Credit card surcharging can be effective for Arizona MSPs looking to pass on credit card processing expenses to their clients.
Credit card surcharging is legal in Arizona, as it is in most parts of the United States.
However, MSPs must strictly adhere to federal and state surcharging laws discussed in this article. Card networks (Visa and MasterCard) also issue their own surcharging criteria.
This guide describes Arizona's credit card surcharging laws, provides helpful guidance on how MSPs can begin surcharging, and explains how an automated payment system like FlexPoint streamlines the process.
Disclaimer: This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, legal advice. Perform thorough due diligence and consult with a qualified legal professional to address specific questions related to your MSP.
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What is Credit Card Surcharging for MSPs in Arizona?
Credit card surcharging allows businesses to offset the costs of credit card processing fees by passing them on to clients. For MSPs based in Arizona, this can help protect profitability, especially when managing recurring payments and high transaction volumes.
Credit card processing fees for merchants range from 2% to 4% per transaction. These include interchange fees, assessment fees, and processor markups.
These fees can quickly add up, cutting into an MSP’s profit margins.
Consider an Arizona MSP processing $100,000 in monthly credit card transactions with an average processing fee of 3%.
This results in $3,000 in monthly fees—totaling $36,000 annually. These costs can significantly strain cash flow and reduce the ability to reinvest in business growth.
One way to overcome this challenge is implementing credit card surcharging.
If the MSP implements, for example, a 3% surcharge, clients would potentially cover the $3,000 in processing costs instead.
Over a year, this adds $36,000 back to the business, providing additional resources for scaling operations or improving services.
While surcharging can recover costs, implementing it thoughtfully is vital to maintaining strong client relationships.
Some MSPs choose to pass only a portion of the fees to clients.
For example, if the MSP applied a 1.5% surcharge instead of 3%, clients would pay $1,500 monthly, while the MSP would absorb the remaining $1,500.
Even this partial recovery adds $18,000 annually to the MSP’s bottom line, alleviating financial pressure without fully burdening clients.
Surcharging offers a flexible solution for managing processing fees, but transparency and compliance are essential.
Arizona MSPs must ensure clients understand these charges and follow all legal and card network requirements.
When done correctly, surcharging can protect profitability and support sustainable growth.
As effective as this practice can be, Arizona MSPs must implement these fees thoughtfully and transparently. We’ll discuss this in more detail in the next sections.
Understanding Credit Card Surcharging Laws in Arizona
As of December 2024, no known state laws or regulations prohibit surcharges in Arizona.
In Arizona and other U.S. states where surcharging is permitted, surcharging only applies to credit card transactions.
Debit and prepaid card transactions cannot be surcharged, even when processed as credit. This restriction is outlined in the Durbin Amendment of the Dodd-Frank Act.
Businesses that add surcharges must clearly inform customers before completing a transaction.
Transparency is critical to surcharging compliance for MSPs. Surcharges should be detailed on invoices or receipts so clients are fully aware of the extra cost.
To meet these requirements, MSPs should ensure their billing process explicitly states the surcharge amount or percentage on each invoice and communicate these fees to clients beforehand.
If you are uncertain about the rules surrounding surcharging in Arizona, you should seek advice from a legal professional.
Implementing Credit Card Surcharging for Arizona MSPs
Surcharging requires more than simply adding a line item to your client invoices.
A comprehensive surcharging policy, the right tools, and honest messaging are critical to helping clients understand why you charge these fees.
According to PYMNTS survey results, over three-quarters of respondents would be less likely to use credit cards if a surcharge was imposed. Furthermore, 40% would seek another merchant that did not charge them.
Finding the correct balance between overcharging and undercharging matters considerably as client relationships are at stake.
Here is a step-by-step guide to best practices to help Arizona MSPs use credit card surcharging correctly.
Step 1: Establish a Clear Surcharge Policy and Structure
At the outset, create a surcharging policy that defines the surcharge percentage, how and when it will be charged, and how to implement it. This policy should be documented and incorporated into client agreements.
MSPs might consider changing their surcharge rate or structure based on the transaction size, type of client, or payment method.
Most MSPs choose a fixed percentage surcharge structure, but it can also be a set fee or based on a tiered system.
Here are examples of each surcharge structure:
1. Fixed Percentage Surcharge:
An MSP applies a 3% surcharge for all credit card transactions.
Example: A client is invoiced for $8,000 in services. The invoice includes a line item for the surcharge, calculated as 3% of $8,000, or $240. Thus, the total invoice amount is $8,240.
2. Tiered Surcharge System:
An MSP charges surcharges based on transaction size: 2% for transactions under $3,000 and 3% for transactions above $3,000.
Example: A $2,500 invoice would include a $50 surcharge (2%), while a $4,500 invoice would include a $135 surcharge (3%).
Step 2: Notify Credit Card Institutions and Clients
Before implementing surcharges, Arizona MSPs must notify both their clients and the credit card brands they accept, such as Visa and Mastercard.
Most credit card brands mandate at least a 30-day notice before surcharges can be applied.
For instance, Visa specifies:
“U.S. merchants must first notify Visa and their acquirer of their intent to surcharge at least 30 days before implementing surcharging. Merchants can submit a notification form to Visa.”
Tell clients how your surcharging works and why you are implementing it.
When you provide this upfront, clients will realize the surcharge is just a processing fee, not an added expense. In addition to mentioning this to clients when you first implement it, you must disclose surcharge fees on each invoice.
This step is necessary not only for compliance reasons but also to avoid payment disputes and chargebacks.
For example, a client expects to pay $7,000 and notices an extra $210 (3% surcharge) on their invoice. Without prior notice, they may think the charge is incorrect or fraudulent, leading to a payment dispute with their credit card issuer.
If the surcharge wasn’t explained in advance, the MSP could lose the disputed amount and face additional costs, such as chargeback fees or arbitration expenses.
As per data from Swipesum, the average cost of a chargeback for a business is $190 per dispute.
While not all disputes stem from unclear surcharges, transparent communication is key to avoiding unnecessary fees and maintaining strong client relationships.
Step 3: Update Invoicing & Billing Systems
When first implementing surcharges, you will need to change your invoicing process. For instance, you should list surcharges as separate line items.
This ensures customers can see exactly how much of their bill is the surcharge and the reasons for the charge. Once more, this helps prevent chargebacks, misunderstandings, and arguments.
FlexPoint's automated billing and payment systems simplify this by computing and showing invoice surcharge fees (we’ll discuss this in a later section). Taking any guesswork out of surcharging allows your Arizona MSPs to provide a legally binding and client-friendly surcharging process.
Step 4: Monitor and Review Compliance
Arizona MSPs should regularly evaluate their surcharging practices to ensure they comply with state and federal regulations and credit card network policies.
This includes reviewing surcharge rates, gathering client feedback, and staying informed about legal or regulatory changes that may impact surcharging.
For example, Visa’s surcharging cap is 3%, and Mastercard’s surcharging cap is 4%. However, these fees cannot exceed the actual processing fees incurred.
Mastercard explains:
“If a merchant’s merchant discount rate for Mastercard credit cards is 2.50%, the cap on the surcharge that this merchant may charge a consumer is 2.50%, not 4%.
The 4% cap only becomes relevant in the rare instances where a merchant is paying more than 4% for Mastercard acceptance.”
This emphasizes the value of understanding network-specific laws and tailoring surcharging techniques accordingly.
MSPs must carefully calculate the premium they pass on to clients, ensuring it is consistent with their merchant discount rate and stays within the permissible limitations.
For example, when Visa reduced the maximum surcharge to 3%, several MSPs had to change their billing procedures to comply.
Similarly, Mastercard's requirements necessitate continuous monitoring of acceptance expenses to prevent exceeding the authorized surcharges.
Remaining proactive and informed allows Arizona MSPs to effectively manage surcharges, maintain compliance, and ensure their processes are transparent and client-centered.
The Role of FlexPoint in Streamlining Credit Card Surcharging
Credit card processing fees can be challenging to manage because MSP operations frequently entail various transactions. Recurring payments and high transaction volumes can dramatically impact earnings.
Fortunately, FlexPoint’s MSP-specific payment automation software includes features and plans specially tailored to help you overcome these challenges.
Payment Processing Plans
FlexPoint offers two distinct payment processing plans designed to cater to the unique needs of MSPs:
- Interchange+ Plan
- Customer Surcharge Plan
a. Interchange+ Plan
The Interchange+ plan provides a transparent pricing model based on the interchange rates associated with each card type. This approach adjusts your costs depending on the card used.
For example, lower interchange rates apply to Discover cards, reducing your processing fees.
Premium cards like American Express or high-reward credit cards come with higher interchange rates, which means a higher processing fee for these transactions.
Interchange+ is ideal for MSPs that prefer to absorb processing fees instead of passing them on to clients.
b. Customer Surcharge Plan
The Customer Surcharge plan allows MSPs to apply a flat percentage surcharge to all credit card transactions. This option shifts processing costs to the client, allowing MSPs to eliminate these fees from their overhead.
This plan offers simplicity and predictability, as the same surcharge applies to all credit card payments. It is an excellent option for MSPs looking to maintain profitability while providing clients with clear, upfront fee structures.
FlexPoint also allows MSPs to split processing fees with clients. This balanced approach minimizes costs for the MSP while maintaining strong client relationships by sharing the burden of processing fees.
These flexible plans make FlexPoint a versatile solution for Arizona MSPs, whether they absorb, share, or pass on processing costs.
How FlexPoint Enhances Surcharging Compliance and Transparency
FlexPoint simplifies surcharging by automating the process and ensuring compliance with Arizona laws, federal regulations, and card network policies.
This includes applying the correct percentage and ensuring surcharges do not exceed limits, such as the federal 4% cap.
With FlexPoint, invoices are clear and precise, reducing misunderstandings and preventing disputes.
For instance, if a client receives a $10,000 invoice with a 3% surcharge, the invoice will accurately break down the charges.
This client’s invoice might look like this:
Payment Terms:
Payment is due within 60 days of the invoice date. The surcharge complies with federal regulations (under the 4% limit), Arizona state laws, and card brand guidelines.
Notes:
- Thank you for your business!
- If you have any questions about this invoice, please contact us at [Your Contact Information].
FlexPoint’s Integration with MSP Tools for Seamless Billing
With FlexPoint, MSPs can continue using their preferred tools, including QuickBooks Desktop, QuickBooks Online, Xero, ConnectWise, and SuperOps. With seamless integration with popular tools, MSPs can better manage their billing and payment procedures.
This connectivity allows MSPs to automate three primary processes:
Altogether, this automation significantly reduces the administrative burden of manual financial management.
With these integrations, MSPs can streamline invoicing, billing, and reconciliation processes, reducing the time and effort required for manual financial tasks.
One example is FlexPoint's integration capability with QuickBooks Online. The integration allows MSPs to seamlessly connect their payment systems, enabling real-time synchronization of financial data.
This integration simplifies cash flow management by automatically updating records with surcharges, fees, and other billing details.
Eliminating manual entry allows MSPs to ensure their financial information is always accurate, consistent, and ready for reporting or analysis.
Features such as real-time reporting and branded client payment portals further increase visibility and precision, allowing you to concentrate on scaling your MSP.
Offering Flexibility in Surcharging
FlexPoint’s automated payment process helps you impose charges according to Arizona’s limits, transparency provisions, and what makes the most sense for specific clients.
Using surcharging on a client-by-client basis allows MSPs to cover surcharging fees for loyal, long-term clients while applying these charges to other clients.
With this flexibility, MSPs can fine-tune their surcharging strategies, balancing their financial health and client satisfaction.
You can also set specific rules for automatic payments to be confident that card brand guidelines are met.
For example, if a client pays with Visa, you can be sure they aren’t charged more than 3%, as per Visa’s surcharging guidelines.
This compliance functionality protects MSPs from disputes or regulatory fines by automatically applying the correct surcharge.
Clients can see surcharges before making payment, ensuring transparency and reducing the likelihood of disputes.
Personalized payment portals also allow clients to update their payment information. This is useful when their cards expire or when they need to update their information again.
For example, your client might regularly pay with Mastercard but choose to switch to Visa to save themselves 1% on surcharge fees.
When they can make these changes without your intervention, it minimizes payment friction and saves you and your clients time.
Conclusion: Streamlining Payments with Effective Surcharging Strategies
Credit card surcharging is a viable option for Arizona MSPs hoping to save on payment processing costs. Still, it must be implemented strategically to avoid specific challenges.
Invoices must display surcharge fees, and your surcharge fees must be communicated to clients. You must also adhere to federal, state, and card brand guidelines to avoid exceeding surcharge caps.
FlexPoint makes this easy for MSPs.
FlexPoint’s MSP-focused platform improves every part of the payment process for MSPs, including implementing surcharging in compliance with surcharging regulations.
Empower your MSP with the tools you need to implement compliant and efficient credit card surcharging.
FlexPoint offers automated solutions that streamline MSP payment processing and ensure you stay within Arizona’s regulations.
Ready to take the next step? Schedule a demo today and see how FlexPoint can transform your financial operations.
Additional FAQs: Credit Card Surcharging in Arizona for MSPs
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