Credit guru Thea Dudley has spent more than 30 years in LBM credit management. Now she's here to answer your credit and collection questions. Got a question for her mailbag? Contact Thea at [email protected]

Dear Thea,

I have a question regarding credit cards. Being a supply house, we offer lines of credit to customers but we have many customers who prefer to use credit cards. Obviously, when we accept credit cards we give up a percentage of our gross margin. I see where some companies charge a service fee for the use of credit cards. Is that legal? Do you have any thoughts on how we may be able to allow customers to use their cards and not give up the gross margin?

signed, Battle Weary in Boston

Dear Battle Weary,

Which came first, the chicken or the egg? That question has been around about as long as the argument over what do about credit cards. And although your question is about using credit cards rather than a house account at the time of purchase, it snuggles up to a much larger issue: Should you let customers use a credit card to make payments on your credit account?

It has been roughly three years since the antitrust settlement on credit cards. That settlement opened the doors to suppliers (and others) to charge a surcharge. But despite all the buzz and speculation by credit managers, business owners, and managers throughout our industry, we have been slow to adopt it.

I can't count the number of spirited conversations I have had regarding adopting a policy. What seemed like an easy and painless thing to incorporate into our daily business practices became a hot-potato topic. Everyone had an opinion. but no one wanted to take a stand.

"Just put a surcharge on all customers paying with a credit card," my then-CFO said. That seemed simple enough, but then the corporate attorney got involved. "You can't just do that, I have to take a look at our agreement with our credit card processing company," stated said lawyerdoodle. Turns out if you just start adding fees you could be in violation of your agreement with the customer.

OK, so if surcharge is the issue, what about calling it a "convenience fee" or "service fee" or offer a discount for paying by any other form then credit card? "That like a reward" said Lawyerdoodle. Well, not exactly, but if the gas station can get away with it, why not us? He pointed out that that transaction was done at the time of purchase. It’s not the same for someone who had an account, charged materials to it, took the terms and then paid with a credit card.

Let's pretend for a moment that we got through the above roadblocks. Our processing company was cool with it. We figured out what we were going to call it and even how we were going to communicate it. The next unexpected roadblock was the states themselves. Some states—and so far I have found 18, though that could change depending on state legislatures—have banned the charging of a surcharge or whatever your choice for names is.

So how to you go about administering that? Being the inquisitive mind that I am, I asked our attorney what would happen if we blanket-charged it anyway regardless of the state law (this was purely for editorial purposes, I assure you). Who is going to report it and to where? And what would the consequences be?

After being rebuked and getting the "dad face" scowl from said attorney, he said that yes, it is an "undefined area of the law" but assured me someone would make case law on it with the final comment of "and it won't be us." OK, OK, get your knickers out of a bunch. It was just a question.

Then came the inevitable "we are going to lose customers if you pursue this idea of charging a fee to use their card" argument. Yes dear readers, that came from a sales rep. I had to admit, the OSR had a point. Would our customers see this a penalty for using their credit card? I understand why a customer would want to use it. Some are after the points. It’s a crazy good way to score some perks with no additional cost to them. Some need the extra dating. Charge with us, get terms, then pay with credit card buy themselves another 30 days. Or would it be like any other change to a business, it would raise a stink for a short period of time and then it would blow over and be normal course of business.

So if the customer is getting a discount, takes credit terms offered, and then pays by credit card, by the time it is over you have to ask yourself, "Have we made any profit?" One solution would be if you know the customer pays by credit card, then adjust their pricing accordingly prior to the sale.

I have seen where a few (very few at this point) have put a notice on their invoices and statements that there will be an X% surcharge on all accounts paid by credit card. I called one (she preferred to be nameless and companyless) and asked her how that was working out for them. She reported getting a mixed bag of responses—everything from "extortionist" to "we are taking our business elsewhere" to "I am not paying that and don't try to charge my card, I'll dispute it" to "fine" or using an alternate payment choice. Oddly, no challenges about the state law.

What seemed like a victory at the onset has now turned sour and left a bad aftertaste. There really is no clear-cut answer. It is a company-by-company decision. Charge a fee and take the chance you will lose customers? Continue as before and absorb the fees as the cost of doing business?

I would love to give you a well-defined, executable plan to solve this situation. If I had one, I would not only share it, but would have successfully implemented it myself. I haven't found it yet, but maybe I just haven't asked the right questions. Until then, I am working on an answer to the chicken/egg situation.