How to legally charge your payment processing fees to your customers

Every business, big and small has to pay payment processing fees to be able to accept debit/credit and ACH transactions (some platforms do not charge on ACH transactions) and it can add up, quickly. The only two kind of okay aspects of this is that they are a tax write-off and they are automatically deducted from the transaction, there isn't actually another bill you have to pay.

Now, there is a lot of misconception on payment processing fees and if you can legally pass them onto your clients, and I'm here to tell you that you can as long as you live in a state that does not prohibit you from doing so, the platform you use doesn't prohibit you from doing so and you follow Visa/MasterCard payment processing laws, as they mandate them. The 10 states that prohibit you from passing these fees on are Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

The law goes by where you live, not where your client/customer lives.

If you've passed that test, now you have to make sure the platform you use allows you to do this, as not all of them do. If you are caught doing this anyway, you will potentially be banned from using that platform, have to reimburse everyone charged plus interest and pay a fine, which could be hefty depending on the amount the charges total.

I'm only touching on the major platforms, so if you do not see the platform you use listed, please read their terms and conditions and/or speak to their representative to confirm. The most common platforms used and their terms are:

PayPal: NO

Waveapps: Yes

QuickBooks: Yes

Stripe: Yes

Square: Yes

If you've passed A & B, pass go, collect $200 and decide if you will pass the payment processing fees onto your customers.

Now, let's get to the requirements Visa/MasterCard has for you:

  1. You have to notify Visa/MC that you will be doing this 30 days prior to implementation

  2. Your client has to know they are paying the fee before the transaction (Notify Visa here, notify MasterCard here)

  3. You can only charge the exact amount that you would pay or less. You cannot profit from this. You cannot charge them more than $10, so if the transaction fee surpasses that, you have to pay the excess. (Ex. Waveapps charges you 2.9% + 30 cents - that is all you can charge the client)

  4. The fee and the rate breakdown has to be listed on their invoice and/or receipt for in-person transactions (Examples of how your invoice should look: Waveapps, Stripe and Coming Soon: QB & Square)

  5. You can only do this on credit card transactions, not debit card transactions

Have you already charged your client's processing fees if you are in a state that prohibits it, haven't notified Visa/MC (or follow the above) or you are using a platform that prohibits it? I highly recommend you speak with your lawyer or an expert to determine if you should refund your clients or not-- be proactive, not reactive. There is no statute of limitations with this regulation so a compliant and suit can be brought against you at any time.

If you decide you will charge your clients a processing fee, do it consistently. You do not want to be accused of possible discrimination for not being consistent. It's one thing to make an exception here and there, but don't make it a pattern. And, if you are waiving them, you should probably reconsider charging your clients in the first place.

If you have additional questions, would like clarification, have been charging your clients when you legally can't, etc, leave a comment or reach out to me!



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