As a business owner, it is essential to understand the different ways to handle credit card processing fees. Two common methods are surcharging and cash discount programs. In this guide, we will explain the differences between these two methods and their benefits and drawbacks.

What is Surcharging?

Surcharging is the practice of adding a fee to the total amount of a transaction to cover the cost of processing credit card payments. The surcharge is typically a percentage of the transaction amount and is added at the point of sale. Some key points to consider when implementing surcharging are:

• Surcharging is legal in most states but is prohibited in a few states like California, Colorado, and Connecticut.
• The surcharge fee should not exceed 4% of the transaction amount.
• The surcharge fee should be clearly disclosed to the customer before the transaction is completed.

What is a Cash Discount Program?

A cash discount program is when a merchant offers a discount to customers who pay with cash, check, or any other payment method other than a credit card. This discount is offered as an incentive to customers to avoid the fees associated with credit card processing. Some key points to consider when implementing a cash discount program are:

• Cash discount programs are legal in all states.
• The discount offered should not exceed the cost of processing the transaction via credit card.
• The discount should be clearly disclosed to the customer before the transaction is completed.

Differences between Surcharging and Cash Discount Programs

The primary difference between surcharging and cash discount programs is the way fees are handled. In a surcharging model, the merchant adds a fee to the transaction total to cover the cost of processing the credit card. In a cash discount program, the merchant offers a discount to customers who pay with cash or another non-credit card payment method.

Benefits and Drawbacks of Surcharging

Some benefits of surcharging are:

• Surcharging can help merchants recover the costs associated with credit card processing.
• Surcharging can incentivize customers to use cash or non-credit card payment methods.
• Surcharging can help level the playing field for small businesses that cannot negotiate lower credit card processing fees.

Some drawbacks of surcharging are:

• Surcharging can be perceived as an added fee by customers, which may discourage them from doing business with the merchant.
• Surcharging may result in higher overall costs for merchants who do not have a high volume of credit card transactions.

Benefits and Drawbacks of Cash Discount Programs

Some benefits of cash discount programs are:

• Cash discount programs can help merchants avoid credit card processing fees altogether.
• Cash discount programs can incentivize customers to use cash or non-credit card payment methods.
• Cash discount programs can help level the playing field for small businesses that cannot negotiate lower credit card processing fees.

Some drawbacks of cash discount programs are:

• Cash discount programs can be confusing for customers who are accustomed to paying a fixed price for goods and services.
• Cash discount programs may not be as effective for merchants with a high volume of credit card transactions.

Conclusion

As a business owner, you must understand the differences between surcharging and cash discount programs and their benefits and drawbacks. Both methods can help you recover credit card processing fees or avoid them altogether, but they require careful consideration to implement effectively. Ultimately, the method you choose will depend on your business’s unique circumstances and goals.