Overview
A convenience fee is a charge that a merchant can levy when a customer opts for a non-standard payment method. Convenience fees are legal in the US provided you follow specific guidelines and rules. In order to be in compliance with the card brands a convenience fee must meet the following guidelines for applying it correctly:
Convenience Fee can only be charged when using an alternative payment method outside of the 'customary payment channel'. For most of our dealers, the 'customary payment channel is 'in-person check or cash'.
Merchants (Dealers) must have a customary payment channel available to the customer, and the convenience fee cannot be assessed to these transactions.
The fee can only be assessed on the alternate payment channel, non-face-to-face transactions only.
You must disclose that the convenience fee is for using an alternative payment method.
Must be included in the transaction total, disclosed prior to completion of the sale, and clearly and conspicuously disclosed to the cardholder (merchant must afford the cardholder an opportunity to opt out of the sale).
The convenience fee cannot be added to a recurring transaction.
The convenience fee should not be advertised as a fee assessed by MasterCard or Visa and cannot be charged in conjunction or in addition to a surcharge.
The convenience fee cannot be advertised or otherwise communicated as an offset to the merchant's credit card processing fee.
Merchants are expected to follow all local, state, and federal laws and regulations.
Charging Convenience Fees with Portal
The Convenience Fee feature included with Invoices and Payments in Portal helps dealers meet these criteria. When you check the box to add a convenience fee to a Payment Request, the default amount of the fee is calculated such that the total transaction amount less the actual transaction fee matches your original payment request amount. You can charge less, manually, if you prefer.
Finally, if the customer chooses Credit Card and incurs the fee, the fee is then added to the Proposal as a separate Fee item. This will happen even after the proposal is accepted, since the client agreed to pay the additional fee during the Payment process.
Accounting for Convenience Fees
Revenue
A credit card convenience fee is an additional charge you impose on customers to cover the cost of processing credit card payments. The entire amount charged to the customer, including the convenience fee, is considered topline revenue (gross sales) because it’s the total amount you collect from the customer for goods or services, including any additional fees you charge.
For example, if you sell a product for $100 and add a $3 convenience fee, the total $103 charged to the customer is recorded as revenue in your accounting software. The convenience fee is part of the transaction and thus part of your gross sales.
Expense
The credit card processing fee is the amount charged by the payment processor (e.g., Stripe, Square, or QuickBooks) for handling the transaction. This fee is typically deducted automatically by the processor before the net amount is deposited into your bank account. The processing fee is a business expense, as it’s a cost incurred to facilitate the payment.
The processing fee is typically recorded as an expense, usually under a category like "Merchant Fees," "Payment Processing Fees," or "Bank Fees" in your chart of accounts. Since the processing fee is deducted before the money hits your bank account, you’ll record the net deposit (the amount actually deposited) in your bank account, while separately accounting for the processing fee as an expense.
QuickBooks
In QuickBooks, you'll record the full revenue, including convenience fee. This is why Portal adds the convenience fee to the proposal automatically - so that when you import the proposal to QuickBooks, the convenience fee is captured correctly.
Typically you will record the product/service sale ($100 in our example above) under the appropriate revenue account (e.g., "Sales" or "Service Income").
The convenience fee ($3) is then typically recorded under a separate revenue account, such as "Convenience Fees" or "Service Fees".
Portal can also automatically create the Payment Record for the customer in QuickBooks once the payment is made. Set this up for QuickBooks in the Integrations section in Settings in Portal. This payment record will be for the full amount of the transaction, including convenience fee.
Since QuickBooks isn’t automatically recording the processing fee as an expense, you’ll need to manually record the credit card processing fee to account for the difference between the full payment amount (including the convenience fee) and the net deposit in your bank account. A journal entry is one way to handle this, but you can also use an expense transaction in QuickBooks for simplicity.
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Consult an accountant to ensure compliance with GAAP (Generally Accepted Accounting Principles) or your local accounting standards.