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Cash discount programs and surcharging are pricing models that benefit merchants. They are able to help merchants save a lot, with both models imposing certain fees that help offset processing fees merchants are charged. However, both models are different, and each have their own pros and cons. Read on to find out more whether a cash discount program or surcharging is more suitable for your business.

Difference between a Cash Discount Program and Surcharging

Surcharging simply means that a fixed surcharge will be added at checkout to the advertised price if transactions are made by a credit card. Customers who pay with other methods like debit card, cash and more do not have to cover the surcharge. Surcharges within the U.S. should not be more than 4 percent. Similar to a cash discount program, surcharging helps to eliminate additional processing fees for the merchant as they are covered by the consumer.

For example: Let’s say a consumer walks into your store and agrees to pay the advertised price for a $10 product but as they go to pay with a credit card they are told there’s an additional 4% surcharge for paying with cards. This brings their new total to $10.40. Some customers are ok with that since its a growing trend and a small percentage, however some may not appreciate the surprise fee at checkout. You’ll win either way because you’ll still offset your processing fees, but the overall customer experience can be a little worrisome depending on your business type.

A cash discount program bundles the processing fees ahead of time into every advertised price within the store of the merchant. So whenever a purchase is made with a card the agreed upon price already covers the processing fees. However, if a customer chooses to pay with cash they are given a discount off the advertised price.

For example: Now let’s say that same consumer walks into your store and agrees to pay the advertised price for a $10 product but as they go to pay you give them the option to receive a discount by paying with cash, bringing their new total to $9.60. Who doesn’t love a discount? The customer appreciates the opportunity but doesn’t have cash on them so they agree to pay the advertised price by card. However now they know that next time they shop at your store you’ll give them a discount if they bring cash! Your customer wins and you win because your processing fees were already bundled in your advertised price leaving you to pay $0 at the end of the month!

As these two models are becoming increasingly popular, some payment processors begin to use these terms interchangeably. However, there are key differences between the two models. As long as there is full disclosure of the surcharges applied, and the surcharges are applied correctly to all non-cash payments, merchants are compliant with industry guidelines.

Is a Cash Discount Program or Surcharging Better?

The simple answer is: it depends on your business model. As cash discount programs are legal in every state, it is easier to implement. They are also simple to explain and can help merchants eliminate card processing fees. Surcharging can only be applied to payments made by credit cards and are not available in all states.

If you are thinking about implementing a cash discount or surcharging program for your business, TITAN Merchant Services can help. With 30 years of experience in the industry, we are the leading option when it comes to customized payment solutions. Not only do we have the best rates, but we are also transparent and honest with all our consumers. Our friendly staff team will not hesitate to help you determine which program is best for your business model. Contact us to find out more about the programs we offer today!