Cash Discounting vs. Surcharging

There is growing confusion about the difference between surcharging and cash discounts. That can potentially lead to problems, for those who misunderstand and inadvertently violate the respective rules and regulations that apply to these transactions. But the differences aren’t that hard to understand, and compliance  can be easy once you are familiar with the concepts and procedures.

Cash Discounts

The term “cash discount” refers to situations where the merchant displays prices for an item but then gives the cash-paying customer money back at the point of sale. If a widget sells for $100, for example, and a merchant hands a dollar back to all customers who pay for that item in cash, that’s a cash discount. By law, any cash discount must be clearly itemized on the receipt. The customer can still pay the $100 by other means, such as a credit card or check. But if they do they don’t get that dollar refunded at the point of sale. Visa release a bulletin in 2018 revealing that many programs marketed as “cash discount” are non-compliant with their rules.


Surcharging, on the other hand, only applies to credit card transactions and never involves giving a refund or money back. Instead, a fee is added to cover the merchant’s credit card processing fees. The surcharge is an amount over and above the sales price of the product or service. In other words, customers agree to pay slightly more for the item in exchange for the convenience of using a credit card. The amount they agree to pay is equal to the merchant’s card processing fee that’s levied by companies like MasterCard and Visa. It is also important to understand that surcharging cannot be done when the customer uses anything other than a credit card. Debit cards cannot be subject to surcharging. That’s true even if the customer agrees to have the debit card processed as a credit card transaction.

Eliminate Credit Card Processing Fees Today

Accept Credit Cards at 0% Cost, Keep 100% of Every Sale


Control the Risks

Because it can sometimes be to difficult for cashiers to recognize the difference between payment types, merchants can find this whole system very confusing. But a merchant who knowingly or unknowingly violates the rules runs the risk of having their credit card processing accounts closed down. They may face stiff penalties and fines imposed by credit card processors like Visa and MasterCard, or by regulatory agencies.

They may also be added to a data base of merchants whose accounts have been terminated for violations. Once that happens it may be much harder to open a new account to accept credit cards. Typically, the easiest and most reliable solution for a merchant is to use a turnkey, plug-in software that identifies credit cards and applies the surcharge automatically. These technologies ensure that all the rules are properly followed.

Ensure the Rewards

Before engaging a vendor, make sure that they can also provide the signage that is legally required for display in businesses that use surcharging. The vendor should guarantee that its system is compliant with all credit card processing guidelines and laws. That removes the risk while preserving all the rewards – which can be substantial – for both merchants and customers who like more options and transparency. Merchants who institute a legal surcharging policy can retain 100 percent of their credit card transaction sales, with no more merchant fees.