Cash Discount vs. Surcharge

By Cash Discount Program on October 26, 2023
Photo of a POS Transaction

If you are a business owner, you know that accepting credit card payments is not free. Depending on credit card prices and the size of your business, the transaction fees can be 1.5% to up to 3.50%. Every time a customer buys something from your store using a credit or debit card, the additional fee adds up and eats into your profits.  But as the celebrated American journalist H. L. Mencken once said, “Every complex problem has a simple solution.” Enter Cash Discount Programs and Surcharging! Every business owner wanting to offset their card transaction costs to save money knows about cash discounting and surcharge programs. Let’s discuss what they are and the best program to increase profit margins and improve your bottom line.

What is a Cash Discount Program?

If you are tired of payment processing fees going to card companies, a cash discount program with cash discount processing could be a smart move for your merchant account. A legal cash discount program basically means that you offer a cash discount to customers who pay with cash instead of a card. This is different from absorbing the credit card processing fees or passing them onto the customer as a separate line item or service fee. The idea is to incentivize cash payments, without transaction fees, saving you money.

For example, when a customer pays $100 with a credit card and you get charged a 3% credit card processor fee, you only get $97. But if they pay with cash, you get the full $100. So, you could offer the product with a cash discount for $97 for cash payments, giving customers a reason to pay in cash.

Businesses clearly communicate this to customers with signage that stating listed prices are “cash prices” and that a higher price will be charged for card payments. Transparency about pricing structure is important for staying on the right side of card association rules. You can post credit card prices for a true cash discount program. Implementing cash discount with payment processing does involve some initial setup, such as adjusting your point-of-sale (POS) system and training your staff, but the long-term benefits can be worth the investment because with customers paying the fee, the business is saving money.

For those wondering if this is legal: it is according to Card Brand Rules. Cash-only discounts are completely compliant with regulations in all 50 states as long as they are disclosed to the customer before the point of sale. But remember, you cannot offer a discount for some items and not for others. It has to be a standard percentage of the total bill, not individual items. can set up your POS system to automatically apply the cash discounts to eliminate the risk of manual errors and make credit card transactions as smooth as possible. With cash discounts, the savings on transaction fees from credit card processing outweigh the costs of applying and maintaining the program.

What is a Surcharge Program?

The opposite of discounted cash pricing and you get the surcharge program. Instead of offering a discount for cash payments, an extra fee is added to credit card transactions. Often called a non-cash adjustment and different than a convenience fee, the customer pays surcharge fees. So, the fee that a business would normally have to pay to the credit card processing company – which averages around 3% or more of each purchase – is passed directly to the customer if they choose to pay with a card.  For a customer that likes to carry cash and cash acceptance is preferred at your business, a compliant surcharge program will reward them by not assessing a fee.  A minor difference, but more customers understand when a business will implement surcharges than when they implement a cash discount.

With a sale of $50 and card processing fee of 3.0%; surcharging adds $1.50 to what the customer pays, making the transaction amount $51.50 if they pay with a card. You get to keep the full $50 from the sale. The extra money from the surcharge is not in the posted price or listed price.

Credit card surcharging is heavily regulated by both card brands and state laws. The additional service fee must be clear to the customer that it costs more for not paying with cash according to each card brand. The surcharge rate must be displayed at the register and also appear on the receipt and the same for all card brands.  And no fee added for debit cards.

As of 2023, credit card surcharging is prohibited in ten states:

  • Colorado
  • Connecticut
  • California
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • Texas

Merchants in Puerto Rico are also not allowed to charge any convenience fees or surcharges.  

Two more things small business owners should keep in mind:

  • You cannot impose more than a 4% surcharge on a transaction
  • You cannot add a surcharge on prepaid or debit card transactions, even if they are run as “credit” transactions.

Cash Discount vs. Surcharge Program

Cash Discount and surcharge programs are different.  Both can have monthly fees.  Most businesses certainly are accepting credit cards, but prefer a cash payment.  Businesses not specifically posting cash prices and credit prices can meet credit card companies regulations in Surcharge states by speaking to their merchant service providers and posting the additional fee.  Cash transactions will always be preferred by most businesses.  But a cash price from a business that will offer cash discounts may increase cash sales.  The following comparative analysis between cash discount programs and surcharge programs should make things clearer:

FeaturesCash Discount ProgramSurcharge Program
What it doesOffsets card processing fees with cash discounting.Adds an extra fee for card payments.
 How it affects revenueIncreases revenue by reducing feesIncreases revenue by passing on fees
 Legal in All StatesYesNo (banned in some states)
Applies toCash, checks, and sometimes debit cardsCredit cards only
Customer perceptionGenerally positive (who doesn’t like a discount?)Can be negative (added fee)
Impact on salesMay increase cash salesMay discourage card use
Fee rangeNo legal limitUp to 4% of the transaction
Requires SignageYesYes
Federal regulationsNo specific limitationsCannot surcharge debit or prepaid cards
Ongoing MaintenanceLowModerate to high

Eliminate Credit Card Fees with

At, we are here to make card processing cost-free for you.  Cash Discount and Surcharge Programs both lower credit card processing fees to a business.   We also offer traditional credit card processing, gift and loyalty programs to keep your customers coming back, and state-of-the-art POS systems that make every transaction effortless. Our program is legal in all 50 states and comes with zero setup fees.  Cash Discounting is so common that customers understand the discount offered or the surcharge amount. Reach out to us online or call us at (855) 483-9390 to get started.

Category: Uncategorized