Cash Discounting vs. Surcharging: What’s the Difference?

Cash Discounting vs. Surcharging: What’s the Difference?

Credit card processing is a cost of doing business, and many restaurant and retail owners are looking for ways to reduce that expense. Two terms you’ll frequently hear are cash discounting and credit card surcharging.

They may sound like two different names for essentially the same thing, but they’re not.

Both approaches can affect how much a customer ultimately pays depending on their payment method, but the way the pricing is presented and applied is fundamentally different.

Understanding that difference is important before implementing either program.

What Is a Cash Discount?

A true cash discount starts with the regular posted price and provides a discount when a customer pays with cash or another qualifying payment method.

In other words, the card price is the regular price and the cash customer receives a discount.

For example, imagine an item has a regular price of $10.00.

A customer paying by card pays the posted $10.00 price.

A customer paying with cash receives the applicable discount and pays less.

The important distinction is that an additional credit card fee isn’t simply added to the advertised price at checkout. The discount is being taken from the regular price for the qualifying payment method.

What Is a Credit Card Surcharge?

A surcharge works in the opposite direction.

The business begins with its regular advertised price and adds a fee when an eligible customer chooses to pay with a credit card.

For example, an item may be advertised at $10.00. When an eligible credit card is used, a surcharge is added to the transaction.

That additional amount is intended to help the business offset some of the cost associated with accepting the credit card.

Unlike a cash discount, the credit card customer is paying an amount above the regular advertised price.

So What’s the Main Difference?

The easiest way to understand the difference is:

Cash Discount:
The card price is the regular price, and qualifying cash customers receive a discount.

Credit Card Surcharge:
The regular price is displayed, and an additional fee is added to eligible credit card transactions.

The end result may sometimes appear similar—a cash customer pays less than a credit card customer—but how you arrive at those prices matters.

That’s why simply adding a “non-cash adjustment” or similarly named fee to every card transaction doesn’t automatically make a program a cash discount.

Can You Surcharge Debit Cards?

This is an especially important distinction.

Credit card surcharge programs generally cannot simply be applied to every card that a customer presents.

For example, under Visa’s U.S. surcharge rules, Visa debit and prepaid card transactions cannot be surcharged, even if a customer selects “credit” when using a debit card.

That means your POS and payment processing setup needs to be capable of properly identifying and handling eligible transactions.

This is one reason businesses shouldn’t implement a surcharge by simply creating a generic percentage fee button in their POS and applying it to every card transaction.

There Are Rules Around Credit Card Surcharging

Businesses considering a surcharge program should understand that there are payment network requirements and potentially state or local laws that apply.

Depending on the card network and jurisdiction, requirements can involve:

• Which card types can be surcharged
• The maximum surcharge permitted
• Customer disclosure requirements
• Signage at the business
• Disclosure at the point of sale
• How the surcharge appears on the receipt
• Advance notification to the merchant’s payment processor or acquirer
• State or local restrictions

These requirements can change, so merchants should work with their payment provider and confirm the rules that apply to their business before implementing a surcharge program.

Cash Discount Programs Need to Be Structured Correctly Too

Calling something a “cash discount” doesn’t automatically make it one.

How prices are displayed and how the discount is applied matter.

For example, Visa’s guidance states that merchants offering a cash discount should display either the card price for an item or both the card and cash prices side-by-side. The final card price shouldn’t be created simply by adding an additional card fee at checkout and calling that fee a cash discount.

That’s an important distinction for merchants.

If your advertised menu or shelf price is $10.00 and you simply add a percentage when someone presents a card, the program may function more like a surcharge regardless of what you’ve decided to call it.

How Does This Affect Your Customers?

Compliance isn’t the only consideration.

You should also think about how your customers will react.

Consumers have become accustomed to using credit cards for convenience, security, rewards, and other benefits. When customers discover an additional fee at checkout, some may view it negatively—even when the program is properly disclosed.

Cash discounting can create a different perception because the customer is being offered an opportunity to pay less rather than seeing a separate fee added for using a credit card.

But customer reaction can depend heavily on how either program is communicated.

Clear pricing and transparency are extremely important.

Your customers shouldn’t be surprised when they reach the register or receive their bill.

Should You Just Pass Your Processing Costs to Your Customers?

Before implementing either program, there’s another question every business owner should ask:

Are you paying a competitive credit card processing rate in the first place?

It’s easy to look at processing fees as an unavoidable expense and immediately decide that customers should absorb them.

But what if your current processing program is simply too expensive?

Processing rates, transaction fees, pricing structures, and other charges can vary significantly between providers.

Before changing what your customers pay, it may make sense to review what you’re paying.

Reducing an unnecessarily expensive processing program could potentially lower your costs without changing the customer experience at all.

Look at Your Effective Processing Cost

Don’t evaluate payment processing based solely on one advertised percentage.

Your actual cost can include multiple components, depending on your processing arrangement.

These may include:

• Processing percentages
• Per-transaction charges
• Card network costs
• Monthly fees
• PCI-related fees
• Statement or account fees
• Equipment charges
• Other processing-related fees

Looking at the complete processing statement can provide a much better picture of what accepting payments is actually costing your business.

Don’t Forget About Your POS System

Your payment strategy and your POS system need to work together.

If you’re implementing cash discounting or surcharging, your POS may need to properly calculate prices or discounts, communicate with the payment processor, display the correct totals, and produce accurate receipts.

This becomes even more important when your business accepts payments through multiple channels.

For a restaurant, that might include:

• In-store POS terminals
• Server handhelds
• Online ordering
• Self-service kiosks
• Drive-thru transactions

Retail businesses may have multiple registers, e-commerce transactions, mobile checkout, or other payment points.

Your pricing strategy should be considered across the entire operation—not just one terminal at the front counter.

Which Option Is Right for Your Business?

There isn’t one answer that works for every restaurant or retailer.

Before choosing cash discounting, surcharging, or traditional pricing where the business absorbs its processing costs, consider:

• Your current processing costs
• Your average transaction amount
• How many customers pay with cash versus cards
• Your customers’ expectations
• Your POS system’s capabilities
• Your online and mobile payment channels
• Card network requirements
• Applicable state and local requirements

Don’t choose a program simply because another business down the street is doing it.

Your payment strategy should make sense for your business, your customers, and your numbers.

There May Be Another Option: Negotiate Better Processing

Cash discounting and surcharging receive a lot of attention because both can help businesses address payment processing expenses.

But there’s another option that shouldn’t be overlooked:

Make sure you’re getting a competitive processing rate.

If your business hasn’t reviewed its processing statements recently, you may not know how your current pricing compares or exactly what you’re paying.

That’s where working with an experienced payment partner can make a difference.

Let DBS Review Your Payment Processing

At Delaware Business Systems (DBS), we believe payment processing should be looked at as part of your entire point-of-sale solution.

Our team can help you understand your current processing costs, review your payment program, discuss available pricing options, and determine how different payment strategies can work with your POS system.

If cash discounting or surcharging makes sense for your business, we’ll help you understand the technology and payment considerations involved. If a more competitive traditional processing program is a better fit, we can help you explore that too.

Before you pass credit card processing costs along to your customers, find out whether you’re paying more than you should in the first place.

Contact DBS today to review your current payment processing program and discuss the options available for your business.