Surcharge vs Cash Discount Program – The Simple Difference

Many small businesses are looking for solutions to keep accepting cards but avoid the monthly interchange fees. An answer to this dilemma was solved in recently formulated cash discount programs, which were federally authorized in all 50 states in 2011. However, there has been some confusion as to what a cash discount program is and how it varies from a surcharge. Let’s discuss what the main differences are between the surcharge vs cash discount program, how to implement a legal and successful cash discount program, and what merchants should consider when evaluating cash discount providers.

What is a Surcharge?

A surcharge is a charge or fee that is added towards the price of a good or service and is usually added towards an existing tax. 40 states in the US allow surcharge fees to customers who pay with credit card. The remaining states that prohibit surcharges are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Surcharges, however, cannot be assessed on debit cards. They are added simply for the privilege of using a credit card. Typically, surcharges are based on a specific percentage of the total price of goods or services before taxes are assessed.

What is a Cash Discount Program?

A cash discount occurs when a merchant decreases the price for cash purchases and offers merchants an alternative to credit card processing. Cash discount programs are not credit card surcharges because they do not levy a fee that is added to a credit card transaction. There has been much confusion around cash discount programs in the past, as people tend to associate them with surcharge programs. Unlike surcharge programs, cash discount programs are seen in a better light, and fare better with the end- consumers. There has been a misconception that a cash discount program would prohibit sales if a customer does not carry cash. We’ve researched this with multiple merchants using Swipe4Free and found it to be unbiased fear. In all cases, the credit card volume has remained consistent or even increased month over month, with reports from merchants that their customers disregard the convenience fee in 99.2% of transactions.

To implement a truly successful cash discount program, a merchant must overcome the confusion and questions consumers and employees have surrounding a cash discount program. At a minimum, a merchant is required to provide at least one point of notification prior to sale that there is a service fee applied to all sales and a discount given if a cash payment is made. Multiple points of notification are recommended – such as at the door, register of the store and throughout the establishment if needed.

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