adding surcharges to credit card transactions, This settlement is not expected to have much immediate effect.
Essentially a cash discount is allowed, not a credit card penalty, which is okay. Basically, the credit-card-price is the suggested list-price and paying cash provides a discount.
With markets in transition, customers and product stability are even more critical. With costs of doing business increasing from taxation and regulation, costs like sales transaction credit card fees need to be managed as well. Given a probability of a business' profit ranging from 10-11% gross profit and 2-5% net profit; losing $500,000 to $800,000 for a $20M company is a serious subject. These costs come right out of retained earnings, un-retained business building dollars of the future.
When looking at these credit card regulations, costs, customer/buyer profiles, standard operating policies and buyer expectations, what will your company and your customers do as a result?
Here are some questions for your enterprise credit card processing capabilities:
- Does your system integrate into your ERP accounting software sales transactions?
- Are credit card pre-approvals and bookings components of an integrated system?
- Can you process accounts receivable payments using credit cards?
- What happens when a return or an RMA is credited?