---
title: "What is merchant fee?"
description: "Merchant Fee explained in plain English: definition, how it works, an example, and how it appears in QuickBooks and Xero."
url: https://ledgerbpo.com/glossary/merchant-fee/
updated: 2026-09-11
publisher: LedgerBPO (SS Support Network LLC)
language: en-US
---

# What is merchant fee?

Glossary

A merchant fee is the charge a payment processor such as Stripe or Square deducts from a card or online payment before depositing the remaining amount into a business's bank account, covering the network, interchange and processing costs of handling the transaction.

Updated September 2026

## How merchant fee works

Merchant fees are usually a percentage of the transaction plus a small fixed amount, and the exact rate depends on the card type, the processor, and how the payment was taken, whether swiped, keyed in, or online. The processor nets the fee out before the deposit ever hits the bank, so the deposit amount is always smaller than the sale total, which can confuse an owner checking the bank feed against a point-of-sale report.

Because the fee is netted out before deposit, a bookkeeper cannot simply match the bank deposit to the sales total; the difference has to be recorded as a merchant fee expense or it will look like an unexplained shortfall. This is one of the most common causes of a bank reconciliation that will not balance for businesses that take card payments, and comparing rates across processors is a routine cost-control exercise.

## Example

A business processes a $500 card sale. The processor charges a 2.9 percent plus $0.30 fee, totaling $14.80, and deposits $485.20 into the bank account the next business day. The bookkeeper records $500 in sales, $14.80 in merchant fee expense, and $485.20 as the cash deposit, so all three figures tie out to the settlement report.

## Merchant fee in QuickBooks Online vs Xero

QuickBooks Online can pull Stripe, Square and PayPal fees automatically through connected apps, splitting the gross sale and fee in one entry. Xero relies on bank rules or an integration such as A2X or a payment app to separate merchant fees from the net deposit during bank reconciliation.

## Common mistakes

- Matching the bank deposit straight to the point-of-sale sales total without recording the fee separately, which makes the reconciliation look broken by exactly the fee amount every time.
- Booking all merchant fees to a single generic expense line instead of by processor or channel, which hides which sales channel is actually the most expensive to collect on.
- Never comparing fee rates across processors as sales volume grows, which leaves a business paying a higher blended rate than its transaction mix would otherwise allow.

## Why it matters

Merchant fees directly reduce what a business keeps from every card sale, and an owner who only looks at gross sales can misjudge true profitability by a meaningful margin once fees across all channels are added up. Recording fees correctly also keeps bank reconciliation from looking broken every period. For a growing business, visibility into fee costs by channel supports real decisions about pricing and which payment methods to promote.

## Related terms

- [Chargeback](https://ledgerbpo.com/glossary/chargeback/)
- [Payout](https://ledgerbpo.com/glossary/payout/)
- [Settlement report](https://ledgerbpo.com/glossary/settlement-report/)
- [All terms](https://ledgerbpo.com/glossary/)

## How LedgerBPO handles merchant fee

We reconcile every payout against the processor's settlement report so merchant fees are recorded as an expense rather than left buried inside an unexplained cash shortfall. This gives you a true gross-to-net picture of what each sales channel actually costs to collect.

[Stripe, Shopify, Amazon and PayPal payouts that tie out](https://ledgerbpo.com/services/payment-processor-reconciliation/)

Next step

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Source: https://ledgerbpo.com/glossary/merchant-fee/ · Contact: https://ledgerbpo.com/contact/ · Full site map for agents: https://ledgerbpo.com/llms.txt