Yes, you can surcharge B2B transactions if your customers pay with a credit card (assuming surcharging is legal in your state). But it’s illegal for B2Bs to surcharge debit cards, and there are several other compliance requirements for B2B surcharge policies.
With credit card processing fees continuing to rise, the practice of surcharging customers for paying with plastic has been growing in popularity.
And now we’re even seeing surcharging break into the B2B world, as businesses are charging other businesses a surcharge fee when they use a credit card to pay for supplies, inventory, bulk orders, B2B services, and more.
While B2B surcharging is legal in most states, you should definitely think twice before implementing a policy like this. Read on for the full breakdown.
B2B Credit Card Surcharge Laws: Is it Legal?
B2B companies are bound by the same credit card surcharge laws as other B2C merchants, meaning that it’s legal in most states and capped by a 4% maximum at the federal level.
There are no state-specific laws or federal laws that change surcharging requirements if you’re selling products or services to other businesses. You still need to check with the surcharge laws in your state because the rules aren’t always as simple as legal or illegal.
For example, surcharging is banned outright in Connecticut, Maine, and Massachusetts.
But several other states regulate surcharge fees with lower caps, specific disclosure requirements, dual pricing mandates, and other stipulations. Surcharge fees typically can’t exceed your processing costs, and you generally can’t surcharge B2B credit cards if that’s the only form of payment you’re accepting.
We have a complete state-by-state surcharge law guide that you can quickly reference for the laws in your area.
Compliance Requirements for B2B Surcharging
If you’re considering adding a surcharge fee on B2B transactions, here’s what you need to do to ensure compliance:
- Verify the local surcharge laws in your state.
- Notify the card networks of your intention to surcharge at least 30 days in advance.
- Recognize that debit card surcharging is illegal nationwide.
- Clearly disclose the fee to your customers before the purchase.
- Itemize surcharge fees separately on receipts and invoices.
- Surcharges can’t exceed 4% of the transaction amount or your cost of acceptance (whichever is lower).
- Though some states have lower surcharge caps.
- And the card network laws effectively cap your surcharge fees to 3% max.
Surcharge laws for B2Bs can be tricky if you’re operating across state lines. Whether you have customers in other states or your company has locations in multiple states, you need to verify which state laws apply to each transaction.
Should You Surcharge B2B Customers?
Just because surcharging is legal for most B2B companies, it definitely doesn’t mean that you should implement a B2B surcharge policy.
In fact, surcharging doesn’t make sense for most B2Bs.
For example, Alabama’s state-controlled alcoholic beverage board recently added a 2% surcharge fee when wholesale customers pay with a credit card. They can get away with this because they essentially have a monopoly on alcohol distribution statewide.
A regular B2B would have a much harder time implementing this type of fee, as the customers would likely just move to another supplier.
Surcharge Fees vs. Convenience Fees for B2Bs
The terms “surcharge fee” and “convenience fee” are often used interchangeably, but they are not the same thing.
B2B surcharges are applied as a percentage of the transaction amount when customers pay using a non-standard payment method, whereas a convenience fee is typically a fixed-dollar amount (like $15) charged on top of the invoice amount.
Convenience fees are more common for B2Bs because the dollar amount is significantly lower.
If you’re selling a customer $15,000 worth of inventory, charging them another $450 (3%) to pay via credit card seems extreme. But a $15 convenience fee feels more reasonable.
Why Surcharging B2B Transactions is a Bad Idea
Adding surcharge fees to B2B transactions is completely your choice. That said, let me explain all of the reasons why this is a terrible idea for basically every B2B on the market (regardless of your industry).
Surcharge Laws Are Complicated and Constantly Changing
One major reason why B2B surcharging is so difficult to comply with is because laws vary drastically as you cross state lines. This is nearly impossible to manage if you have facilities in multiple states or customers in multiple states.
Think about these potential scenarios:
- Surcharging is legal in your state but you have customers located in a state where it’s illegal.
- It’s legal to surcharge where you’re delivering goods, but the payment comes from a corporate headquarters where surcharging is not allowed.
- Your customer wants to place a phone order to a warehouse in a state with dual pricing disclosure requirements.
- 50% of an order is going to a state where surcharging is legal and the other 50% is being delivered to a state where surcharging is illegal.
- Surcharge fees are taxable in some states but not others.
I’m just barely scratching the surface here. But you can see how things can quickly be hard to keep up with. You’d have to be considering multiple surcharge laws for nearly every order, which is nearly impossible to enforce.
Disclosure Requirements Are Much Harder to Follow for B2B Purchasing
Another huge issue with B2B surcharging compliance is finding a way to legally disclose the fees. Not only do disclosure requirements vary across state lines, but you also have to consider the FTC’s guidelines on unfair and deceptive fees.
For traditional B2C businesses, it’s easier to disclose the total price someone is paying for something upfront because of the nature of the transaction.
You can post surcharge notice signage at your point of entry, at the point of sale, and add notices to your pricing. So it’s easier to be transparent about mandatory fees (including surcharges).
But B2B buying behavior is much different. B2Bs use purchase orders, phone orders, online ordering with special pricing, and a range of other methods that make it harder to disclose potential surcharges.
This is especially challenging if customers are ordering items ahead of time but being billed for them later. You run the risk of them being “surprised” by surcharge fees that weren’t initially included in the prices, which is exactly what all surcharge disclosure requirements are attempting to eliminate.
Large-Ticket B2B Transactions Would Have Outrageously High Surcharge Fees
Think about the average invoice amount your B2B processes. This likely has a wide range depending on your industry, but in most cases, B2Bs process large-ticket transactions.
When a B2C transaction is surcharged 3%, customers still don’t like it. But the dollar amount is relatively low (all things considered).
A $25 purchase might get hit with a $0.75 credit card fee. Not ideal for the customer, but there’s no sticker shock here.
But 3% of a $25,000 transaction is $750. That’s far more likely to raise some eyebrows from your customers.
You’re Putting Your Business at a Serious Competitive Disadvantage That Can Cost You Customers
B2B customers are used to buying products or services in bulk at a discount.
Since they’re using these purchases to either fund day-to-day operations or resell to their own customers, they need the total transaction amount to make sense for their margins.
In many industries, costs for goods have already exploded in recent years, and companies are operating on tighter margins than usual.
Adding another 3% to their transaction could be enough of a reason for your customers to shop around and look elsewhere. If they can find another supplier or service provider that offers them lower costs without a surcharge, it’s an easier decision for them to jump ship.
Loyalty won’t matter here if your customers feel like you’re trying to nickel-and-dime them.
It’s Easier for B2Bs to Qualify for Lower Processing Rates
One major advantage of selling to other businesses compared to B2C counterparts is the ability to get lower B2B processing rates from multiple angles.
At the interchange level, you can automatically qualify for lower rates by submitting extra data with your commercial card transactions. For example, businesses eligible for Visa’s CEDP rates can pay as low as 1.30% + $35 or 1.75% + $0.10 per transaction at the interchange level.
That’s pretty good. And all you need to do is submit Level 3 data. This can cut your interchange fees by up to 10%.
Your processor should also be able to give you solid discounts due to your volume. High-volume businesses typically have access to significantly lower rates.
Especially if you don’t have a high chargeback rate (which shouldn’t be the case for B2Bs).
The whole point of surcharging is to recoup your processing fees. But if your processing fees are low enough to begin with, there’s no reason to consider this.
Better Alternatives to B2B Surcharge Programs
Instead of surcharging your B2B customers and risking loss of their business, you can take other steps to get lower processing fees that are much easier to implement:
- Accept other payment methods — Checks, ACH transfers, and wire transfers are far less expensive than credit card payments and more realistic for B2Bs to accept than B2Cs.
- Offer discounts for early payments — When you accept card payments because your invoices are being paid faster than net-30 or net-60 terms and they’re more convenient than mailed checks, consider a small discount on invoices paid within 10 days to increase your cash flow.
- Eliminate bogus fees from your processing statements — If you haven’t had your credit card processing statements audited for junk fees, there’s a high probability you’re paying thousands of dollars in extra fees that could easily be eliminated from your bill every month.
- Optimize your payment acceptance to lower your effective rate — Level 3 data acceptance and other credit card policies to avoid downgrades can drastically reduce your rates at the interchange level.
- Negotiate better terms with your existing processor — Pick up the phone and ask your processor for a better rate. Push back against their recent increases and be firm in your negotiations.
It’s a common misconception amongst B2Bs that you have to switch providers to get a better deal. That’s actually rarely the case.
While another processor may quote you at a lower rate, the costs associated with switching aren’t going to be worth it, and you’ll likely end up paying more than you are now when your new processor raises rates the first chance they get.
Final Thoughts on B2B Surcharging
Despite B2B surcharging being legal in most states, I don’t recommend it for anyone.
It’s extremely difficult to remain compliant, and you’re putting yourself at a serious risk of losing your customers.
Instead, there are plenty of other low-risk strategies that can save your business tens of thousands of dollars on processing. And if you can save that kind of money, there’s really no reason to consider surcharging.
For help on how to get started, let our team here at MCC audit your statements for free.
We’ll identify hidden fees, inflated rates, and other savings opportunities for your B2B company to help you save money on credit card processing without switching providers.