There are many companies that are offering cash discount credit card processing in order to help eliminate credit card processing fees. When this is done correctly, it’s legal and permitted in your merchant agreement. However, there can be some confusion between surcharges and cash discounts. The confusion has led to categorizing a surcharge program as a cash discount program. 

Surcharge Vs. Cash Discount

A cash discount is when credit card prices are posted and a business offers a discount on the price for a customer who pays with cash. A surcharge is when you post the cash prices but charge an extra fee on top of that for any customers who pay with a card. In the first case, customers pay less than your listed price. In the second, the customers are paying more. If you are charging more than your listed price then it is a surcharge, no matter what it is being called. Even if your processor tells you, you are adding a service fee, and it is still considered a surcharge. These differences seem minor, but it’s important in terms of compliance and legality. If you get it wrong, it means your merchant account could be shut down, or your risk fines. 

Why Does the Distinction Matter?

There are two reasons why this distinction matters. There are states where surcharges aren’t allowed and there is also a prohibition on surcharges on debit cards. 

Cash discounts in the true form are allowed in all 50 states, but there are some states that have laws against surcharge programs. These states are Oklahoma, Massachusetts, Maine, Kansas, Florida, Connecticut, and Colorado. These laws have come under scrutiny recently and there are states that have gone to court over the laws. While laws may change in the future, you have to check with the state Attorney General for the latest information on surcharges. 

Surcharges aren’t permitted on debit cards. This is true even if you are running one as credit, and it’s not permitted even in states where a surcharge is legal. If you are adding it to a debit card transaction, even if you are calling it something different, you could risk negatively affecting your merchant account. 

How to Tell if a Processor Is Offering a Surcharge Program

Many processors seem to be offering cash discount credit card processing, but it’s really a surcharge program. If you see a reference to a service fee or non-cash adjustment then it’s a surcharge program. Processors that offer a surcharge program may say that your business lists cash prices and then adds fees for customers. If you aren’t posting the credit card prices and offering the cash discount then it’s surcharging. 

Should You Implement a Cash Discount?

For many businesses, there isn’t any harm in offering a cash discount if you have set prices to account for cards. This just means you are passing the processing fee savings to the customer. Some customers may think that a business that prefers cash is not properly paying taxes, and that can impact your perception, but for the most part, it’s not a problem as long as it’s done correctly.