Posted On: August 27, 2021

Which is Best Surcharge Program or a Cash Discount Program?

You may notice when you go to pay your utility bill or tax bill that there is a surcharge to use your credit card for payment. For years we have seen these fees applied by government entities. Today its more mainstream and retailers and service providers are now utilizing a surcharge program to pass the fee along to the cardholder.

With a surcharge program there are rules that must be adhered to in order to do this compliantly with the card brands. Your credit card processor must register you with each card brand as passing a surcharge along to the cardholder. You the business must give customers a 30 days notice to implementing a surcharge program. In addition, the surcharge fee must be posted within the establishment, on the website and near the cash register. The surcharge fee must be displayed and separated on the cardholder’s receipt. This program is not offered in the following states California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

What if surcharging is not allowed in my State?

If you are in a state that does not allow surcharging than a cash discount program will work best for you. A cash discount program allows you the business to offer a discount for cash purchases and to pass a fee along on credit card purchases. You may have seen this in practice at gas stations today where they list a cash price for gas and a credit card price for gas. The key is to find a processor who can offer you technology to do this compliantly.

What to look for in a cash discount program

When looking for a processor for cash discounting it is important to have a compliant program. See some tips below on how to spot a compliant program.

  • Customer Signage- Signs within your establishment notifying customers of this policy. We recommend posting 3 signs one at the door, one within the establishment and one by the cash register. If you have a website it is also recommended to post this policy.
  • 30 day notice to customers- 30 days prior to implementing the cash discount program in your business be sure to post signs in your establishment and notify customers that on a given date this new program will go into place. This allows customers to make arrangements to use cash if they do not want to pay the fee.
  • The technology such as credit card terminal, mobile app or Point of Sale System much break out the fee as a separate line item on the receipt. If you are adding the fee yourself and it is not displayed on the customers receipt this is not considered compliant. Make sure your processor has this broken out on the bottom of the customer’s receipt. This is very transparent to the cardholder and in turn reduces any misunderstandings or chargebacks.
  • The fee passed along to the cardholder cannot exceed 4% of the sale.

Which is best a Surcharge Program or a Cash Discount Program?

Depending on what state your business is in may be the best way to evaluate this. If you are in one of the states that prohibits surcharging than you will want to institute a cash discount program. The payment industry has been putting time and resources into the cash discount program for the last several years. You may find that the technology available to you may be better in a cash discount program. I would suggest using technology and your needs as a business to help you make this decision. Processors are building iOS and android apps incorporating the cash discount program. They are developing terminals and point of sale software’s to accommodate the influx of customers demanding this program. There isn’t a lot of development going on regarding surcharging. Where surcharging was designed to initially allow government entities and municipalities to pass this fee along the technology development was left to these entities. Let your business needs decide what program works best for you. The truth is transitioning your credit card processing fees is a huge savings to businesses.

What do I charge my customer to use a credit card?

Turing an expense in your business into a profit can be a game changer. Cash discount programs allows you the business to pay zero percent processing fees. Depending on your processors program can reduce your fees from 95-100%. Most processors should only charge a monthly fee this should cover PCI fees, statement fee and equipment fee. The fee you pass along to your customer is covering all the processing fees. The fee passed along is anywhere up to 4%. For merchants who have a small average ticket you may decide to pass along a set fee of $.049. For businesses with average tickets over $20.00 it is recommended to charge 3.95%. This rate is generally determined by your credit card processor.  Be sure to ask how their program works and what options are available. You be the final decision maker of what fee will work best for your customers.