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Understanding Cash Discounts and Surcharges: What Business Owners Need to Know


In recent years, cash discount and surcharge programs have gained popularity among business owners as a way to manage payment processing costs. However, before implementing either of these programs, it's crucial for business owners to have a clear understanding of the key differences between them, comply with card brand regulations, and avoid potential penalties. In this article, we'll delve into the distinctions between cash discounts and surcharges and provide insights into their implementation.

Cash Discounts vs. Surcharges - A Clear Distinction

  1. Surcharges: A surcharge is an additional fee added to a credit card transaction to offset the costs associated with credit card processing. In this scenario, customers pay more than the advertised price when using a credit card.

  2. Cash Discounts: On the other hand, a cash discount is a reduction in the total amount a customer pays when using cash as the payment method. Customers receive a lower price than the advertised one when they opt for cash payment.

It's important to note that if a fee is added at the register, regardless of how it's labeled (e.g., "service fee" or "non-cash fee"), it qualifies as a surcharge. Visa specifies that while merchants can offer discounts for cash payments, these discounts must be presented as a reduction from the standard price.

Surcharges vs. Convenience Fees or Service Fees - Clarifying the Terms

  1. Convenience Fee: This fee is added to a transaction to account for the convenience of using an alternative payment channel that is not the standard method for the business. For instance, movie theaters may charge a convenience fee for online ticket purchases. No fee is applied when paying in person at the ticket booth because that is the standard payment method. It's important to note that each card brand has its own rules for compliantly assessing a convenience fee.

  2. Service Fee: This fee is added to a transaction as compensation for providing a specific service. It is generally limited to specific merchant categories, such as education and government merchants.

Implementing Cash Discount and Surcharge Programs

Cash Discount Program Implementation:

Implementing a cash discount program is straightforward and does not require registration or specific regulatory requirements. It is legal in all 50 states when executed correctly. Some common examples of cash discount programs include:

  • Using a dual pricing model with separate cash and credit/debit prices (often seen at gas stations).

  • Advertising credit prices and offering a discount if the customer chooses to pay with cash.

However, it's worth noting that some approaches, like disclosing a customer service charge at the register and waiving it for cash payments, may be considered non-compliant.

Surcharge Program Implementation:

Implementing a surcharge program involves certain requirements and notifications to card processors. Here are the key steps:

  1. Notify your payment processor, like Payment Logistics, at least 30 days in advance of your intent to surcharge.

  2. Display proper signage indicating the surcharge at your business's entry and point of sale.

  3. Surcharges can only be applied to credit transactions, not prepaid or debit card transactions (including signature debit).

  4. The surcharge amount must not exceed your true credit card processing cost or 3% of the transaction total.

  5. The surcharge must be itemized as a separate line item on the customer's receipt and included in the authorization request and settlement process.

Note: Surcharging may be prohibited or subject to limitations in some states, so it's essential to research and understand the regulations in your region.


Cash discounts and surcharges can be effective strategies for managing payment processing costs, but it's crucial for business owners to comprehend the distinctions between these programs and adhere to card brand regulations. By implementing these programs correctly and transparently, businesses can strike a balance between cost savings and customer satisfaction while staying on the right side of the law.