Surcharge Vs. Cash Discount Program

Surcharge Vs. Cash Discount Program

To put it simply:

  • A credit card surcharge is when you charge credit card users a fee to use their credit card.
  • A cash discount program is when you charge everyone a service fee, but discount the full amount for cash transactions.


Credit card processing fees can get very expensive for some business owners. This is especially true if you run, say, a hot dog cart. You’re only make a few bucks on each transaction, and then you have credit card fees to eat up your profits. Credit card surcharges and cash discount programs pass these costs onto the customers who use credit cards.

But why call it a cash discount?

Because in Puerto Rico, and in the states of California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, credit card companies have made it against regulation to implement a credit card surcharge. However, there are laws barring credit card companies from infringing on a merchant’s right to add a service charge, and laws preventing them from infringing on a company’s right to offer discounts as the company see fits. So this leaves an obvious opening for a workaround.

A credit card surcharge and a cash discount program work in effectively the same way. When you pay with cash, you’ll see on your receipt the charge for the service charge, say, seventy cents. And then you’ll see the cash discount, and it will be minus seventy cents, removing the whole charge from your total. For the customer, this is no different from a credit card surcharge. But legally it is something else entirely.

The Upsides

It may sound sort of dishonest charging some of your customers extra, but framing it as a discount. But it’s the only way some small businesses can keep serving their customers. A small business that makes hundreds of small ticket transactions a day can wind up struggling to keep the lights on if their profits are being eaten up by unforeseen credit card charges. They can either charge credit card users more in order to make up the difference, or they can try to encourage cash purchases, or, in the case of surcharges and cash discount programs, they can do both. Many small businesses are a necessary part of the customer’s day. A local coffee shop, for instance. They’ll let you sit there for an hour and drink your two dollar coffee. But they can’t afford to stick around if they’re losing seventy cents on every two they earn.

On the other hand, putting up a sign that says “cash only” is probably going to lose you a lot of business. A lot of people only carry plastic now, or they don’t even carry plastic, they pay with their phones. These customers might be happy to pay a surcharge, but cash isn’t really an option. A surcharge or cash discount program is a way to offer your products or services to everyone, but to make sure that your end is covered when it comes to credit card processing fees.

In other words, just like everything else about your business, you’re doing it for your customers at the end of the day. The customers who cost you a little more to serve pay a little more to be served. They always have the option of bringing cash in next time if they don’t want to pay the extra cost of buying with credit cards, and they’ll be glad to see that you’re still in business, that you don’t have to close your doors just because of credit card processing fees.

cash discount program

Surcharge Vs. Cash Discount Program: Which is Right For Me And My Business?

You really don’t need to worry about credit card processing fees if you mostly work in big ticket sales. A car dealership obviously isn’t going to be sunk by credit card processing fees. A grocery store could go either way, with half of your customers buying fifty to a hundred dollars of groceries at a time, and the other half coming in for three dollars of chips and soda on their lunch break. It really depends on the size of your average transaction.

This is why many merchants charge a surcharge only if you’re spending less than five, ten dollars, or whatever the limit is. If your processing service and your state law allow it, you can arrange something like this so that people making bigger ticket purchases don’t have to pay the surcharge or service charge. You can even move a little more product this way, since many users would rather spend ten dollars and not pay a service charge than spend three dollars and pay a service charge. In any event, it’s just a smart way to make sure that your ends are covered.

Can You Implement The Program Yourself?

Technically you can, but if you live in a state that doesn’t allow credit card surcharges, you have to be very careful that your cash discount program is actually a cash discount program. If you break with credit card company regulation, or if they can make a case that you broke the contract, there are some stiff fines and penalties involved. This is why more merchants than not tend to trust their payment processing companies to handle the busywork of actually setting up and implementing a cash discount program for their business.

Maverick can set the whole thing up for you for just thirty dollars a month. With even a modestly successful small business, you can save several times that much money in credit card fees in a single day. Maverick eliminates up to 97% of credit card fees, and comes with breach compliance insurance and no extra fees for PCI compliance. You definitely don’t want to cross the line on PCI compliance, but if you’re not a lawyer, it’s a whole bunch of legalese that’s sort of difficult to make heads or tails of. Letting your payment processing service handle that is a real load off your shoulders.

Should I Go With Cash Discount Or Surcharge?

Really it depends on your state. If you’re allowed to charge a credit card surcharge, then the process is streamlined and simple, you just charge a little more for credit card purchases. If you’re not allowed to charge a credit card surcharge in your state, then you use a cash discount program. You can pretty much let the regulations make this choice for you, so that’s one less decision that you need to worry about. Outside of Puerto Rico and the ten states we listed above, there’s no reason not to just go with a surcharge.

surcharge vs. cash discount program

Making Sure Your Cash Discount Is Legal

You have to be consistent with your cash discount program or else you’re making yourself a target for fines, penalties and even legal repercussions. There are a few simple rules that you will be expected to follow so that credit card companies can see that your cash discount program is not a credit card surcharge. Fortunately, the rules are pretty simple, but you need to be one hundred percent consistent with them if you want to stay out of hot water with the credit card companies.

  • You need to make sure that you have a sign somewhere around your entrance letting people know about the service charge. The wording of the regulation says that it needs to be “clear and conspicuous.” That is to say that they don’t want you sneaking around trying to trick people into paying fees that they didn’t know about. If you’re an honest business owner then this shouldn’t be a problem. Just make sure that you have the sign up at the entrance, either on the door, or on a window or wall near the door so that people can see it.
  • It has to be marked on every receipt. Every receipt needs to make note of the service charge, and the cash discounted receipts need to make note of the discount. You can’t get into the habit of saying “Well they got the service charge and the discount so I just won’t add either to the receipt.” This is one reason to let your payment processor handle it, so that the whole process can be automated. You don’t want to have your cashier forgetting to manually add the service charge and the discount and getting the whole shop in trouble.

To clarify: A cash discount program means that you apply the service charge to every single purchase. Then when people are using cash to make the purchase, you add a discount that happens to match up with the exact value of the service charge. This lets you work around restrictions placed on credit card surcharges. But you have to apply the service charge to every single sale, not just the credit card purchases, or it will be regarded, legally, as a surcharge for credit card purchases. That’s not a problem in most states, but it is in the ten states listed above and in Puerto Rico.

How Long Will Cash Discount Programs Last?

Many merchants are concerned that credit card companies will eventually try to put pressure on lawmakers to do something about cash discount programs. In effect, you are beating credit card companies at their own game, and it stands to reason that they’re not happy about that. So it’s completely reasonable to expect that they may try to correct the loophole at some point in the future.

Put it one way: Since when have you known credit card companies to put their customers before themselves?

It’s certainly a realistic concern, but there haven’t been any serious rumblings so far, which means that if credit card companies hope to address cash discount programs, then it’s still a ways off before it has any effect, so if you live in a state where you are not allowed to apply a surcharge there’s no reason not to use a cash discount program while you can. Yes, credit card companies would probably love to put a stop to cash discount programs, but if they started getting the ball rolling today, it would still take years for the ball to hit its mark.

Cash discount programs and surcharges for credit card purchases, whichever one you select, it’s a great way to help offset some of the nickel and dime costs of running a business so that you can focus on what you do best. Some customers may balk at the changes at first, but if it allows you to stay in business so that they can enjoy their cheap cup of coffee every morning, it’s a win/win. Credit card surcharges and service fees are usually pretty small, so most customers don’t mind, and if they do, they can bring cash next time.

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