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Industry Updates

Surcharging Helps Contractors Accept Credit Cards Amid Economic Pressure


As the construction industry faces uncertainties posed by the coronavirus pandemic, it’s more important than ever for businesses to keep operating costs low while adapting to changes. Due to the shutdown of many physical operations pushing payments online, many contractors who previously depended on taking cash or check payments now need a way to accept credit cards without fees associated in processing those payments.  

An analysis of CardX transactions since March revealed that buyers are using their credit cards more during these uncertain times to finance their transactions and preserve liquidity. Even before the pandemic, the number of people with credit cards has risen rapidly, with an 11% increase in users from 2015 to 2019 and more than 450 million credit cards now in the market. With the growing demand from customers who are using credit cards and all the changes spurred by COVID-19, there’s an increased urgency for businesses to accept credit cards. 

What Does All of This Mean For Contractors and Other Construction Businesses?  

However, as businesses are more cost-sensitive than ever, the potential hit to the bottom line from interchange fees — set by card brands like Visa and Mastercard — is daunting. Every year, merchants spend more than $100 billion to accept card payments. With constantly increasing fees, the cost of offering credit cards is the second-highest operating cost after payroll for many companies — something that many businesses may not be able to afford during these hard times. 

Surcharging provides merchants a solution to balance out this additional cost. Businesses can pass on the fees to the cardholders who choose to use their credit cards, allowing contractors to offer the option to pay with credit to customers without the hit to the bottom line. For construction businesses already accepting cards without surcharging, implementing the practice can add up to 3.5% to the bottom line. 

How Does Surcharging Work? 

Prior to the introduction of the surcharging solution in 2013, businesses handled the costs of accepting credit in one of two ways: raising prices for all customers to offset the impact of interchange fees on the bottom line, or like many contractors, refusing to accept card payments at all. 

Surcharging gives merchants a compliant and transparent way to pass on interchange fees to customers who prefer to pay with credit cards for the rewards or convenience. All customers are still presented with no-cost payment options, like debit, cash or check, should they choose not to pay the associated surcharge.  

For construction contractors and businesses, who often have high average tickets and low gross margins, surcharging is an especially beneficial model. The practice has become more widely accepted across the U.S., with 46 states now allowing surcharging on credit card payments. As it is a state-regulated practice, however, many merchants are still intimidated by the compliance overhead of surcharging and the long list of rules set by card brands.

How Can Contractors Get Up to Speed With Surcharging? 

Contractors should look for existing payment solution providers that allow them to save processing fees and are fully compliant, so they don’t have to worry about navigating the legal details. Typically, merchants who attempt to “do it themselves” are overwhelmed by the different rules and standards required for compliant surcharging. In addition, contractors should look to provide full transparency to customers on where the surcharging fee is coming from, and their other no-fee payment options.

Working with a trusted technology partner can help merchants seamlessly get up to speed on accepting credit cards, which more customers are turning to now. Using a payments solution provider will allow construction businesses and contractors to set up surcharging seamlessly to maximize their profitability, educate their customers about their payment options, and comply with the different card brand rules as well as state-specific regulations. 

This way, businesses can enable customers to pay in whichever method they prefer. Though the movement towards accepting credit cards may have been expedited by the coronavirus pandemic, surcharging allows businesses to make this transition without also incurring the steep costs that traditionally come with cards — a vital benefit that will help construction businesses as they move forward. 

Jonathan Razi is the CEO of CardX, a Chicago-based company that automates compliance with surcharging rules.  


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