[FAQ] Passing Square fees to customers

[#1]

Surcharges and cash discounting are two different pricing strategies that businesses use to adjust their prices and manage their costs. 

Credit card surcharges are additional fees or charges added to a transaction, usually to cover the cost of processing payments.

There are regulations (both by card networks and through country/local regulations) around surcharges. Some examples include:

• Surcharge can only be applied to credit cards – debit cards, gift cards and prepaid cards are excluded
• Surcharge should not exceed the merchant cost of acceptance, capped at 3%
• Signage must disclose the surcharge at the point of entry, the point of sale or transaction, and on the receipt.
• Some states do not allow surcharge

Cash discounting is an alternative method of offsetting credit card processing fees and there are no legal restrictions on cash discounting. A cash discount is when a merchant offers a discounted price to a customer if they choose to pay with physical cash for an item or service as opposed to a credit card. This can result in larger numbers of cash transactions and lower fees for merchants.

Implementing cash discounts

Steps for implementing a cash discount program:

1. Update pricing: Increase your prices by the effective rate calculated in Step 1.
   Let’s say that you pay an average of 2.6% for card purchases, that means you should add 2.6% to your posted prices. Those paying in cash will have that 2.6% percent deducted from their total since the transaction does not incur any processing fees. So, a $10 item becomes $10.26 after you raise the price by 2.6%, and the cash price at the register reverses back to $10. See below on how to use Square’s Export and Import tools on Item Library to make mass changes.
2. Update signage and marketing materials: You should update signage and marketing materials to inform customers about the cash discount program. 
3. You will also need to create a discount through Square Dashboard for paying with cash. Name it “cash discount” (or any other relevant name that indicates to the buyer that this discount was applied for cash payments) and enter the percent amount of discount you wish to offer for paying with cash. When a customer is purchasing using cash (and it must be cash, not a credit card or debit card), you will apply the discount you created previously to their purchase. See example below:
   
   
4. Train staff: It's important to train staff on how the cash discount program works and how to communicate the program to customers. Staff should be prepared to explain the program to customers who may have questions or concerns.

Using Square’s export and import tools on item library 

You can use the “Export” feature in Square item library to download your entire item library (in Excel or CSV) and make your price edits in a spreadsheet tool of your choosing (Eg. Excel, Google Sheets, etc.). After updating the prices, you can use the “Import” feature to overwrite the existing prices in Square Item Library with the newly adjusted prices.

Export your library

From within the Square Item Library, select the “Export Library” option from the “Actions” dropdown. You may “Export to Excel” (recommended) which will create a download suitable for most spreadsheets like Excel, Google Sheets, etc.

After you have exported your item library, you can open it in a spreadsheet of your choosing, update the prices, and save the new spreadsheet. 

Import updated library

From within the Square Item Library, select the “Import Library” option from the “Actions” dropdown. 

Select your updated spreadsheet from the modal. If you wish to replace your existing item library with the upload, toggle on “Replace existing item library” (use caution if you choose this method!)

Confirm that that each Square item attribute is matched to the correct column in your import file:

After confirming, your Square item library will update to match your uploaded spreadsheet:

Potential drawbacks of cash discounting

Cash discounting results in more expensive prices but many of your customers may not realize the price change. And even if they do, it is an easily explainable and viable reason to do so. Customers are also still penalized for paying with cards, potentially negatively impacting customer experience.

[JayceBaudry]

Good evening, 

Thank you for your answer. 

we do not charge debit card as we ask the customer if it’s debit or credit. 
when they answer us credit we apply the surcharge when they say debit we do not and even inform them that no one is allowed to do so. 

We do not make money/profit on it. 

Sign is posted at the register and customers are aware. 
We haven’t received any complain as everyone is doing it in New Jersey. 
that’s why the email was surprising. 

• If Square doesn’t want us to use the service charge for that they should then create a special setting for us to have automatically applied credit card and detect the difference for debit or credit as many POS do and even not transfer any more money to us that what we would have been charged. 
  
  

[JayceBaudry]

 

[AAInstalls]

I received the same email and I am wondering if anyone has found an answer. We live in a state that allows us to pass on the credit card surcharge to our customers. We have followed all laws and charge under the 3% allowance. Do I add that fee manually now or is it no longer legally an option?

[smile]

Hi @skateman81 - there are no regulatory caps on cash discounting (unlike surcharging), so to your point above: yes, it is fine to provide a 3% discount in this case. 

[Farmboy1]

So square has notified me that I can no longer charge customers a credit card processing fee.  Anyone else had this and how do you deal with it.

[rtfulk]

November 27th is the last day they are giving you to charge a processing fee. I don't think it is Square, but the credit card companies coming down on square to stop it. The way we will deal with it is a price increase which will affect customers paying with cash also.

[Deano]

Flightteam, you are correct! These processors like Square are forcing us to raise prices and the end result is "them" (Square, Stripe, Toast Clover etc.) making more cash and the merchant making less. SMH! 

[JJ_]

Hello there @Farmboy1! @rtfulk is correct this new rule change has been enforced on us by Payment Processors. 

Earlier this year, payment networks introduced new requirements around credit card surcharging. Because of these changes, Square does not support surcharging at this time and our Service Charge feature can no longer be used to add a credit card surcharge. 

In the meantime, we recommend sellers review their pricing strategy or implement a cash discounting program to offset credit card processing fees. With cash discounts, sellers can offer a discounted price to customers who pay with cash instead of a credit card. Sellers can also use our pricing calculator to incorporate the costs of processing fees in their prices. 

[Farmboy1]

Thanks for your reply.  Since your answer to this problem is to reprice all items, that sounds great.  So do you have any idea how long it would take to go through 5000 square feet of area and remove and put new price tags on 30000 items? Plus the time to change it all in my pos!! Perhaps square would like to send a team of say 50-100 people to do this on a Sunday afternoon while I am closed! While you make it sound like such a simple solution be in reality its a real problem for me!!

[TheRealChipA]

Hey @Deano.  What you said is something of misinformation, there.  Square, Clover, etc — who are what are called card aggregators because they charge one fee for all cards rather than subject us to the labyrinth of interchange and other confusing fees — are doing this because Mastercard, Visa, etc, have given them an ultimatum.  In fact, they have given them a few ultimatums and if the aggregators don’t comply they could lose their processing privileges for all of us.  

Also, there is a simple way to fix this that is within the rules.  All we have to do is price our products correctly, including adding in the processing fees when we price them.  Since not every customer pays with card, we sellers will actually make a little money when people pay with cash.  In my shop, that little bit of “extra” is more than enough to cover my Square processing fees.

This is not about making more money for Square.  It is about us doing our jobs as merchants and pricing our products correctly, as well as staying within the rules laid down by Mastercard, etc.  Like you, I don’t agree with Mastercard and Visa here, but since the federal and most state governments do agree with them, it is the way it is.  Resistance is futile until something changes much higher up the food chain than Square and Clover and Toast.

[dorsisbakery]

We too received the notification and when contacting square we received the response that recent changes in the industry has square changing their stance. However they couldn’t provide what the details were nor where anyone could read about the changes.

Tried to research the issue and I couldn’t find any recent changes in rules.  It appears as though it is not being reported widely, as there was only one other mention on a subreddit site asking this exact same question. I would presume not everyone is aware of this change in stance by square. 

The government and card processing sites still indicate in most states it is still okay to pass on the charge. It would be nice if square was transparent as to the real issue, as the representative said it was something that square was working on to bring back at some time in the future (we have heard that before though).

[jtpipkin]

We just received notice last week as well. I contacted them as to why the change. We had just updated our equipment in April to be able to recoup the processing fees, now they're saying 'no more'??? I asked what my alternatives were, he told me I could find another processor. 

I also don't like the language that states, 'They SUGGEST we remove the fee'. If it's a suggestion, then I'll just ignore it. If they force my hand, I'll be finding another processor. Square used to have benefits to using them, I don't really see much difference between them and everyone else these days though...

[tomasguitarra]

Is it possible to relabel an item that was previously called “Credit Card Processing Fee” as an “Administrative Fee”, thus avoiding a shut down?   It is not realistic for me to go back and change pricing.  I run a small honors level guitar program for youth that does billing based on the academic year.   Invoices went out in September.  To redo all of those invoices would require hours of administrative time when I am in a peak of activity. 

[tomasguitarra]

Was not able to edit my previous reply to offer context.   I never used the Square Service Charge Feature.  I added this as an Item.  Question:  will my use of a processing fee as an item result in my being flagged for a violation?  If I rename that item to “administrative charge”, will it still get flagged (based on it having previously being named “credit card processing fee”)?

[JayceBaudry]

The analysis suggests that the problem stems from Square's failure to establish a dedicated method for enabling us to pass on credit card processing fees.

(See below their answer)

The underlying concern is whether they are unwilling to do so, fearing that they stand to benefit more by increasing our prices. There's also apprehension that if we introduce an additional charge for credit cards, more customers may opt for cash payments, resulting in no processing fees for Square.

I just think that they don't realize that all of those changes they started to do since over a year which are impacting us financially will soon overcome the benefit of the products and service they propose. 

This is the answer from my last exchanges with square:

Just heard back from our team in regards to the question you have for the service charge.

It looks like you got the email because you are charging a "credit card/ mobile convenience fee." Due to recent changes in payment network rules we are unable to support credit card surcharging.

I know you were concerned around the rules that changed regarding this, please see below.

New requirements were introduced for credit card surcharging in the US as follows:

• A cap of 3% on the transaction amount.

• The payment networks only permit surcharging on credit cards (not debit or pre-paid cards), but with specific criteria and disclosure requirements. When a business uses credit card surcharging, payment networks require sellers to disclose the surcharge at the store’s point of entry, at the point of purchase, and on receipts so that buyers are fully informed.

• Square must enable populating a transaction level field (Field 28), which reflects the surcharging amount for all credit card surcharges (this is not available on the Service Charge product).

[jtpipkin]

Square is a payment processor. They have absolutely no business in attempting to determine what I do with my business. That said, they have a right to run their business as they see fit. I also have to right to discontinue doing business with them if it no longer benefits my business. It's really that simple. 

While I'd much rather just keep running along as I am now, if it comes down to me losing money, I'll leave them. I hope more people see it that way and maybe it will change their approach. I'm the customer in their case. I'm not going to be told how to run my business because it's an inconvenience to them...

[tomasguitarra]

It is my understanding that Square had a feature which allowed you to create service charges from your online Square Dashboard.  I actually never used this feature, but instead added the credit card processing fee as an item which I then applied to invoices for customers who indicated that they would pay their invoices with a credit card.   It is not clear to me whether this item i have created (credit card processing fee) has been flagged by Square.   I renamed the item “administrative fee” today - I am not clear that that will solve the potential problem

I am in agreement with other responses here that Square does not seem overly concerned with their customer base.  If they were, I would think that they would have more transparency and honesty in their messaging and their suggested solutions would not place an unreasonable burden on small businesses.

[jtpipkin]

In total agreement. 

[rtfulk]

@Farmboy1 We turn inventory over pretty quick, so we are just going to start the new year off with a price increase with new inventory.

[EPanther]

I am looking for exactly that answer - I was going to rename it an "administrative fee" - I am a service provider not an item seller, and I cannot reprice all of my clients!!!!!!!

[_Violet]

Hi Sellers - Thanks for reaching out to the Seller Community.

I went ahead and merged your posts to an existing thread where one of our Product Managers, @smile, has provided some more details on this topic. We merge duplicate conversations together to keep like comments in one place, and to make it easier for others to find the thread in the future. 

Please see the post at the top of the thread from @smile for more information.

I hope this is helpful but please do let us know if you have any additional questions.
@JayceBaudry @AAInstalls @dorsisbakery @jtpipkin @tomasguitarra 

[jtpipkin]

I see absolutely no new information in this post. My people do what they do very well, but math isn't one of their strong points. I purchased new Square hardware to allow me to teach them the simplicity of touching a button and recouping the fees I've been losing for years. I have no intentions of raising prices, the surcharges were an alternative in an already turbulent economy. I also have no intentions of insisting they insert another piece of the checkout puzzle during our busiest time of the year. 

Surcharging these fees is legal in my state and it's done by just about every merchant in town trying hard to keep their business competitive with the population that thrives on credit card rebates. 

My advice to Square is RETRAIN YOUR STAFF or LOWER YOUR PRICES. I can already tell you what their response will be to that request though....

[Greenhosue]

We are a restaurant.  I called square and the customer reps cannot give me any information.  They cannot tell me who is enforcing it, or why.  It is legal in our state to pass on the fees as long as it's exactly or less than the actual fee charged to us.  I noticed above the  Square employee capitalized Payment Processors, but it's not a company.  Square is the payment processor.  It will murder our business.  I have looked for the new requirements the payment networks introduced around credit card surcharging and cannot find it.  Can someone from Square please post the information or the requirements so we can understand it?  

[EPanther]

That is exactly what I'm doing.

[jtpipkin]

What's crazy here is the language they use - 'We SUGGEST' you stop doing this... Then you contact them and there are no answers other than the same run around they they pushed out to the notifications on the machines, which really aren't answers at all. Someone needs to start communicating on their end, and quickly! I'm seeing ZERO information on any of this subject and seems like they really don't understand it either.