Joanna F. Johnson says supplier credit card fees are hurting her business’ bottom line.

The owner of Denver-based distributorship E2 Business Gifts (asi/185239) shares that within the last year, a broad range of suppliers from which she sources have started charging fees when she pays for an order with a credit card.

“I’m surprised by how commonplace it has become,” Johnson tells ASI Media. “So far, I’ve been ‘eating’ the fees that I incur, but I can’t continue to do this.”

Johnson’s story highlights a phenomenon that’s become something of a flash point in the $26.1 billion North American promotional products industry: Over approximately the last year or two, the practice of suppliers implementing fees to process purchases for which distributors pay with credit cards has proliferated.

The growing pervasiveness is a new wrinkle in the industry’s sourcing chain that’s rankling some distributors, though not all have a problem with the charges. Suppliers that levy the fees say they have become a necessity.

A greater number of distributors are paying with credit cards more frequently, supplier executives tell ASI Media. Already dealing with the inflationary pressures of recent years, many suppliers say they can’t keep absorbing the transaction fees they incur from credit card companies when distributors pay with plastic.

Suppliers say they don’t make money on the fees; they state that they just pass along what the credit companies charge. The fees typically range from 3% to upward of 5%, with the heavier charges often resulting from American Express-based transactions.

“The margin erosion is too great at this moment to absorb another 3% or more,” said one leading supplier executive, who wished to remain anonymous given the controversial topic. “Obviously, there is one entity in a credit card transaction that is getting a great return here and it’s not the supplier or distributor. It’s the credit card company.”

Says another executive at one of promo’s large supplier firms: “The fees have become essential to offset the rising cost associated with processing credit cards. It’s really that simple.”

Gary Elphick emphasizes the view.

“We feel the fees are necessary, as there is an increased cost that comes with processing credit card orders,” says Elphick, a principal at Disrupt Sports (asi/49946), a supplier with operations in North America, Australia and the United Kingdom that provides athletics-focused products. “There are the fees the credit companies charge, plus the fraud and chargeback risks.”

Transparency, Please

Nonetheless, certain distributors assert that suppliers need to be more transparent about the fees. With some suppliers, distributors say they don’t find out there’s an extra charge for paying by credit card until the transaction’s end.

At that point, critics say, it’s too late to try to pass the fee along to the end-client or account for it ahead of time to keep distributor margins at desired levels.

“Credit card fees are frustrating if I’m not made aware of them in advance, which happens most of the time,” says Sarah Burgers, owner of Florida-based distributor Clever Promotional Products (asi/163129).

Burgers continues: “I dislike quoting the customer, receiving the order, placing the order and then finding out my costs are higher after the fact. Fees should be posted clearly on supplier websites so that distributors can’t miss them prior to placing an order. If fees are posted on each item on supplier websites, along with the setup charge, I’ll see them and know how to quote my client.”

$5.2 trillion
Total value of credit card transactions by Americans in 2023.(Capital One)

Burgers has devised a plan for dealing with the proliferation of credit card fees. It includes compiling a running list of suppliers who implement the fees and suppliers who don’t – and making a concerted effort to work with those who eschew the charges.

Of course, sometimes Burgers must do business with suppliers that have credit card fees. She has an approach for that, too.

“If I know I have to pay 3% to the factory and then my customer pays by credit card and I have to pay another 3% to receive payment, I have found that raising my percentage to approximately 42 to 42.5% will cover the net 3% and retail 3% fees I’m charged,” she says.

“However,” Burgers adds, “for those vendors that surprise us at the end with the fees, we ‘eat’ the charge, but we take note.”

Get Ahead of the Fees

While credit card fees for promotional products orders irk some distributors, some pros on that side of the promo industry aisle are okay with them.

“I don’t think credit card fees are a big deal,” says Greg Gregorian, founder of distributor Lunar Branding (asi/257241). “They’re a cost of doing business.”

Gregorian says that, if a supplier charges a credit card fee, he passes that along to a client. If his clients want to pay him by credit card, he levies a fee that covers the additional cost of the transaction. He hasn’t had much pushback.

“I don’t mind paying or charging the fee, and the right suppliers and clients don’t mind charging or paying the fee either,” he says.

$130 billion
How much credit card companies charged consumers in interest ($105 billion) and fees ($25 billion) in 2022.(Consumer Financial Protection Bureau)

A smart tactic suggested by distributors is to always ask the supplier if a credit card fee will be assessed at the outset of the order process. Distributors should learn exactly what that fee will be. Then, they have the option of building that cost into the quote they present to their client.

Advocates say the approach keeps distributors in the driver’s seat of how they want to handle the fees on each order while also preventing clients from feeling nickeled-and-dimed, as some might if they’re presented with a credit card fee on their invoice.

“Business, money and credit is all a game,” says Gregorian. “Those who want to succeed will have to learn how to play.”

Why Are More Distributors Paying by Credit Card?

Suppliers ASI Media spoke with, most of whom asked their comments to be kept anonymous given the prickly subject, say that there’s been a notable increase in the number of orders they’re having to process in which credit cards are the method the distributor uses to pay. (Specific numbers were difficult to pin down.)

One reason for the rise? Paying by credit card helps distributors with cash flow.

“Business, money and credit is all a game. Those who want to succeed will have to learn how to play.” Greg Gregorian, Lunar Branding (asi/257241)

“Credit cards allow me to float funds for 30 days,” says Gregorian. “Since we are a heavy cash flow business, it’s important to skillfully manage cash flow.”

Purchasing with plastic also earns the distributors cash and other rewards – an enticement to spend on the cards. Furthermore, paying via card can serve as a small type of insurance, especially if a supplier drops the ball, some distributors say.

“For example, trying to get PO errors – often small suppliers overcharge from the pre-payment total – refunded to me in cash seems unlikely,” says Johnson. “Using a credit card is generally easier to be refunded on.”

Suppliers Prefer ACH, Wire Transfers

The general consensus among suppliers is that the method of payments they prefer are Automated Clearing House (ACH) or wire transfers. Various suppliers ASI Media heard from note they don’t charge fees for processing orders through those channels.

ACH and wire are similar payment vehicles, but wire transfers are direct, generally immediate transfers between two financial institutions. ACH transfers, however, pass through the Automated Clearing House and can take up to a few business days.

“There’s less fraud and no chargebacks with ACH,” says Elphick. “ACH registers who it’s from, the invoice number. Any good accounting software will auto-link it to the invoice. Why charge more to everyone with a credit card when ACH is so easy?”

Some distributors, like Johnson, have their reasons.

“For me, it’s a security issue,” she says. “I don’t want every supplier – some of whom I haven’t worked with previously or often – to have my banking account info from ACH.”

The 100% pre-payment with ACH that Johnson says vendors demand is also an impediment to using that medium for transacting orders for some distributors.

“I’m willing to pay supplier pre-payments via ACH if they would require only a 50% pre-payment on purchase orders,” Johnson says. “I’m not comfortable paying 100% essentially in cash.”

To Charge or Not To Charge?

Even as more suppliers charge credit card fees, some say it’s a practice they plan to avoid. Le Tour de Spice (asi/67035) is among them.

“We don’t charge credit card fees,” says Brian Scott, president of the Ontario-based supplier that specializes in spices, snacks, teas and food gifts. “We believe that distributors who pre-pay an order deserve a break. We appreciate the quick payment, which helps keep us in a favorable cash flow position. We also don’t offer EQP or discounts, which sets a bad precedent for salespeople.”

Meanwhile, certain other suppliers account for the cost of credit card fees in the base pricing of the products they sell. Nebraska-based FireSprint (asi/54322), which provides stickers, signs, displays, magnets and more, takes this approach.

CEO Gene Hamzhie says accounting for credit card processing charges in this manner streamlines pricing, making it easier for distributors to understand.

“We keep our prices as low as possible for everyone, and then if someone would like the convenience of paying by credit card, they are welcome to, as long as they pay the convenience fee charged for that. Otherwise, it would mean we’d need to increase the costs of all items to cover credit card charges.” Gary Elphick, Disrupt Sports (asi/49946)

Plus, the strategy of inclusive pricing empowers FireSprint staffers to quote distributor customers faster than they would be able to if they had to continually calculate various add-on fees, including credit card charges. That speed, says Hamzhie, is a competitive advantage.

“With most of the phone calls we receive, the client is concerned with speed first and foremost, rather than price,” says Hamzhie. “Being able to respond quickly with a quote is important.”

Accounting for credit card fees in advance helps with perception, too, in Hamzhie’s opinion. “It stinks for the customer to go through the whole order process and then get another charge,” he says.

Nonetheless, some suppliers think incorporating the cost of credit card charges into base product prices isn’t fair to distributors who pay through ACH or other means that don’t involve the fees credit card companies assess.

“We keep our prices as low as possible for everyone, and then if someone would like the convenience of paying by credit card, they are welcome to, as long as they pay the convenience fee charged for that,” Elphick says. “Otherwise, it would mean we’d need to increase the costs of all items to cover credit card charges, just so some can pay by credit card. Why should everyone be punished for the preference of a few?”