Right now, 76% of American adults have at least one credit card. With fewer people carrying cash, it’s common for customers to break out a credit card for everyday purchases. While credit cards offer customers more spending options, swipe fees attached to charges could mess with your small business finances.

Swipe fees are extra costs tacked on to the amount your customers pay. The fees cover the credit card company’s costs for processing transactions. Swipe fees usually average 1.5% to 3% of the total sale.

Who pays swipe fees?

Business owners used to be responsible for paying credit card processing fees. Because of a lawsuit involving Visa, MasterCard, and major banks, business owners can now pass swipe fees onto customers.

As part of the settlement, retailers can charge a surcharge if a customer pays with a credit card. Instead of the business owner paying processing fees to credit card companies, the customer pays swipe fees to the business owner.

The extra cost of credit card processing fees reduces small businesses’ profit margins. A profit margin is the percentage of income you keep after you pay your operating costs. The extra fees narrow the gap between sales and expenses, so your bottom line is smaller.

Should small business owners pass on swipe fees?

Some small businesses do not pass swipe fees onto customers. Credit card processing fees can be considered a cost of doing business. Similar operating costs are usually not passed onto customers, such as electricity, rent, and insurance. These expenses are not the responsibility of your customers.

You risk losing sales if you pass on credit card processing fees. Customers see credit cards as a convenience. Charging extra to process credit cards might seem like turning an amenity into a burden. The fees could deter customers from making purchases or returning to your business.

How to pass on credit card processing fees

Business owners must follow certain rules to charge customers for swipe fees. In most cases, businesses can only pass on up to 4% of the credit card processing fees. Companies need to make customer-paid credit card processing fees known on their doors, receipts, and at the point of sale.

Some states do not allow you to pass swipe fees onto customers. These states include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

If you decide to pass fees onto customers, make sure you follow all federal and state laws.

Managing swipe fees

The most obvious way to avoid swipe fees is to not accept credit cards at your business. But by doing this, you could lose sales because many customers don’t carry cash.

You might find it worthwhile to accept credit cards and pay swipe fees for transactions. If you handle many small transactions, you could have a minimum sale amount for credit cards. For example, let’s say you own a coffee shop and your average sale is $5. You could have a $10 minimum to process credit card transactions.

You could compromise with your customers by lowering the prices of your products or services. That way, you will not have to pay the credit card processing fees. There will also be a smaller gap between the prices you offer now and the prices with the credit card fee.

Before you choose a credit card processor, shop around. Prices vary between companies. Look out for hidden charges, long-term contracts, and cancelation fees.

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This article was updated from its original publish date (10/15/2012).