Recovering Lifting Fees and Credit Card Fees (#210)
/In this podcast episode, we discuss how to deal with short pays on electronic transfers, as well as how to collect the credit card transaction fee from customers. Key points made are noted below.
Lifting Fees
Let’s start with the short pays on electronic transfers. More than likely, customers aren’t really paying less than the amount they’re supposed to. Instead, when you send a wire transfer, the receiving bank deducts a lifting fee from the payment. If there’s an intermediary bank involved, then that one might also charge a lifting fee. Supposedly, this fee is for processing costs. This always leaves a residual account receivable balance that has to be cleared out.
A bad option is charging the customer the fee, since it’s not their fault. It’s the bank’s fault. If you do a lot of business with your bank, approach them about having the lifting fee reduced or eliminated. Chances are, they won’t do it, but you can always ask. If there’s an implied threat that you might move your banking business elsewhere, maybe it will work.
If payments are being made with a wire transfer, there’s a good chance that it’s an international payment. If so, and you do a lot of business in certain countries, consider setting up a corporate bank account over there. Then there’re more alternatives for being paid within the country, and without the lifting fee. However, at some point you still have to shift the funds back to the home country, which may involve another lifting fee.
For most organizations, the lifting fee is so small that it’s easier to accept it as a cost of doing business, and just get on with life.
Short Payments
But what if a customer is actually short paying, and there’s no lifting fee involved? In this case, the customer needs to be trained to stop doing that, which means leaving the balance in place and sending them statements that list the overdue amount. Once these amounts are really overdue, hold the delivery of any further orders. This is extreme behavior, especially if the customer is an important one. So, you have to balance the need to break a customer’s annoying habit of short paying against the possibility of losing some sales.
Credit Card Processing Fee Reimbursement
Then we come to how to collect the credit card processing fee from customers. This is that annoying fee of about 3% that’s charged to the merchant by the credit card companies whenever a customer uses a credit card to pay for something. It’s possible to charge customers a surcharge for the credit card processing fee, but there are restrictions on it, and the practice is banned in some areas. In addition, Visa forbids all surcharges in cases where the card is not present, such as online sales. There are some ways to add a surcharge under Visa’s rules if the card is present, such as in a retail store.
How can you simply sidestep the ban on surcharges? One of the more common approaches, and which is even recommended by Visa, is to increase all of your prices by the amount of the credit card processing fee, and then offer customers a discount back to the original price if they pay in cash. The problem with this approach is that all of your prices will appear to be higher than those of your competitors, which may lead to a decline in sales.
There’s also a modified version of that last suggestion. If the company receives a decent mix of cash and credit card payments, you could increase prices for everyone, but by a reduced amount, like one percent, and then don’t offer a discount at all. The increase still covers the cost of the credit card processing fee, since fewer people are using credit cards. The reduced amount of the price increase won’t make the company’s prices look so bad in comparison to the competition’s prices.
Another option is to not accept Visa credit card payments. If you only allow Mastercard and American Express cards from customers, the rules for surcharges are much easier to follow. The problem, of course, is that lots of people use Visa.
Use of Debit Card Payments
And then there’s the option of only accepting debit card payments. This does reduce the amount of the fee, but then most people are so accustomed to only paying with credit cards that they don’t like this option.
Fee Shifting
Another alternative is to shift the cost of the credit card fee into something else that’s still charged to the customer. For example, increase the shipping charge, or add a fee for faster delivery. Another possibility is to raise prices on those goods or services that don’t have a lot of direct competition, so that customers can’t compare prices. Or, raise prices for single-unit sales while still offering a good price for volume purchases.
Parting Thoughts
So in short, you can avoid the fee by restricting payments to certain types of cards, or not allowing credit card payments at all, or by being imaginative and shifting the fee into other types of prices.
What this really gets down to is strategy. If the company is competing based on low prices, it doesn’t have the option of increasing prices to cover the credit card fee. Instead, it really does need to require cash payments to completely avoid the fee. What management could do is use it as a marketing tool. That means explicitly saying that the company offers rock bottom prices, and the only way it can do that is to require payments in cash.