What are "Convenience Fees" and how do They Impact Your Business?

As a business owner, you pay all sorts of fees: accounting fees, software fees, payment processing fees, and, in that vein, the occasional convenience fee.

What is a convenience fee, though, and why do they eat up so much of your bottom line?

These are questions many business owners are asking as convenience fees are on the rise. Put simply, a convenience fee is a charge for the convenience of making payments through a certain channel.

In this blog, we'll discuss credit card convenience fees, how they work, and how decreasing them could benefit your business.

What is a Convenience Fee?

As the name suggests, a credit card convenience fee covers the costs associated with accepting card payments.

These can include credit card processing fees, additional customer service costs, or even the cost of providing extra security for online transactions.

In some cases, businesses also charge a convenience fee to offset the cost of accepting lower-value payments.

For example, a company that usually requires a minimum purchase of $20 may charge a $0.50 convenience fee for transactions under $20. Businesses can charge credit card convenience fees for in-person, over-the-phone, or online transactions.

Another example is an eCommerce platform that also has a physical location. Since the business provides a pay-by-phone option, the store can charge customers for the convenience of an alternative.

How Do Credit Card Convenience Fees Work?

Here's the rundown:

You must disclose the fee to the customer before processing the transaction. Additionally, it must be a flat fee rather than a percentage of the total purchase.

Some businesses choose to absorb the fee in the total cost of the purchase, while others add it as a separate line item (known as no-fee or no-cost credit card processing).

In either case, the customer must be aware of the fee before they complete the transaction.

Whether or not you decide to charge a convenience fee is up to you, but there are a few things to keep in mind.

Most merchants only charge convenience fees on credit card transactions. This means that if you offer other alternative payment methods, such as PayPal or Venmo, you cannot charge a convenience fee for those methods.

Second, not all credit card issuers deal in convenience fees. You should check with your processor to see if they process convenience fees. Finally, convenience fees are not tax-deductible, so you must factor that into your decision.

What is a Service Fee?

A service fee is a type of convenience fee charged for using a specific service. Many hotels charge a daily service fee that covers housekeeping, Wi-Fi, and other amenities.

Like credit card convenience fees, customers must know about the fee before finalizing the transaction. Service fees are generally charged as a flat fee but can be a percentage of the total cost.

Unlike convenience fees, service fees are often tax-deductible.

Is a Credit Card Convenience Fee Right for My Business?

The answer to this question depends on your business and your customers. If you find that credit card convenience fees are deterring customers from using your services, it may be time to reevaluate your pricing structure.

On the other hand, if you find that convenience fees are helping you offset the cost of credit card processing, they may be a good option for your business.

Ultimately, the decision is up to you! Seamless Chex can help you if you want to add convenience fees to your products and services. Contact us today to learn more!