Cash Discount vs. Surcharge

Written by Jamal Gary

December 13, 2022

Previously, we mentioned that having a merchant account is beneficial because it gives customers the flexibility of multiple payment options. Some like to pay cash, others prefer credit. Making sure to have these options helps businesses to increase revenue.

In accordance with having a merchant account, another part is understanding various discounts that cover the cost of processing credit card payments. Let’s talk about some ways this can be put into perspective.

Cash Discounting

Cash Discount is when the merchant passes on the cost to process a card payment to the customer. They advertise a price that factors in the 4% processing fee, however the fee can be deducted for customers who pay with cash.

This gives customers an incentive to use cash instead of credit, you give them a small discount. Getting a discount is something that customers do like to receive.


How many times have we gone to the gas station and seen two different prices? They will have a cash and credit price. This is very common; posted prices are assumed to be the credit card price. With technology a card reader offers the customer the chance to continue the sale at the posted price or pay the cash amount displayed. A discount is then applied at the register for people paying cash.


One thing I want to bring clarity on is a surcharge is a fee added to a credit card transaction. The customer pays more than the advertised price.

Cash Discount- is a discount applied to the total amount when a customer pays less than the advertised price.

Cash Discount vs Surcharging

Now that we know what a cash discount and a surcharge is. Let’s put both programs up and see how they measure up. Is there one better than the other?

Cash Discount

Business owners use this program for many reasons. It’s easier to process credit cards, and having a cash discount program is legal in all 50 states.

Also using this program provides an incentive for customers to spend more since there is a small monetary discount.

Benefits Of Offering Cash Discount

  • By having this discount, you can eliminate the worry of charge backs. A charge back occurs in the customers processing bank. Whereas with cash you are cutting out the bank’s influence. Using this process, you’re ensuring the transaction runs smoothly.

  • You don’t have to pay merchant account processing fees. The payment received goes directly into your cash register. For smaller businesses that process smaller transactions this can produce a great deal of savings.

  • Cash Discounts Diversify: This can be a marketing tool that your business can leverage to attract new customers. When customers walk into your business for the first time, they may be more likely to return because of the added benefit. This does not limit ways to pay, which is great for your bottom line.

Surcharge Society

Now in the other corner we have a surcharge society. By charging credit card users an extra 4%; you can recover the processing fee directly from your customers. It ensures that you can charge the base price for a product without having to factor in losses from credit transactions.

Surcharging does not affect debit cards, cash payments or digital payments.

In some states such as Connecticut and Massachusetts you can’t use a surcharge program.

Regulations on Surcharges

If you decide to proceed with this program, you must notify the credit card processor and association thirty days before you begin charging. Also, you can’t charge more than 4% to a customer. The percentage must be the same for all credit cardholders, regardless of the type of credit card. Make sure to tell your customers about the additional surcharge.

What’s best for my business?

It can be hard to decide between a cash discount and a surcharge program. One way to help your decision is to see what your competition is doing. Do they require a minimum purchase amount to use a credit card without a fee?

It’s good to stand out from your competition, but make sure it’s in a good way. Consider your organization’s business structure before mixing it up.

In deciding to operate in a surcharge or cash discount, it’s important to find out what works for your distinct business. These benefits and explanations will give you more information to be more competitive. You were able to see some benefits and go from there.

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