Typically, this is the very first question we get when explaining The 0% Program to business executives. The concern, of course, is that a surcharge will upset customers and result in missed sales. Although intuition tells us that might be the case, the data tells a different story.
Upon implementation of The 0% Program, we actually see processing volume remain steady and increase over time. The success of this program is attributable to the three customer-friendly design elements that are built into it: the disclosure, the no-surcharge option and the ability for your customers to finance their payments internally.
- Disclosure
The first customer-friendly design element in The 0% Program is the surcharge disclosure. At the point of sale, your customers will see a disclosure that reads like this:
“To help cover the cost of processing payments, we add a small fee for credit cards. This fee is not more than the cost of accepting these cards. There is no fee for debit cards.”The language in this disclosure is based upon well-researched principles of behavioral psychology. According to New York Times Best Selling Author and Arizona State University Professor, Dr. Robert Cialdini, “A well-known principle of human behavior says that when we ask someone to do us a favor, we will be more successful if we provide a reason. People simply like to have reasons for what they do.”Citing a Harvard study, known as “The Copy Machine Study,” it was found that 94% of people would accommodate a request if a reason was given. In the surcharge disclosure provided to your customers, the reason for the surcharge is clear (“To help cover the cost of processing payments…”). Therefore, not only does the disclosure cover a key legal and compliance requirement of surcharge programs, but it also presents the surcharge in a way that satisfies the psychological needs of your customers. - No-Surcharge Option
The second customer-friendly design element in The 0% Program is the option for your customers to pay with a debit card in order to avoid the surcharge. With this in place, your customers will be able to enjoy the convenience of paying with a card, while avoiding any extra costs associated with that convenience if they choose debit. - Finance Payments Internally
The final customer-friendly design element in The 0% Program is the ability for your customers to finance their payments internally by using a credit card. This typically comes into play for merchants who have a large average transaction size. In the past, it may have been cost-prohibitive for these merchants to allow their clients to pay with a credit card due to the high processing costs. As a result, they often extend 30 or 60-day payment terms to their clients, which has the consequence of an extended collection period.
With The 0% Program, your clients will have the option to pay with a credit card, which gives them a flexible repayment schedule internally, while providing you with the funds in a matter of days, not months.
What are the Financial Benefits?
Annual Savings
The most obvious financial benefit of The 0% Program is the elimination of credit card processing fees. We have found that companies save an average of $4,080/year for each $10,000 in monthly card processing volume. Therefore, it’s easy to see how this program can return 6 and 7 figures back to the bottom line each year for mid-sized companies.
Increased Net Margin
Depending on your industry, your current Net Margin (defined as the revenue that remains after all operating expenses, interest and tax) is likely between 5% and 20%. By eliminating 3.5% in processing fees, we can deliver an immediate lift in Net Margin of 15% to 50% or more.
To calculate the effect on your Net Margin, use our surcharge profitability calculator.
Increased Valuations
Net Margin is a key metric used in company valuations for the purpose of capital raises, debt issuance, and acquisitions. The 0% Program can make a material positive impact on any of these scenarios.
Reduced A/R Delinquencies
Many of our clients have found that The 0% Program can be effective in helping them collect payments on overdue/delinquent invoices. Whereas their debtors may not have the liquidity to pay their overdue invoices with cash/check/ACH, many of them would be able to make their accounts current if they could pay those invoices with a credit card.
Is The 0% Program Legal and Compliant?
Yes. In 2013, the card brands (Visa, MasterCard, Discover, and American Express) each provided guidelines for merchants who wish to pass on their credit card processing fees and so far 46 states have legalized the practice as well. KMP Financial only works with surcharge platforms that have been legally vetted to comply with all card brand regulations and state laws.
(Read our guide on the compliance requirements for credit card surcharge programs for more details).