Introduction
In the world of used car sales, card transaction fees can be a constant concern for dealership management. Major card networks (Visa, Mastercard, etc.) charge non-negotiable processing fees for every card transaction. Did you know that your margins are contributing to someone else’s rewards, like vacation discounts or cash-back incentives?
Why Surcharging is Your Solution
With continual fee increases impacting dealers, particularly smaller businesses, surcharging has become an appealing alternative. Surcharging, or adding a fee up to 3% of a customer’s due amount, helps to offset those pesky processing fees. It’s not unethical or uncommon; industries related to auto services are already using this approach.
Benefits of Surcharging for Used Car Dealers:
- Flexibility: Accept credit card payments for larger amounts without worrying about exorbitant processing fees.
- Improved Cash Flow: Lower overall costs boost profitability and fuel growth.
What is a Surcharge Fee?
A surcharge fee is an amount added to the total amount due at the time a customer makes their payment. A percentage of up to three percent (3%) can be added for online, over the phone, or point of sale payments. Surcharge fees are prohibited from being added to debit or prepaid cards. Surcharge fees are applied by the merchant’s POS system or payment processing platform.
Understanding Surcharge Fees
A surcharge fee is an extra amount added at payment time. For credit card transactions, up to 3% can be added, though debit or prepaid cards are exempt. Surcharge fees are handled by your POS system or payment processing platform.
Surcharge Fees vs. Other Fees
Don’t confuse surcharging with cash discounting or convenience fees. While surcharging adds a percentage for credit card use, cash discounting offers a price reduction for non-credit payments. Convenience fees, on the other hand, apply to online transactions, offering an online payment option.
What Card Networks Say About Surcharging
Card brands like Visa, Mastercard, Discover, and American Express permit surcharging, with some rules in place. For instance, Visa has capped its maximum surcharge at 3%, and surcharge fees cannot apply to debit or prepaid cards.
State and Local Regulations
State and local regulations also apply. In Colorado, the maximum is 2% or the actual cost of processing, while Connecticut, Maine, New York, and Massachusetts prohibit surcharging altogether. Before jumping into surcharging, make sure you’re aware of your local laws.
Is Surcharging Right for Your Used Car Dealership?
Evaluate Payment Processing Costs Start by assessing your current expenses to determine if surcharging could be beneficial. IntelliPay can assist in calculating your net effective rate and potential surcharge amount.
Competitor Analysis Knowing how your competitors operate can also influence your decision to surcharge.
Closing Thoughts
Surcharging can be a game-changer for used car dealers, offering flexibility, improving cash flow, and enhancing competitiveness. However, it’s not a DIY project. You need a seasoned payment partner like IntelliPay, who sets you up and ensures compliance with surcharging regulations. IntelliPay’s cloud-based platform integrates with AutoManager’s Deskmanager DMS, streamlining all your payments and reconciliations.
Please reach out to Phillip Buck 385-210-1078 or phillip.buck@intellipay.com for your free analysis and demo.
