Definition
A payment processing fee is the charge a business pays to accept a card or online payment, usually a percentage of the amount plus a small fixed fee per transaction. It covers interchange paid to the card-issuing bank, card network assessments, and the processor's markup. The business receives the payment minus the fee.
Also called: Card processing fee, Transaction fee, Merchant fee, Interchange fee
Payment processing fee in practice
Card fees commonly fall somewhere around 2 to 3.5 percent of the payment, depending on the card type, whether it was keyed in or paid online, and your provider's pricing model. Online bank payments such as ACH are usually much cheaper.
Fees reduce what you actually collect, so record them as an expense when reconciling. A $1,000 invoice paid by card that settles as $970 is still a fully paid invoice, with $30 of processing expense.
Some businesses pass fees on through a card surcharge or a convenience fee, others build them into prices or offer a discount for bank transfer. Card network rules and local laws limit how surcharges can be applied, so check them first.
Example
A consultant's client pays a $4,000 invoice by card. The processor charges 2.9 percent plus $0.30, so $116.30 is deducted and $3,883.70 is paid out.
Frequently Asked Questions
Can I pass card fees on to clients?
Often, within limits. Surcharging is restricted or capped in some places and requires advance notice. Offering a discount for bank transfer is an alternative that is allowed almost everywhere.
Are payment processing fees tax deductible?
In most countries, yes. They are an ordinary business expense. Record them separately from the invoice so your revenue still shows the full amount billed.
Related terms
- Surcharge A surcharge is an extra charge added to an invoice on top of the normal price, usually to recover a specific cost such as card processing fees, fuel, after-hours work, or rush delivery.
- Merchant account A merchant account is a type of business bank account that lets a business accept card payments.
- Payment gateway A payment gateway is the service that securely captures a customer's card or bank details online and passes them to the payment networks for authorization.
- Net amount The net amount is the value left after deductions, or the price before tax, depending on context.
- Reconciliation Reconciliation is the process of matching payments received in your bank account to the invoices they settle, and confirming that your invoicing records agree with your bank records.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.