What's the Difference Between Cash Discounting and Credit Card Surcharging?

One drawback to accepting credit and debit card payments in your business is the fee charged for every transaction. In exchange for the processing services, your merchant services provider or payment facilitator charges a fee every time someone pays that way. For some businesses, this creates a frustrating cut into profits. If you want to push people toward making more cash payments, you can incentivize that with either a credit card surcharge or a cash discount. Before you do, though, you need to understand the legal and business implications of either.

Credit Card Surcharging

A credit card surcharge is a fee you add to the price of an item at the point of sale. This is designed specifically to help cover the processing fees you are charged. Your processing company will have some limitations on when you can do this; most have some requirement that you cannot discourage customers from paying with cards. You need to consult your contract to determine whether and how you can add surcharges.

In addition, some states have laws that limit your ability to add a surcharge to card payments. At the very least, you need to disclose it to your customers at the point of sale and on their receipt. Depending on where you do business, the practice may be illegal. Work with a lawyer or a business organization that can help you work through the laws that govern your company before you consider implementing it.

Cash Discounting

One alternative that accomplishes the same thing is cash discounting. If you don't want to add a surcharge, or can't legally do so, you can offer different pricing for payments in cash. Again, you will need to disclose this to your customers, usually by posting both a credit and a cash price on each item.

Offering a cash discount usually helps you get around the laws and rules that limit or prohibit card surcharges. It also gives your cash-paying customers a sense that they are getting a deal, something much more positive than what a surcharge gives them. You may create customer satisfaction while helping your own bottom line.

The Down Side of Either

The main drawback of pushing customers toward cash payments is that they are likely to buy less. Today more customers carry cards for major purchases, and they are less likely to add items to their orders when they are paying in cash. Beyond this, either practice can give customers who do not carry cash a sense that they are being penalized. You risk driving away business that would be worth more than the card fees you are losing.

The best practice is usually to include the cost of fees as a part of your pricing model. While a surcharge or a cash discount can help you cover the transaction costs that your services provider includes, either one risks driving business away. Factor in fees when you set your prices for your best profitability.

What's the Difference Between Cash Discounting and Credit Card Surcharging?

About the Author

Christine Poliquin, AVP, Partner Development Group

Christine started with Nuvei in sales in 2005 and has since held many roles, including sales, recruiting and relationship management. She combines her infectious personality, patience and meticulous planning skills to cultivate strategic partnerships and recruit top-notch talent.‍

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