Your Discount Fuel Card Decision Should Include Fees in the Analysis.

When evaluating which discount fuel card is best for your business, it’s important to carefully consider everything that goes into the price per gallon. This includes discounts or rebates, but even more essential are the fees that companies often charge in addition to those rebates and discounts. The best fuel card for your business might not be obvious until you’ve weighed all the factors and calculated the total cost per gallon. 

Fuel card discounts vs. rebates

Fuel card discounts and rebates are the same thing, right? Well, not exactly. Both should ultimately provide the same benefit: lowering fuel costs. They just work differently. Rebates are a partial refund paid to the customer periodically, often at the end of the month, quarter or year. Rebates are based on a percentage of the total spend during the rebate period. Discounts, on the other hand, reduce the cost of fuel at the time of purchase. They’re typically calculated as cents per gallon, with the customer being invoiced at a discounted rate.

Discount fuel cards may have limits.

Sometimes fuel card discounts and rebates are not as straightforward as you would think, and the limits are often buried in the fine print. While some cards might offer a significant rebate or discount at first glance, it could be limited to an introductory period. Once that period ends, so does the rebate or discount. Other fuel might cap the total amount given to the cardholder via rebate or discount. Once the cap is reached, fuel is priced without any cost reduction whatsoever. And still other programs might only offer a rebate or discount at “in network” locations or brands. Bottom line: ask questions of your account representative and read the fine print.

Fees add up.

While not every fuel card company has the same pricing model, many of them charge hidden fees that can add up and offset rebates and discounts provided to the customer. There are many types of fuel card fees that vendors charge, and below we highlight some common ones:

• Administrative Fee – Also known as an account maintenance fee, this fee ranges from $0.02 to $0.05 per gallon.
• Late Fee – This may be the single largest fee with the amount ranging from 2-10% of the invoice total. Delays with mail delivery, payment processing or other internal red tape could result in a late fee being unfairly charged.
• Card Order Fee – A vendor might charge $2.00 per card or more – not including the shipping costs – just to process a customer request for a new card.
• Card Fee – A typical card fee is about $2.00 per card per month and can be charged even if a card wasn’t used for a purchase.
• Monthly/Annual Fee – A monthly fee, often $10.00 per month, or an annual fee could be charged to your account depending on the vendor.
• Transaction Fee – Transaction fees might apply for each purchase or select purchases at specific locations. Fees can be anywhere between $0.10 to $3.00 per transaction.
• Over Credit Limit Fee – When the credit limit for an account is reached, a vendor might lock the account or begin charging a fee for subsequent purchases, sometimes as high as $5.00 per transaction.
• Returned Payment Fee – An invoice payment that doesn’t clear because of insufficient funds could result in a $50.00 fee, in addition to the vendor charging interest on the balance.
• Mailed Invoice Fee – Some companies charge extra to mail invoices, often $10.00 per invoice.
• Payment Processing Fee – A fee as high as $25.00 could be applied depending on how invoice payments are made, either by check, credit card or electronically.
• Account Reinstatement Fee – Some vendors charge a fee to reinstate an account, sometimes $50.00 per occurrence.
• Account Research Fee – Not all vendors offer free customer support it seems. Some charge $15.00 per hour just to research transactions on your account.
• Reporting Fee – In addition to an account research fee, a vendor might charge as much as $25.00 to generate fuel reports and send them to you.
• Account Setup Fee – Depending on the vendor, just opening the account can cost you as much as $40.00 for processing and setup.

Fees may negate fuel card discounts.

Now that we’ve outlined possible fees that could be charged by vendors, let’s incorporate them into a couple of scenarios. We want to see how the total price per gallon could be impacted by fuel card discounts, rebates and fees.

In the first example, let’s consider how a trucking company that runs 6 trucks and uses 2,500 gallons per month would do using a discount fuel card that offers $0.05 off an average price of $2.50 per gallon. We’ll assume the fuel card discount is offered only at select locations and that the company uses those “discount sites” for 25% of its fuel volume. Ineligible locations (no discount) are priced at the pump price. We’ll also assume one month their invoice payment did not clear, resulting in various fees, including a 9% late fee. Now let’s extrapolate these values for an entire year to see what impact a single late payment would have:

• Total Annual Gals: 30,000 (2,500/mo. x 12)
• Discount Gals: 7,500 @ $2.45/gal = $18,375.00
• Non-Discount Gals: 22,500 @ $2.50/gal = $56,250.00
• Administrative Fee: $0.05/gal = $1,500.00
• Card Fee: $2.00/card/mo. = $144.00
• Returned Payment Fee: 1 mo. = $50.00
• Payment Processing Fee: 1 mo. = $25.00
• Late Fee: 1 mo. @ 9% = $559.69
• Total Annual Cost = $76,903.69
• Average Price = $2.56/gal

By calculating the total cost per gallon, we can see how the customer paid $0.06 per gallon more than the pump price because fees offset the initial discount. Again, we assumed a single late payment. The fees that a vendor could charge ($634.69) for that single payment were greater than the discount for the entire year ($375.00).

In the second example, let’s consider a discount fuel card that offers a rebate instead of a discount. We can use the same starting point of a trucking company that runs 6 trucks and uses 2,500 gallons per month with an average price of $2.50 per gallon. But instead of savings up front, the trucking company receives a monthly rebate from the vendor of 20 basis points or 0.2%. A basis point is equal to one hundredth of one percent (0.0001). We’ll eliminate the late payment but assume the vendor still charges other fees. Rather than annualize the values, we’ll keep them monthly since the rebate is paid out during that period:

• Total Monthly Gals: 2,500
• Total Monthly Spend: 2,500 @ $2.50/gal = $6,250.00
• Administrative Fee: $0.02/gal = $50.00
• Card Fee: $2.00/card/mo. = $12.00
• Payment Processing Fee: 1 mo. = $25.00
• Rebate: 20 basis pts (.002 x $6,250.00) = $12.50
• Total Monthly Cost = $6,324.50
• Average Price = $2.53/gal

Once we calculate the total cost per gallon, we can see how fees offset the rebate, just like they did in our first example with the discount. For the rebate to be greater than the monthly fees ($87.00), the customer would need at least 140 basis points or 1.4% from the vendor, which is hard to come by even for the largest companies.

Make an informed decision.

When deciding which discount fuel card fit your business best, it’s important to closely scrutinize rebates, discounts and fees. It’s easy to get stuck comparing rebates and discounts against each other without evaluating the other possible costs of the program. Pay close attention to the ultimate price per gallon – total invoice amount divided by total gallons – and keep an eye out for hidden fees.