Some customers like using credit cards. However, accepting credit cards means paying merchant service fees, which can add up. Some contractors offer cash discounts. Others add an upcharge. How should you handle merchant services?

Why people use credit cards

People pull out the plastic for a variety of reasons. Some want airline miles or hotel points. Some get cash back on purchases. Some use cards for convenience. Some use credit cards because of the consumer protection offered for false charges or products and services paid for, but not received.

Contractors justifiably think that it makes perfect sense for customers to pay for any benefits they receive from the use of credit cards. But not everyone uses a credit card for perks. Some have no other way to pay at the moment.

A lot of people are currently under financial stress. Bloomberg reported a survey by Seven Letter Insight, which found that 46% of middle-class Americans lacked $500 in savings. Moreover, a survey by the Federal Reserve Bank of Philadelphia found that one-third of consumers with incomes of $150,000 or higher are worried about their ability to pay their bills.

Some consumers might appear affluent, yet are cash-strapped. They pull out credit cards because they either lack the cash or worry that they might not be able to pay other bills if they write a check.

Take your customer’s view

Someone wanting to use a credit card for perks might grumble about a 3% upcharge, but they have the ability to avoid it. It’s an identical circumstance if a cash discount is offered. They have a choice.

The cash-poor customers look at it from an entirely different perspective. They are already in distress, and it looks like you are trying to take advantage of them. They likely resent both upcharges and the inability to get a cash discount but may proceed anyway because they are desperate.

How can you tell the difference between the customer using plastic for perks and the customer using it out of necessity? You cannot. You do not know why someone is using a credit card and no one is likely to tell you he or she lacks the money to pay for a repair.

The ramifications

No one is likely to say anything to you, but chances are you just made an enemy for life when you upcharged or refused a cash discount to a cash-poor customer. At best, this customer will never call you again. More than likely, he will counsel family and friends to avoid your company. Word-of-mouth works both ways.

If a customer is really upset or just feels the need to extract retribution, you will be handed the dreaded negative review. Unfair? Yeah. So what?

What you should do

The answer is simple. If you are performing residential service, put merchant service fees into your pricing. It should be part of your direct costs, not overhead. As a direct cost of sales, you mark it up like all of your other direct costs and earn gross profit.

What about the people who pay cash? Charge them the same amount as a customer paying with a credit card. You just make a little extra profit.

Build your merchant service and any other financing fees into your pricing like any other cost and charge the same price to everyone. It’s the same principle as charging the same flat rate for a repair when one plumber completes it in 45 minutes and another takes more than an hour. Consumers perceive this to be fair pricing.

Quit looking at merchant service fees as an expense. They are a cost of sales. If they seem high, celebrate. It means your sales are up.