Is Cash Discount the Same as Applying a Surcharge to Customers?
Meet the Author
Tom Coughlin, PhD is the owner and founder of The Merchant Way. He’s an engineer by training raised in the garden state, New Jersey. With his uncles owning businesses in Long Island, he grew up hearing the challenges small business owners face over family holiday dinners and barbecues.
In 2019, he learned that some credit card processors don’t do things right. They charge businesses high fees and crazy bogus line items. Tom set out to do things different and give better service with more savings while being a company that could be counted on.
When using your credit card, some businesses may charge surcharges or require minimum purchase requirements. In this case, that surcharge of 3.5% is added onto the purchase total at checkout. The customer then pays that amount at the final sale.
With cash discount, the customer is presented with the clearly labeled sticker that explains to them that “if they pay cash then they will have a 3.99% cash discount.” However, if the customer pays with credit card, the cash discount software then applies the additional 3.99% to the customer’s line items. So a sandwich priced at $10 on the menu will be $10.40 at checkout, and the receipt will show that “Non-Cash” charge of $0.40 underneath the sales tax. This will be included in the final sale price.
The important things to know about cash discount and surcharges is that they are different in the way they are displayed to the customers and thus, abide by different laws.
Credit card surcharges
Credit card surcharges are fees added when customers use a credit card to pay at checkout. Surcharges are legal unless restricted by your state’s laws. Businesses that choose to add surcharges are required to follow protocols to ensure full transparency. The surcharge regulations outlined below only apply within the U.S.
To be in full compliance, under Visa and Mastercard, retailers are required to register the surcharge with the payment network. Then, they must display a notice of the surcharge at the point of sale — both in-store and online. The consumer's receipt must also indicate a surcharge was added to the bill.
How we keep you in compliance:
We have a surcharge sticker that you place at the register to be in compliance
We register your surcharge with the payment network before you even process on the machine
We apply a surcharge of 3.5% - well under the maximum surcharge of 4% of the credit card transaction.
The state’s that are excluded from applying a surcharge are:
California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. It is illegal for merchants to add any surcharges to credit card transactions or charge convenience fees to nontraditional payment methods in these states.
Can I apply surcharges to debit cards?
Importantly, surcharges cannot be applied on debit cards or prepaid debit transactions per Visa and Mastercard.
We implement programming that you don’t have to worry about this.
Can I surcharge for a particular card?
You can surcharge a particular type of credit card only…if you’d like. But, you must decide to add the surcharge at the brand or product level — and not both. A brand level surcharge adds the same fee to all credit card transactions from the same payment network, such as Visa or Mastercard. In contrast, A product level surcharge applies it to a particular type of Visa or Mastercard, such as Visa Signature or World Elite Mastercard.
Cash discount
Cash Discount programs are legal in all of the 50 states as per the Durbin Amendment (part of the 2010 Dodd-Frank Law). This amendment states that you are permitted to offer a discount to customers as an incentive for paying with cash.
How we help you install cash discount in your business:
First, we give you a sign that you must display at check out
Then, we have a custom software that we install with your POS that clearly applies the cash discount at each final sale
Then, no matter the type of card, the 3.99% that you accumulated in credit card fees is used to pay your processing bills.
Why not just raise my prices?
Cash discount is not the same as raising your prices because you still offer customers a better cheaper way to pay.
Cash discount is a particularly friendly way of saving on your credit card fees every month.
By using either program, you will be able to stop paying your credit card fees, and getting the money from fees back in your pocket.
Why not just raise my rates?
Implementing a cash discount or surcharge is inflation proof. You can raise your rates, but you will still have credit card fees. And with fluctuations in the cost of goods, year over year rent prices, or even consumer demand, you will benefit from having one of these programs. You can always raise your rates, but it is not really addressing the problem at hand. Because with inflation, changes in costs of goods, and rent price increases, you’ll always have varying changes in the costs to your business. And those raised prices won’t recover these losses. And then, you’ll still have credit card fees.
