What Is a Convenience Fee? A Guide for Contractors 

Have you ever noticed an entry marked “convenience fee” on any of your bills? Nowadays, it seems that more and more businesses are charging a convenience fee. 

But what is a convenience fee? What exactly are customers paying for? And could your contracting business charge a convenience fee too? 

This article explains convenience fees and why contractors consider them. It discusses the pros and cons, legal considerations, and best ways of charging convenience fees. We’ll also share useful tips for deciding if charging convenience fees is right for your contracting business. 

Here goes. 

What Is a Convenience Fee? 

A convenience fee is charged by a merchant when a customer uses a non-standard mode of payment. For example, if a business only accepts cash and checks, they may charge a convenience fee to customers opting to pay via online payments, mobile apps, or credit cards. 

The convenience fee is typically a fixed amount that the business manually adds to an invoice. 

The extra fee is there mainly to cover the cost of processing the “non-standard” transaction. Some merchants also use it to discourage customers from using certain modes of payment. 

Speaking of covering transaction costs, is a convenience fee the same as a service charge? 

Well, not exactly. While “convenience fee” and “service fee” are often used interchangeably, the two charges are very different. 

A service fee, in the context of payments, refers to the charges a customer incurs when transacting through a third-party payment system. A good example of this is the credit card surcharge. Credit card payment processors charge users a small fee for every transaction. 

This kind of service fee is not imposed by or paid to the merchant. The customer essentially pays the payment provider for using their service. Convenience fees, on the other hand, are billed and pocketed by the merchant, to offset the cost of processing some transactions. 

However, some service fees are charged at the merchant’s discretion. For example, you’ll sometimes see “service fee” in bills, especially from hospitality businesses like restaurants and hotels. Such service fees cover the extra costs of providing a service. In restaurants, the service fee may include the cost of having someone wait at your table or wrapping takeouts. 

FROM ONE OF OUR PARTNERS: How Credit Card Payment Processing Works: A Complete Guide 

Why Contractors Consider Charging a Convenience Fee 

Why would you want to charge your customers a convenience fee? Well, the main reason is to offset transaction costs. 

Today, most customers prefer digital payments. In 2023, for instance, cash accounted for a mere 16% of all payments in the US. Most people opt for credit cards, debit cards, ACH transfers, and mobile apps when making payments. 

For the most part, paperless payments are a good thing. They are convenient, secure, and fast. As a contractor, it makes sense to accept card and digital payments since they’re so popular. 

However, all that convenience, speed, and security come at a cost. Take credit cards, for example. Each payment costs the merchant 2.87% to 4.35% of the transaction value. That might not seem like a lot, but those costs quickly add up. 

One merchant told Matter for Mallory that credit card fees were her second highest operating expense after payroll, amounting to nearly $100,000 annually. And these costs are only getting steeper. 

As a contractor, a big chunk of your revenue might be coming from credit card or digital payments. The cost of processing these payments can really eat at your bottom line. So, one option is to pass some of those costs onto the customers. 

Customers obviously enjoy paying via digital or credit cards. Let them pay for that convenience (either fully or in part). That’s probably why it’s called a convenience fee. 

You can also use convenience fees to encourage customers to use particular payment options. 

If you’re perfectly happy getting paid through less costly methods like checks, cash, or ACH transfers, you could impose a convenience fee on other payment methods. That could encourage your customers to pay through your “preferred” methods. 

Are Convenience Fees Legal? 

Yes, convenience fees are legal in all 50 US states. 

However, there are some nuances to a convenience fee legality. Firstly, the convenience fee must be clearly communicated to the customer at the point of sale. Secondly, you can’t charge a convenience fee for in-person payments. And thirdly, you can only charge a convenience fee if there’s another preferred form of payment.  

For example, if you prefer getting paid in check, you can impose a fee on credit card payments.  

Also, card providers such as Visa, Mastercard, and American Express have explicit rules regarding convenience fees on credit cards. 

Alternatives to Charging a Convenience Fee 

Charging a convenience fee is not always a good idea. Some clients might see it as unnecessary or feel unsure about the added cost. Plus, if competing contractors are not charging a convenience fee, it might be best to avoid it too. 

Here’s what you can do instead of levying a convenience fee: 

• Increase your contracting prices. You could charge more for contracting services to cover payment costs. However, it’ll only work if your pricing strategy has enough wiggle room. 
• Offer cash discounts. Offer discounts to clients who pay using standard methods like cash or check. This is another way of encouraging customers to use low or zero-cost payment options. 
• Set a minimum purchase amount and a minimum payment amount for non-customary payment methods. Reducing the number of small payments could potentially offset transaction charges. 
• Negotiate lower processing fees. Try negotiating with your payment provider for lower rates. 
• Go for a credit card surcharge. A credit card surcharge is similar to a convenience fee, except it only works for credit cards and is a percentage of the purchase. Also, it’s not legal everywhere, and compliance requirements vary from state to state, so you’ll need to check what the rules are for where you live. 
• Avoid costly payments altogether. If nothing else works, you could reject all of the more costly payment options. Do this carefully, though, because it might not sit well with your contracting clients and/or you could lose potential business. 

RELATED ARTICLE: Accepting Credit Card Payments as a Home Service Contractor 

Pros and Cons of Charging a Convenience Fee 

Every business decision has two sides to it. Let’s discuss the pros and cons of charging clients a convenience fee. 

The Pros 

• Lowers payment processing costs 

Charging a convenience fee is, in most cases, an effective way to cut payment processing costs. It lets you offload or share the payment processing burden with customers. 

• Incentivizes standard payment methods 

Adding a convenience fee to non-standard payment methods encourages customers to use other less costly means. This is a great way to promote the payment options you most prefer. And it works. In a survey, 73% of cardholders said they would use their credit cards less frequently if they had to pay the merchant an extra fee. 

• Enables a more streamlined payment experience 

Passing transaction costs onto customers helps streamline payments. It means you can provide varied payment options without worrying about losing money. The customer essentially supports the way they want to pay. 

FROM ONE OF OUR PARTNERS: How to Accept Multiple Payment Methods and Offer a Seamless Customer Payment Experience 

The Cons 

• Customers don’t like paying convenience fees 

It’s easy to see why some clients might not be happy paying a convenience fee. A 1%-4% cut of a contracting bill can be quite significant. 

According to PYMNTS, 44% of consumers will shop around when faced with a payment processing fee. In this sense, charging a convenience fee can push away potential customers. 

• Convenience fees raise your contracting prices 

Adding a convenience fee effectively raises your contracting prices. Plus, if a customer can only pay, say, using a credit card, they might feel unfairly obligated to pay a convenience fee. 

• Tricky legal compliance 

Navigating the legal landscape of convenience fees can be challenging. A compliant convenience fee must be transparent, reasonable, and used within the right context. And that is sometimes easier said than done. 

How to Add a Convenience Fee the Right Way 

Charging a convenience fee is a great way to offset payment processing costs. But it can also lead to customer churn and poor price competitiveness. 

Should you decide to charge a convenience fee for contracting payments, you better do it right. Strike a balance between saving money and customer satisfaction. Here’s what you should do: 

Communicate the New Fee to Customers 

Transparency is key when it comes to convenience fees. Ensure the convenience fee is clearly disclosed to the customer in the initial service estimate and final invoice. 

Additionally, explain what a convenience fee is and its purpose. In short, make sure every customer knows exactly how much they’re paying for “convenience” and why. 

Keep the Convenience Fee as Low as Possible 

Don’t ask for too much. Set a fixed sum that’s just enough to cover the transaction cost. In fact, the convenience fee doesn’t have to cover the entire cost. The lower the fee, the better. 

The fee should not have a profit motive. Remember, the goal here is to minimize the operational costs incurred via payment processing. 

Offer Multiple Payment Solutions 

Provide your clients with ways to avoid paying convenience fees. This means offering alternative payment methods free of extra charges. 

In addition to cards and digital wallets, you could also allow customers to pay using cash, direct bank deposits, ACH transfers, and checks. 

RELATED ARTICLE: The 4 Best Payment Options for Contractors 

5 Tips for Deciding Whether You Should Charge a Convenience Fee 

To charge or not to charge? 

Here are some more tips to help you decide whether a convenience fee is a good idea for your contracting business: 

• Do the math. Calculate how much your business actually loses to payment processing over a given period. Is it enough to warrant adding an extra charge? 
• Study the competition. Do other contractors in your area charge convenience fees? If they do, then you probably can too. If they don’t, find out why and how they cope with transaction charges. 
• Check legal compliance. Check whether you can legally charge a convenience fee, depending on how you want to structure it. 
• Consider other alternatives. Compare other options to charging a convenience fee. Find out whether you can recover payment processing costs in other ways. For example, Joist Payments lets you cover online payment processing fees and add them to client invoices with the click of a button.
• Test the waters first. Roll out convenience fees gradually. Try it on one form of payment and see how that goes before moving on to others. 

Offer Flexible Payment Options 

If you’re looking for an alternative option to charging a convenience fee, work with a payment provider that understands your payment needs and pain points. 

Joist Payments is a flexible payment solution specially designed for small contracting businesses. It consolidates multiple payment methods under one platform, and covering online transaction fees is as easy as pushing a button.