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Most owners know they pay "about three percent" to take cards and leave it there. But processing fees come out of almost every job you do, so they're worth understanding. This guide explains who gets paid, how the common pricing models work, how to read your statement and work out your real rate, and the general rules if you want to pass the cost on to customers.
Where the money goes
When a customer pays you by card, the fee is split among three groups:
- The customer's bank (interchange). The bank that issued the card usually takes the biggest share. Interchange rates are set by the card networks and published in long schedules. They vary by card type (debit, standard credit, rewards credit, business cards), by how the card is taken (tapped or inserted, versus typed in or paid online), by the type of business and by the size of the payment.
- The card network (network or assessment fees). The card brands charge their own, smaller fees on each transaction.
- Your processor (the markup). The company that moves the money and gives you the reader, app or payment link charges for its service. This is the part you can shop around and negotiate.
For the same transaction, interchange and network fees are broadly the same whichever processor you use. The difference between providers is mostly the markup and how it's packaged.
The four common pricing models
Flat-rate
You pay one percentage on each payment, sometimes plus a small fixed fee, whatever card the customer uses. Rates often differ for in-person, online and keyed-in payments.
- Upside: easy to understand and predict, usually with no monthly fee.
- Downside: one rate has to cover the expensive cards too. On a lower-cost transaction, like many debit cards, you pay the same as on a premium rewards card.
- Often suits: new and smaller businesses, and anyone who values simplicity.
Interchange-plus (also called cost-plus)
You pay the actual interchange and network fees for each transaction, plus a fixed markup, usually a small percentage and a per-transaction amount.
- Upside: transparent. You can see exactly what the processor earns and compare markups directly.
- Downside: statements are longer, and your total moves with your card mix.
- Often suits: businesses with steady volume that want to see and negotiate the markup.
Tiered
The processor sorts transactions into buckets, commonly called qualified, mid-qualified and non-qualified, each with its own rate. The processor decides which transactions land in which bucket.
- Upside: a low "qualified" rate looks good in a sales pitch.
- Downside: plenty of transactions can land in the pricier tiers, such as rewards cards and keyed-in payments. It's hard to know what you really pay without doing the math.
- Often suits: be cautious. If you're offered tiered pricing, ask for an interchange-plus quote too and compare.
Subscription or membership
You pay a monthly fee, plus interchange and network fees at cost, plus a small fixed fee per transaction, often with little or no percentage markup.
- Upside: can work out cheaper for businesses with large tickets, since the processor's cut doesn't grow with the size of the payment.
- Downside: the monthly fee still arrives in slow months.
- Often suits: higher-volume businesses and installers with large average tickets.
| Model | How you pay | Easy to predict? | Easy to compare? |
|---|---|---|---|
| Flat-rate | One rate per payment | Yes | Only on the headline rate |
| Interchange-plus | Wholesale cost plus a set markup | Less so | Yes, compare the markups |
| Tiered | Different rates by bucket | No | Hard |
| Subscription | Monthly fee plus wholesale cost plus a small fee per payment | Fairly | Yes, at your volume |
The other fees on your statement
The rate is only part of the bill. Here's what else can show up:
| Fee | What it is | What to ask |
|---|---|---|
| Per-transaction fee | A fixed amount on each payment, on top of the percentage | Is it charged on refunds and declines too? |
| Keyed-in or online rate | A higher rate for card-not-present payments | What's the rate for invoice links and cards on file? |
| Monthly or account fee | A flat charge to keep the account open | Is it waived at any volume? |
| Monthly minimum | A top-up charge if your fees fall below a set amount | What happens in a slow winter month? |
| PCI compliance fee | Tied to the security standards anyone taking cards must meet | Is there an extra fee if I don't complete the yearly questionnaire? |
| Chargeback fee | Charged when a customer disputes a payment | Is it refunded if I win the dispute? |
| Refund handling | Some providers keep the original fee when you refund | Do I get the processing fee back on refunds? |
| Faster payout fee | A charge to get money sooner than the standard schedule | What's the standard payout time? |
| ACH fees | Charges on bank payments and on returned payments | Is there a cap on large ACH payments? |
| Equipment | Card readers bought or leased | Can I buy it outright? Can the lease be cancelled? |
| Early termination fee | A charge for leaving before the contract ends | How long is the term, and does it renew automatically? |
A worked example: finding your effective rate
Your effective rate is the one number that cuts through all of this:
Effective rate = total processing fees ÷ total card sales
Here's a made-up example. The figures are for illustration only and aren't typical rates for any provider.
Imagine a three-truck garage door company. In one month it takes 120 card payments totaling $48,000. It's on interchange-plus pricing, and the statement shows:
| Line | Amount |
|---|---|
| Interchange (varies by card) | $912.00 |
| Network fees | $62.40 |
| Processor markup: 0.3% of sales | $144.00 |
| Processor markup: $0.10 × 120 payments | $12.00 |
| Monthly account fee | $15.00 |
| PCI fee | $10.00 |
| Total | $1,155.40 |
Effective rate: $1,155.40 ÷ $48,000 = about 2.41%.
Under a hypothetical flat 3% with no other fees, the same month would cost $1,440, about $285 more. But the answer isn't always that neat. For a business with low volume, lots of rewards cards or mostly keyed-in payments, a flat rate can come out much closer, or even ahead. Run your own numbers using two or three months of statements, not one.
Why your rate moves from month to month
- Card mix. Rewards and business cards usually carry higher interchange than standard debit cards.
- How cards are taken. Typed-in and online payments usually cost more than tapped or inserted cards, because the fraud risk is higher.
- Ticket size. A fixed per-transaction fee matters far more on a $90 service call than on a $9,000 install.
- Refunds and chargebacks. Each can bring extra fees.
- Downgrades. On tiered pricing, transactions missing certain details, or settled late, can drop into a pricier bucket.
Surcharging, cash discounts and convenience fees
Many owners ask about passing card costs on to customers. It can be done in some cases, but the rules are strict, they differ by card network and by state, and they change. What follows is a general overview, not legal advice.
Surcharging means adding a fee to credit card payments. In general terms:
- The card networks require you to notify them or your processor before you start
- You must tell customers clearly before they pay, and show the surcharge on the invoice or receipt
- The surcharge is capped: it can't be more than your cost of accepting the card, and the networks set a maximum on top of that
- In the US, surcharges generally aren't allowed on debit or prepaid cards, even when they're run as credit
- Some states restrict surcharging, and some have rules about how prices with added fees must be advertised
Cash discount or dual pricing programs show one price for cards and a lower price for cash or bank payment. They're treated differently from surcharges, but they still have to be set up and disclosed correctly.
Convenience fees are a flat fee for paying through a channel that isn't your normal one. The rules on when they're allowed are narrower than many owners assume. If taking cards online is your standard way of getting paid, a convenience fee may not fit.
Pricing it in is the simplest option. Treat card acceptance as a cost of doing business and build it into your rates. There's nothing extra to disclose, and no customer gets surprised at the end of a job. See how to price your services.
Whichever route you take, put it on the estimate. A fee that first appears on the final invoice can undo a good visit. Before adding any fee, check your processor's current requirements and talk to an attorney or accountant who knows the rules in your state. Ask your accountant, too, how any surcharge is treated for sales tax where you work.
Ways to pay less without annoying customers
- Know your effective rate. Work it out every quarter and watch the trend.
- Tap or insert when the card is there. Don't type card numbers into the app when the customer is standing in front of you.
- Offer ACH on big invoices. Plenty of customers are happy to pay a large invoice straight from their bank account.
- Compare markups, not headlines. When you gather quotes, ask each provider to price the same three months of your real payments.
- Cut fees you don't need. Extra terminals, unused gateways, paper statements.
- Prevent chargebacks. Get signed estimates and approvals, take before and after photos, make sure the business name on the customer's card statement is one they'll recognize, and answer disputes quickly with your paperwork. A lost chargeback costs you the sale and the fee.
- Use faster payouts only when you need them. Getting money sooner often costs extra.
- Review at renewal. Get competing quotes before your contract renews, and read any notices about rate changes.
For how these costs fit into your books, see bookkeeping basics for contractors.
Questions to ask any processor
Processors change their pricing and terms, so get current details in writing from each one. If you're choosing a provider from scratch, start with payment processing options for contractors.
Processing fees come at the end of the job. The front end matters just as much: how customers find you, reach you and book. Zome's free AI report gives you a plain look at that side of your business.
