As a business owner, you have probably heard about surcharging and cash discount programs as ways to save on credit card processing fees. While both options can be effective, they operate in very different ways. In this ultimate guide, we will explore the differences between surcharging and cash discounting, how they work, and the pros and cons of each option.

Surcharging

What is surcharging?

Surcharging is the practice of adding a fee to a credit card transaction to offset the cost of processing that transaction. Surcharging is legal in the United States, but it is regulated by state law, and there are specific requirements that must be met for businesses that choose to surcharge.

How does surcharging work?

When a customer pays with a credit card, the merchant can add a surcharge to the transaction. The surcharge is typically a percentage of the transaction amount, and it is added to the total cost of the purchase. The merchant must disclose the surcharge amount to the customer before the transaction is completed.

Pros and cons of surcharging

Pros:

• Surcharging can be an effective way to offset the cost of credit card processing fees.
• Surcharging is legal in the United States, and it is regulated by state law.
• Surcharging can be implemented easily with the right payment processor.

Cons:

• Surcharging can be seen as a negative practice by some customers, who may prefer to shop at businesses that do not surcharge.
• Some states have specific requirements that must be met for businesses that choose to surcharge, which can make implementation more complicated.
• Surcharging is not allowed for debit card transactions.

Cash discounting

What is cash discounting?

Cash discounting is a practice where a merchant offers a discount to customers who pay with cash or check, rather than with a credit card. The discount is typically a percentage of the transaction amount, and it is subtracted from the total cost of the purchase.

How does cash discounting work?

When a customer pays with cash or check, the merchant applies a discount to the transaction. The discount is typically a percentage of the transaction amount, and it is subtracted from the total cost of the purchase. The merchant must disclose the cash discount amount to the customer before the transaction is completed.

Pros and cons of cash discounting

Pros:

• Cash discounting can be an effective way to save on credit card processing fees.
• Cash discounting can be seen as a positive practice by some customers, who may prefer to shop at businesses that offer cash discounts.
• Cash discounting is legal in the United States.

Cons:

• Cash discounting can be complicated to implement, and it may require changes to the point of sale system.
• Some customers may be confused by the cash discounting process and may not understand why they are being charged more for using a credit card.
• Cash discounting is not allowed for debit card transactions.

Which option is right for your business?

When it comes to choosing between surcharging and cash discounting, there is no one-size-fits-all answer. Both options can be effective, but they operate in very different ways and have different pros and cons.

Surcharging can be a good option for businesses that want to offset the cost of credit card processing fees. However, it can be seen as a negative practice by some customers, and it may require businesses to comply with specific state regulations.

Cash discounting can be a good option for businesses that want to incentivize customers to pay with cash or check. However, it can be complicated to implement, and some customers may be confused by the process.

Ultimately, the decision between surcharging and cash discounting will depend on your business’s specific needs and goals.