Surcharges

What are Surcharges?

Surcharges refer to extra fees or additional charges on top of the total cost of services or goods purchased.

Advertised pricing often does not account for these surcharges. As a result, companies receive invoices showing higher amounts than the expected procurement cost.

Merchants impose surcharges on customers to offset charges that cut into their profit margin. For many vendors, the only way to maintain profit margins is to pass extra fees to their buyers. As a result, companies across different industries apply surcharges, although the reasons may vary.

How Do Surcharges Work?

Vendors impose fees to cover extra charges that may not be directly related to the production of goods and services. For instance, companies may charge surcharges to clients paying with a credit card to cover merchant fees. 

Freight companies may require additional delivery fees to make up for higher fuel or transport costs. For other vendors, surcharges could result from regulatory fees imposed by the government. 

Regardless of the purpose of these extra fees, surcharges should appear on the final invoice. However, each vendor may have a different way of presenting these fees. Some will have one line item for surcharges, while others may include the breakdown of all the add-on fees. 

Types of Surcharges

More companies started imposing surcharges during the pandemic, but the practice has continued. Some of the most common surcharges include:

• Credit card surcharge fees – Merchants impose surcharges to cover credit card processing fees charged by credit card companies. 
• Peak season surcharge – Freight companies usually experience a surge in demand around Chinese New Year and between June and October to anticipate the year-end holiday season. Businesses in the logistics industry offset operational costs by charging a peak season surcharge during this period on top of a higher base rate. 
• Fuel surcharges – Carriers charge a fuel surcharge to cover potential losses when fuel prices increase. For example, businesses impose emergency bunker surcharges to pass on additional costs from rising fuel prices.
• Delivery area surcharges – When shippers deliver to rural or less-populated locations, carriers impose a surcharge to cover the cost of extra miles to reach a less-accessible or remote area.
• Environmental charges – Companies may charge an environmental fee to cover higher compliance costs to meet local, State, and Federal regulations for the transport, storage, and disposal of regulated materials. 

How Do Surcharges Affect The Accounts Payable Department?

As the department responsible for tracking and reconciling costs, AP teams struggle with the increasing number and type of surcharges. 

Surcharges mean additional work for AP due to the following:

• Additional verification and due diligence required when invoice payments exceed the expected cost
• Multiple invoices unexpectedly issued for one purchase in order to cover surcharges, adding to confusion when matching invoices
• Lack of uniformity in how vendors present surcharges, making it harder to reconcile and determine the product cost
• Different payment practices – some vendors may ask for prepayment before goods are received or ask customers to pay freight invoices directly to the transportation company
• Increasing costs causing procurement to source from new vendors, creating additional vendor onboarding and data maintenance challenges

Manage Unexpected Surcharges with SoftCo

SoftCo’s P2P solution streamlines the surcharge reconciliation process by using pre-set rules to reduce judgment calls and machine learning to learn patterns from previous transactions. Leverage intelligent systems to explore price variances faster, maintain proper documentation, improve vendor communication, and effectively manage surcharges.