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What is a Cash Discount and How is it Different From Surcharging?

Accepting credit cards is a necessity of running and growing a business, but it’s often difficult to offset the merchant service fees, also known as interchange or swipe fees. These fees which range from 1-4% for each credit card swipe, can result in a significant loss in profits and might be difficult for you to stomach. With this in mind, many small businesses are exploring ways to continue accepting cards but avoiding the interchange fees. One method that has become quite popular for businesses to keep more of their revenue is through implementing a Cash Discount Program. A Cash Discount Program allows you as a merchant to offset most of your merchant services fees. It is a method of implementing a service fee to all customers, while providing a discount to those who pay with cash.

How it works

Your posted prices for items will be the cash discount prices. Any customer paying with a card will have a small service fee added to all of their transactions. An example of a Cash Discount program that has been around for years can be found at gas stations, where the price posted is the cash price and the discount is offered for paying with cash. With increasing costs for using an ATM, most customers will prefer paying the lower, small added fee versus the cost of an ATM fee. This combined with the convenience of using a credit card and fewer people carrying cash makes for a great solution.

What is the difference between a Cash Discount and a Surcharge?

This is not to be confused with a Surcharge, which is when the merchant increases the price for card purchases. With a Cash Discount, a merchant provides a lower cost for cash prices, with the posted prices being cash. Although seemingly a matter of semantics due to similarities, there is one major difference: with a Cash Discount program, you are not implementing an additional fee for accepting credit cards, but rather, you are providing a discount for those who pay with cash. Surcharging is illegal in 10 states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas), while a Cash Discount program is legal and approved in 50 states and within the guidelines of Visa, Mastercard, and processor regulations.

How do you implement a Cash Discount program?

In order to implement a Cash Discount program properly, check with your processor to see if they offer a compliant version of the program. Not all processors utilize patented technology that is integrated with specific terminals required to be fully compliant. With a Cash Discount Program, you must follow strict guidelines from the card associations: 1) correct signage must be posted and 2) the amount of the added service fee must be clearly displayed on the receipt. Doing this on your own without the help of your processor may be rather difficult, as it would be done manually on each transaction without a change from your processor’s end. In order to be in good legal standing, the Cash Discount must display the service fee or discount clearly to the customer. Be sure to carefully consider all the factors when evaluating Cash Discount programs, such as any potential hidden costs, equipment, and other fee options that payment processor may have.