From the Desk of Mike Anderson: Auto Body Shops Can Take Control of Credit Card Processing Fees

credit card processing

It came as no surprise to me our “Who Pays for What?” surveys have found the vast majority (95%) of collision repair businesses accept payment from customers by credit card.

All of us as consumers have become accustomed to the convenience of using credit cards, and enjoying the rewards---cash back, travel points, etc.---we can receive by paying our bills with them.

But have you stopped to look recently at what it’s costing your business to offer that convenience to your customers? Have you looked into what your options are for reducing or eliminating those costs?

Now you might think I’m talking about shopping around among the hundreds of merchant processing options out there, most of which are all too eager to assure you they will meet or beat your current processing fees. That is one option.

But let’s look at some ways you might be able to trim your card processing costs without switching vendors.

It’s a project one of my Collision Advice teammates, Mark Head, spearheaded this year. He’s a true financial specialist, working with our Collision Advice clients to dig into their profit-and-loss statements and really make sure they understand how to maximize their profitability and where they need to focus their attention.

Mark first contacted our clients who are members of our “20 groups” to find out what the true cost was of their card processing, meaning the fees they were incurring monthly.

As you’re probably aware, card processing fees can vary significantly. Some are based on a flat percentage. Some include a percentage plus a per-transaction fee. Some vary based on the type of card (Visa, MasterCard, Amex, etc.). Some differ based on whether the card was present at the time of the transaction versus a remote transaction. Did you know that? I sure didn’t!

So Mark had our clients tell us which processing service they use---there were almost two dozen different vendors---and had them all use the same basis to determine their processing costs: divide the total fees paid in a given month, by the total sales dollars paid via credit card for that month.

The bottom line on processing fees?

“It ranged from a low of just above 1.5%---1.64%, to be exact---to more than 4%---4.2%, in fact,” Mark told me. “This is often an ‘unknown cost’ for a lot of shops. They know they pay something, but have never really taken a close look at what it’s costing them to offer their customers that convenience. That’s what I wanted to point out to them: is it worth giving up 3 or 4% of the bill to allow customers to pay with a credit card versus cash or a check.”

Remember this percentage erodes your bottom line!

So what can auto body shops do about this cost?

First, they may want to place a limit on the dollar amount a customer can pay using a credit card. Say a customer’s vehicle is in for a $3,500 repair, including their $1,000 deductible. Do you allow the customer to put the insurance payment into their own account and pay the whole $3,500 on their credit card? If so, you just paid $105 (if you pay a 3% processing fee) for that transaction.

But what if you placed a cap of $1,000 on the amount the customer can pay by credit card? They still get the convenience of paying their deductible by credit card, but you paid only $30 in credit card processing fees because the insurance portion of the bill wasn’t included in the credit card transaction. In this example, the shop saved $75; multiply that by the number of credit card transactions you have per month, and it adds up to real money.

There’s some indication a growing number of collision repair shops are placing such limits. One of our “Who Pays for What?” surveys in 2020 found 76% of shops had no such limit. This year, the survey found that had fallen to 61%. Limits of either $1,000 or $2,500 were the most common.

But you might also consider under what circumstances you accept payment by credit card. Some insurance companies have pressed their direct repair shops to accept payment from the insurer by credit card. Shops that recognized what that 2% or 4% off the bottom line could mean for their business often found they were successful in requesting other forms of payment from the insurer.

Some of those shops also said the insurance company allowed them to add the credit card fees to the amount they were being paid. I’ll discuss this later in this column, but I want to note here that is not something we confirmed ourselves, and neither Mark nor I are offering any legal advice here.

But here’s another scenario Mark and I have been hearing about: tow companies who want to pay the bill at the shop by credit card when picking up a total loss vehicle. I just have to scratch my head thinking about any shop agreeing to that, particularly when our “Who Pays for What?” surveys consistently show more than half of shops are not marking up tow bills---that’s a topic for another column.

When that tow truck driver pays that bill with a credit card and you’re not marking up the sublet tow charge, you’re not only not making any money on that tow, you’re actually losing money---the 2% or 3% or 4% you’re paying in credit card processing for that transaction. That just makes no sense.

So those are some ways---aside from shopping for lower processing fees---to limit or reduce how much accepting some payments by credit card is costing your business.

But Mark also did some more digging into some other cost-saving possibilities for shops.

“We found some processors allow a shop to offer what’s called a cash-discount program,” Mark said. “It implements a service fee on all customers, while giving a discount to the customer who pays in cash or check.”

There’s an important caveat, Mark said such a surcharge is not legal in 10 states, including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma, Texas and New York, though we heard recently that may change in New York. But here’s how it can work in the other 40 states.

“First, you have to post signage in your office or lobby or customer area explaining that all final bills include a 4% surcharge, for example, on top of the total bill,” Mark said. “The surcharge should be whatever percentage you actually pay in fees. And you need to tell the customer up front. That’s very important.”

It’s easy for a customer to avoid paying that surcharge: they just need to pay their bill with cash or a check. Basically, the credit card fee shows up on the customer’s end, not the shop’s; therefore the shop isn’t paying a fee.

Mark’s presentation on this was a real eye-opener for a lot of our auto body shop clients who really hadn’t realized, first, how much credit card fees were eroding their bottom line, and second, that they had options.

I’m so grateful to him for doing this research and being able to point our clients to some of the processors offering the cash-discount program if they are eligible to use it in their state.

“As shop owners, you always want to grow sales, but you need to keep an eye on costs as well,” Mark told them.

He’s the kind of “numbers guy” I’m thankful to have on my team.

Mike Anderson

Mike Anderson is a columnist for Autobody News and president of Collision Advice, a consulting company for the auto body/collision repair industry.

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