Understanding Convenience Fees vs. Surcharges for Residential and Commercial Property Managers

Jul 10th, 2024

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As a property manager, whether in residential or commercial real estate, accepting payments in various forms is essential. Be it apartments, student housing, corporate housing, retail, or storage spaces, the days of tenants coming to the office or mailing checks are long gone. Today, tenants expect the convenience of online payments, but this convenience comes at a cost to property managers.

To mitigate these costs, property managers can use convenience fees or surcharges. Here is a breakdown of each and how to decide which is best for you.

What is a Convenience Fee?

A convenience fee is typically a flat fee, although it can sometimes be a percentage, charged for using an alternative payment channel. For instance, this fee might be added for paying through an online portal instead of mailing a payment or paying in person. This fee applies to all payments made through that specific channel.

Example: Charging a flat rate of $3 to $20 for online payments to offset processing costs.

What is a Surcharge?

A surcharge, on the other hand, is specifically for credit card payments. It allows property managers to pass the credit card processing fees on to the tenant. This fee cannot be applied to debit or prepaid card payments, so your payment system must distinguish between different card types.

Example: Adding a 3% fee to the rent amount for credit card payments. If rent is $1,000, the surcharge would be $30.

Surcharge vs. Convenience Fee: Pros and Cons

Covering Costs

Both fees help manage expenses, but their impact varies. A fixed convenience fee might not always cover the full processing costs, especially if the fee is too high for some payments and too low for others. Tenants can also avoid this fee by opting for payment methods that do not incur it, like paying in person or by mail, which truth be told most property managers do not want due to the manual nature of in-person or mail payments.

In contrast, surcharges directly correlate with credit card processing costs, ensuring these are consistently covered. This method can also encourage tenants to use more cost-effective but still electronic and convenient payment methods like ACH, e-checks, or debit cards, reducing overall fees for property managers.

Tenant Preferences

Tenant experience is crucial in deciding between these fees. Flat convenience fees can seem unfair, especially for tenants splitting rent, while percentage-based surcharges might be perceived as more equitable. Additionally, tenants can avoid surcharges by choosing different payment methods both online or in-person offering more flexibility.

Implementation and Compliance

Both fees have compliance rules to follow:

Convenience Fees:

Usually a fixed amount (but in some cases it is a percentage that adheres to card brand rules)

Must be associated with an alternative payment channel.

Only applicable to non-face-to-face transactions.

Cannot be charged alongside a surcharge.

Not applicable to recurring or installment payments.

Surcharges:

Must be a percentage of the total purchase, not exceeding the cost of acceptance.

Capped at 3%.

Require notification to most credit card companies and your processing bank at least 30 days before implementation.

Not allowed in Massachusetts and Connecticut.

Ensuring compliance with these rules is crucial to avoid penalties. Fortunately, payment processing solutions like Ascent can simplify this process, ensuring seamless and compliant implementation.

In summary, both convenience fees and surcharges can help property managers increase efficiency and still reduce electronic payment processing costs.