Every time you get paid, a tiny chunk of your money disappears. Poof. Just like that. Ever wonder where it’s going? That sneaky little expense is called a merchant processing fee, and whether you like it or not, it’s a non-negotiable part of running a business today.
But here’s the deal: Understanding these fees isn’t just about knowing where your money’s going it’s about staying organized, compliant, and saving yourself some major headaches (hello, tax season). In this post, we’ll break down what merchant processing fees are, why you can’t avoid them, and how to manage them the smart way.
What the Heck Are Merchant Processing Fees?
Merchant processing fees are the tiny slice your payment processor takes every time you get paid. Think of it as the “cost of convenience” for getting that cash into your account. For example, if you charge a client $400 and only $382.15 hits your account, that missing $17.85? Boom — merchant processing fee.
And no, these fees are non-negotiable. They’re like death, taxes, and forgetting your reusable bags at the grocery store – just part of life.
Can You Avoid Merchant Processing Fees? Spoiler: Not Really
I know what you’re thinking: “Okay, but what if I find a cheaper option?” Well, the truth is, most big players – Stripe, Square, HoneyBook – they all hover around the same rates. You’re looking at somewhere between 1.5% and 3.5% per transaction. It may not seem like much, but let’s do some quick math.
If you rake in $100,000 in revenue, you could be paying anywhere from $1,500 to $3,500 in fees every year. Ouch, right? But don’t sweat it too much, there’s good news coming up, so hang tight.
Why You Shouldn’t Pass These Fees to Your Clients
I get it – you’re tempted to slap those fees onto your clients’ bills and call it a day. But I’m here to tell you, don’t do it.
First off, it’s tacky. Nobody likes feeling nickel-and-dimed, and adding sneaky fees makes your business look cheap. Second, in some states, it’s actually illegal to pass those fees on to clients. You could end up in hot water for trying to dodge a small processing fee.
So what’s the smart move? You’ve got two solid options:
- Bake It Into Your Prices
When you set your prices, you probably already account for admin time, project management, and all the behind-the-scenes magic you do. Why not add the processing fee in there, too? If your service is $400, make it $420 and cover that fee from the start – no drama, no awkward client convos. - Eat It (Yes, Really)
Here’s the silver lining: Merchant processing fees are 100 percent deductible. So even though you’re paying them out of pocket, you’ll get a little love back at tax time.
Why Merchant Processing Fees Really Matter
Now, you might be thinking: “Okay, Samantha, cool story, but why are we making such a big deal out of a few bucks?” Well, here’s where things get real.
I once had a client who ignored her merchant processing fees completely. She only recorded what hit her bank and there was no mention of the fees in her books. Everything seemed fine… until she got audited. Turns out, she had been underreporting her income for years.
See, if you record only the $382.15 instead of the full $400, you’re technically misrepresenting your income. It might not seem like a big deal now, but if you get audited or try to apply for a loan in the future, those missing dollars can come back to haunt you.
Here’s the rule of thumb: Always record the full amount you charged your client. So in our example, you’d report the $400, and then separately log the $17.85 as an expense. That way, your books stay accurate, the IRS stays happy, and you avoid any awkward surprises down the road.
Need Help Making Sense of It All?
Look, managing business finances can feel like trying to herd cats – confusing and chaotic. If all this talk of fees and bookkeeping has your head spinning, I’ve got just the thing to help you get back on track.
Snag my free Strategic Success Mini Workshop. It’s a quick and easy workshop designed to help you start connecting your business finances to your big-picture goals. Because staying on top of your numbers isn’t just about tracking dollars—it’s about driving your business toward real success.
When you sign up, you’ll also get bookkeeping tips, practical tools, and exclusive insights delivered straight to your inbox—so you can keep your finances crystal clear and stress-free.
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