What is a service charge?
A service charge is a fee that is collected for some services that are associated with the main product or service that is being purchased. Service charge can also be defined as a fee for extra topping being offered on top of the primary service and the product. Service charge is usually charged at the time of the purchase.
Sectors like restaurants, banking, and airline collect service charges. When collected, these charges may cover the cost of providing the service to the customer or the cost of managing or processing the transaction.
Understanding Service Charge
A service charge is a fee collected to pay for services related to the main product or service being purchased. It is usually added at the time of the transaction. Many industries, such as restaurants, banks, and travel companies, collect service charges. The customer usually pays the service charge if the seller includes it in the bill or invoice, and the customer cannot easily refuse it. However, it is not compulsory in most countries according to service charge laws or rules. For example, it cannot be automatically added to a restaurant bill or by default.
Service charges have some advantages and disadvantages, as followings:
Advantages:
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It allows businesses to keep providing excellent customer service and products without increasing the price of the products.
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There are no hidden costs charged to the customers.
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The provision for obtaining service fees creates healthy competition and motivates the business to provide the best of its services to the end customers, thereby increasing the business’s revenue.
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It enables business owners to raise the wages of employees.
Disadvantages:
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It reduces the purchasing power of consumers as they might think twice before buying the product or the service.
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Businesses may push customers to pay a service charge.