Dollars and Sense: Mastering Credit Card Fees in Your Small Business

Customer passing credit card to merchant

As small business owners, we very quickly become familiar with payment processing fees.  Especially when it comes to accepting credit and debit cards.  As these fees increase, and as our businesses grow, these fees start to look bigger and bigger.  So what are we supposed to do about it?

You’re paying for convenience & a service

Firstly, we need to understand that we are paying for both a convenience and a service.

Accepting credit cards puts one less barrier between a potential customer and the product/service that they want from us.  The less barriers involved, the more likely they will be to buy it.  And the quicker they can pay for it, the less time they’ll have to talk themselves out the purchase.

Additionally, we are paying for the ability to accept cards as payments along with a host of other services that the card processor offers.  Depending on who you go with, this may include:

  • Invoicing
  • Tracking the cash in your register
  • Inventory tracking
  • Various types of sales reports
  • And so much more

Can we just charge the customer that fee?

We won’t deny that it’s tempting to tack it on as an extra fee on a customer’s invoice, but the truth is, card processing fees are just a cost of doing business.  That means, just like we don’t add on fees for things like rent, office supplies, or the company vehicle, we shouldn’t tack on a fee for card processing.  From the customer’s perspective, seeing a fee for card processing is like receiving a fee for doing business.

Instead, the price of your product/service should be high enough to cover the cost of card processing fees, just like it needs to cover the cost of any other operating expense.  If your pricing does not cover those fees, then it’s time to increase your price.  Pricing strategy is something I’ve helped a few of my clients with and this has been one of the easiest things for us to adjust.  A simple 5% increase in pricing is easy enough for a business owner to implement yet big enough to cover the fee plus a bit extra.

Then how do we track this with our bookkeeping?

Naturally, my first response will be to find a bookkeeper to help you out with this.  It makes life easier.  However, for those currently doing their own books, you need to account for the GROSS revenue and the card processing fee separately.  This is where it can get tricky if you don’t have proper integrations set up with your card processor and bookkeeping platform, or don’t use your bookkeeping platform’s invoicing system.  But the gist of it looks like this:

You sold a $1000 service but your card process deposited only $970 because they charge a 2.9% fee.  The IRS (along with any other tax reporting entity) requires that you report your true gross profit.  This means you can’t just receive the $970 deposit in your bookkeeping platform.  Instead you need to make adjustments to show the full $1000 gross revenue and the $30 card processing fee.  This would then give you an accurate Profit & Loss statement to use when reviewing your business finances and filing taxes.


So next time you see that card processing fee and feel tempted to add it on as an extra fee on your customer’s bill ask yourself these questions:

  1. How will this make my customers feel?
  2. Might my prices be due for an increase to cover expenses like this?

And don’t forget to double check that you are correctly recording income & fees in your bookkeeping platform.  If you aren’t, then call up your bookkeeping bestie and ask them for help.

Rebecca Weingarter

Rebecca Weingarter is the founder of The Admin Group LLC and loves working with small businesses to get their finances and operations organized. She offers remote bookkeeping and business management consulting. You can also find her on Facebook and Instagram.

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