Surcharge Vs Convenience Fee Invoices Payments

Surcharge Vs Convenience Fee Invoices Payments

As a small business owner, you will have heard the terms “surcharge” and “convenience fee” thrown around in the context of payment processing. Both can help you offset the costs of credit card processing fees, but how you talk about them can significantly impact customer perception or payment processing legalities.

The confusion between the two is easy to understand. Surcharges and convenience fees are both additional charges that businesses add to their customers’ bills. However, surcharges are added to the transaction amount only when customers choose a credit card as their payment card. Credit card convenience fees, on the other hand, are charged on standard payments when customers choose a more convenient payment option, such as an online or over-the-phone method of payment.

If that still sounds vaguely similar, you’re not the only one to feel that way. But you must learn the difference.

The language you use matters. While both surcharges and convenience fees are legal in most jurisdictions, there may be restrictions on how to use them. A few states prohibit merchants from charging a surcharge on credit card payments. Some payment processors have their own rules about what types of service fees are allowed. The cost of mistakes can be broad. On the lesser end, you may put off your customers. At the worst, you could get you into legal trouble.

In this article, we’ll delve into the differences between surcharges and convenience fees, explore the legalities of each, and discuss why language matters in payment processing.


  • Surcharges and convenience fees help you offset the costs associated with processing payments.
  • While surcharges and convenience fees appear similar on the surface, there are big differences in how they are regulated and how your customers may perceive them.
  • Language plays a big role in gaining the benefits of these cost-saving strategies and ensuring you’re compliant while at the same time maintaining strong customer relationships.

Understanding Surcharges

A surcharge is an additional fee that merchants add to the purchase price of a product or service when customers pay with a credit card. Surcharges are designed to offset the processing costs that merchants incur when they accept credit cards. 

Is surcharging legal?

The legality of surcharges varies depending on the state where you do business. Connecticut, Massachusetts, and Puerto Rico are the states and U.S. territories with an absolute ban on surcharging. While in California, Florida, Kansas, Maine, New York, Oklahoma, Texas, and Utah, surcharging is legal but limited. 

Clear signage is one of the key requirements for legal compliance from both the states and credit card issuers, which also dictate certain rules when charging fees on credit card purchases.

What do customers think of surcharge fees?

Industry data shows that most consumers actually don’t mind paying surcharge fees. According to PYMNTS, just 21% of consumers felt dissatisfaction towards a business when asked to pay a surcharging cost. 

It’s worth noting that how consumers react towards surcharge fees may also depend on their demographics. PYMNTS’ research shows that “Seniors and baby boomers were the most averse to paying credit surcharges” with 65% saying  they won’t pay credit card surcharging fees.

Are surcharge fees beneficial?

Yes, surcharge fees can be beneficial, as they enable you to lower the costs of credit card processing, which leads to a healthier bottom line. 

Credit card surcharge fees can also encourage customers to choose a lower-cost payment method, such as cash, check, or even an ACH payment which can help reduce the overall costs of payment processing. 

In addition, surcharges can create a sense of fairness and transparency. When properly disclosed, customers understand that they’re contributing to the operational costs associated with their chosen payment method. This transparency can enhance customer trust and maintain a positive business-customer relationship.

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Understanding Convenience Fees

A convenience fee is similar to a surcharge in that it is an additional fee added to a transaction. However, convenience fees are charged for different reasons. Unlike surcharges, which are intended to offset the costs of credit card processing, convenience fees are charged for the convenience of paying using certain methods.  The amount of the convenience fee must be a set amount and not change based on the total payment due.

For example, a utility company offers customers the option to pay their bill online with a credit card. They may charge a convenience fee to cover the payment processing costs. They may also charge a convenience fee for subscriptions or automatic payments.

Convenience fees are designed to cover the costs associated with offering credit card payments as an option. Surcharges aim to offset the costs of processing credit card transaction fees from credit card companies: Visa, Mastercard, Discover, American Express, etc.

What does the law say about convenience fees?

Like surcharges, the legality of convenience fees varies depending on the state in which you do business. Generally, convenience fees are legal. However, incorrect signage and labeling can land merchants in hot water.

As such, merchants who charge convenience fees must be aware of when and where they can do it. For instance, you cannot charge a convenience fee for in-person transactions. Also, you can only charge convenience fees when accepting payment methods outside your usual way of accepting payments. 

In addition, the amount of the convenience fee must be a flat rate; it cannot change based on the total payment due.

And remember: you must make it clear to the customer that the extra charge is for the convenience of using a different payment method. 

Convenience fees in the real world

The online ticketing industry is a big user of convenience fees. Many ticketing websites charge a convenience fee when customers purchase tickets online or over the phone with a credit card. Another example can be found in the higher education industry, where some colleges and universities charge convenience fees for students who choose to pay tuition with a credit card.

Are convenience fees beneficial?

Convenience fees are beneficial in that they help offset the costs of taking payments that are not your typical way of accepting payments. (To clarify, they’re not meant to cover the direct costs of processing credit cards—that’s what surcharges are for.)

For example, if you usually take payments in person, but you also offer the option to pay by phone, there might be extra costs involved for you. Convenience fees can alleviate those expenses.

Why Language Matters

Legally, language is extremely important. Merchants must clearly disclose any additional fees before customers complete their transactions, and the language used must be clear and accurate. Failure to do so can result in fines and legal action.

To be safe, double-check the surcharging and convenience fee laws in your state, and follow them to the letter. It also helps to use official, approved language when communicating these fees. 

Visa, for instance, offers the following point-of-entry disclosure example:

“We impose a surcharge on credit cards that is not greater than our cost of acceptance.” 

And to really cover your bases, use a trusted solution provider that can help implement your initiatives. When it comes to surcharging, CardX provides a turnkey solution that complies with all the rules and automatically has you covered.

We enable you to implement surcharging with confidence and ensure that all fees are applied correctly and disclosed appropriately to your customers.

Best Practices for Payment Processing

To avoid customer complaints and legal issues, there are best practices that should be applied to your payment processing strategy. Here are a few tips:

  • Avoid excessive fees: While surcharges and convenience fees can help offset processing costs, keeping fees reasonable is important. Charging excessive fees can lead to customer complaints and negative reviews.
  • Disclose fees clearly: When adding surcharges or convenience fees, disclose them to customers before they complete their transactions. Use language that is accurate and easy to understand.
  • Use a technology platform or seek expert legal advice to ensure compliance: To make sure you’re compliant with local regulations, use a solution like CardX, which automatically applies surcharges according to the laws in your area. It may also help to seek the advice of a qualified attorney who is knowledgeable about your state’s laws and regulations regarding payment processing.

Strategies for disclosing fees with ultra clarity

You will find that each state has its own parameters and guidelines for how you have to communicate surcharge or convenience fees with your customers. Each credit card brand can have different requirements, too. The Visa rules can differ slightly from Mastercard, and American Express will have its own rules. This includes clear signage throughout your store where customers should see your fees before even reaching the point of sale. Online retailers need clear notices throughout the online checkout steps.

Beyond what you have to do legally, you can also choose to take it further. For example:

  • Use simple language: The language used to describe fees should be clear, concise, and easy to understand. While you definitely have to make a distinction between whether the fee is a surcharge or convenience fee, you will otherwise want to avoid industry jargon or other confusing terminology.
  • Don’t rely on written communication alone: If you run a store where you deal with customers in person, check with them that they have understood the fees. Give them the options, and you can even share some insight into how service providers and payment networks charge credit card processing and merchant fees, making it expensive to run a small business.

In Summary

The way you communicate surcharges and convenience fees can greatly impact your business—both from a legal and customer experience perspective. 

While both can be beneficial for lowering the costs around taking payments, clear, precise language is crucial for legal compliance and customer trust. Bear in mind that while surcharging is meant to offset credit card processing costs, convenience fees are charged for the use of an alternative, more convenient payment method.

To that end, if your objective is to lower your credit card processing costs (whether in person, online, or at the office), surcharging is the way to go. 

And with a solution like CardX, implementing a surcharging model can be straightforward, hassle-free, and more transparent, letting you focus more on your business growth while maintaining a smooth payment process.

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FAQs about Surcharge vs Convenience fee

Many of the questions below have already been answered above, but here you have quick, succinct answers to the most common questions about surcharges and convenience fees.

Q: What is the difference between a surcharge and a convenience fee?

A surcharge is an additional fee that a merchant adds to the cost of goods or services to offset processing costs. A convenience fee is an additional fee charged for the use of certain payment methods, such as online or phone payments. 

Here’s another key distinction: a surcharge represents a percentage of the payment amount, while a convenience is a flat cost or set amount that doesn’t change regardless of the purchase price. 

Q: Are surcharges and convenience fees legal?

Surcharges and convenience fees are legal, but laws and regulations vary by state. In some states, merchants may not be allowed to charge surcharges or convenience fees at all, while in others, they are allowed with certain conditions, such as providing clear disclosure of the fees. Some have different limits on how much those fees can be.

Q: Do customers need to be notified about surcharges and convenience fees?

Yes. By law, customers must be notified about any additional fees before they complete their transactions. When merchants charge a surcharge of convenience fees, they must use clear language to describe those fees and suggest an alternative payment channel whenever possible.

Q: Can I charge a surcharge or convenience fee for credit card transactions?

It depends on the state. In some states, it is legal to charge additional fees for certain types of payment methods (such as credit cards), while in others, it may not be allowed. Check your local laws and regulations before charging such fees.

Q: How should I disclose surcharges and convenience fees to my customers?

Merchants must use clear language to describe the fees. It should be simple, straightforward, and easy to understand. It should also be easy for customers to see all communication about these fees. This can be done by displaying clear notices throughout your store or online checkout steps.

Q: Are there any alternatives to surcharges and convenience fees?

Yes. Offering customers alternative forms of payment, such as cash or check, that can help them avoid additional fees. You can also offer discounts to customers who pay with these methods.