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Cash Discounting vs. Surcharging: What Merchants Need to Know. Save on Processing fees!

Updated: Feb 11, 2022

With the costs of doing business continuing to rise, merchants are looking for flexible solutions to reduce their expenses. Some have turned to implementing cash discounting and surcharging programs to boost their bottom lines. While you’ve likely heard of these programs as their popularity has risen recently, you may be in the dark as to how they differ. In this article we explain exactly what cash discounting and surcharging are, the differences between the two, as well as the benefits and risks to consider.

What Is Cash Discounting?

Cash discounting is when you offer a discount to customers who pay with cash. This can be done in one of two ways:

Cash Discount You raise all of your prices to help with increasing business expenses, then offer a discount to customers paying with cash. Reverse Cash Discount You enact a policy to add a checkout fee on all purchases at your location, while offering a discount to customers who pay with cash. The checkout fee helps cover your increased business expenses, including credit card processing fees—greatly reducing or potentially eliminating those fees.

How Does Cash Discounting Work? If you were to offer a cash discount at your business, you’d increase your prices by a specific amount. Advertised prices are for customers who pay with credit cards. Then, for customers who pay with cash, you’d offer them a defined discount. You may display signs advising customers that they’ll receive a discount if they pay with cash, but it’s not necessary to display signage informing customers of the increased credit card prices. All advertised prices are for customers who pay with credit cards.

When a customer pays with a card, you ring up the advertised price. When a customer pays with cash, you apply a cash discount to the purchase.

What Is Surcharging? Surcharging is when you add a fee to all purchases paid for with a credit card. This fee helps cover part of your credit card processing costs. One of the most common questions about surcharging concerns its legality. According to Visa, several states have laws that prohibit or limit surcharging, including Colorado, Connecticut, Maine, Massachusetts, and Oklahoma. Understanding the surcharging laws in your state and abiding by them is critical for your business’s continued success.

How Does Surcharging Work? If your business is located in a state where surcharging is legal, you may choose to enact a policy of adding a surcharge on all credit card purchases at your location. There are limits on surcharge amounts and you can only assess a surcharge on purchases made using a credit card. Transactions completed with a PIN, signature, or prepaid debit card may not be surcharged. Additionally, you’re required to hang signage advising customers of the surcharge at both your point of entry and your point of sale.

What Is the Difference Between Cash Discounting and Surcharging? The main differences between cash discounting and surcharging are:

  • Cash discounting is legal in all 50 states, while surcharging is prohibited in some states.

  • Cash discounting does not require you to register in advance with the major card brands, but if you want to enact a policy of surcharging, you must register in advance.

  • Cash discounting can be used with credit, debit, PIN, and swiped transactions, while surcharging is only allowed on credit card payments.

Cash discounting and surcharging achieve the same objective of reducing your overall business expenses, including credit card processing costs. But surcharging is a fee, which has a negative connotation, while cash discounting is just that—a discount.

What Are the Benefits of These Programs? Benefits of cash discounting and surcharging to your business are myriad, including:

Lower processing fees The main reason for implementing a cash discount is to save on your payment processing costs. With cash payments, there are no merchant processing fees. For small businesses and merchants whose transactions are typically lower dollar amounts, this can add up to significant savings. A reduction in friendly fraud Since customers who pay with cash will not receive a credit card statement weeks after visiting your business, there’s no chance of them initiating a chargeback for a valid purchase they don’t remember making. Friendly fraud, also known as chargebacks, can be a frequent drain on your time and profits. What’s worse, every time you receive a chargeback, it reflects poorly on your business. If you receive too many chargebacks, it could result in a high chargeback ratio and the need for a high risk merchant account. Boosting repeat business A cash discount program can be a smart way to inspire repeat business. For first-time patrons, they may be more likely to come back because they’re attracted to the idea of saving money when paying with cash—this may be especially tempting for bigger ticket items! And for your loyal customers, they’ll likely appreciate knowing you offer a cash discount to plan ahead for their next visit.

Are These Types of Programs a Good Fit for Your Business?

While surcharging is restricted to certain states, cash discounting is legal and available in every state thereby making it accessible to virtually any type of business. One point to consider in thinking about offering a cash discount is how you’ll inform customers of the two potential prices, one total if they pay cash, and another if they pay with a card. Merchants who work in the field, such as locksmiths, plumbers, and electricians may manually calculate the two totals and provide a quote. Restaurants, including delis and counter-service establishments, may want to list cash and non-cash prices on their menus.

Another consideration is your point of sale system. You’ll need a way to quickly and simply ring customers up no matter how they pay. With Electronic Payments’ Exatouch®, ProCharge®, and Clover® offerings, the solutions can be programmed with cash discount amounts, making it easy to apply the discount at the time of the sale. Additionally, you can take advantage of the solutions’ reporting capabilities to reconcile daily deposits and monthly statements that show processing volumes by payment method.

Exatouch Point of Sale is particularly well suited to offering a cash discount program. The POS hardware bundle includes a 10” touchscreen customer facing display (CFD), making it clear for customers to see the difference between the cash and non-cash totals automatically calculated at the bottom of the screen. With this information, patrons can make an informed decision about how they want to pay. Maybe they’re not sure if they have enough cash to cover the total, so they’ll choose to pay with a credit card instead. Showing customers the prices up front is part of providing top-notch service—and can help keep the line moving.

The example below shows what a customer would see on Exatouch’s CFD.

Potential Difficulties to Weigh Even when you implement a compliant cash discount or surcharge program, you may run into complications. It’s worth mulling these risks over to be sure you’re proceeding with caution.

  • Besides the extra regulations and compliance associated with surcharging, this type of fee is uncommon and you risk upsetting customers by adding an extra cost to their purchases. It’s likely better to incentivize customers to pay with cash than increase the cost for credit card users. A cash discount program awards customers who pay with cash with a savings. A cash discount program can be a better option over a surcharge.

  • If you want to participate in a surcharging program, you must register in advance with the major card brands, and it can take up to 30 days to go into effect.

  • Credit card usage may remain high. Customers often find paying with cards easier and more convenient, and many will choose to continue using them, even when offered a discount to pay with cash. In this event, you may not end up with the savings you’d hoped for.

  • Training is more involved. You’ll need to explain what cash discounting and surcharging are to your employees. We make it easy for your customers with our Exatouch dual price customer facing screen. Customers can easily see both the cash and non-cash prices. Your team will also need to be ready to answer customers’ questions, as many are unfamiliar with these types of programs.

  • Accepting cash requires more labor. You or one of your managers will need to physically deposit cash payments. Additionally, you must have an adequate amount of change at the ready for a potential increase in cash-paying customers. Counting cash payments and the change needed may take more time than processing a card payment, which can increase checkout times and aggravate your customers.

  • Generally, customers spend more when they’re paying with credit cards than they do with cash.

  • Security risks could increase. If you have a large amount of cash on hand, you may be more vulnerable to theft or loss.

Cash discounting and surcharging can be effective ways to reduce your overall business expenses and payment processing fees—and now you understand how they work, the differences between them, as well as their accompanying benefits and risks. If you’re interested in learning more about these programs and how our POS solution software does the work for you and how we can help you implement them, schedule a complimentary demonstration.


The Clover name and logo are owned by Clover Network, Inc. a wholly owned subsidiary of First Data corporation, and are registered or used in the U.S. and many foreign countries. Merchants must review, understand, and govern themselves in accordance with their state’s laws pertaining to surcharging and cash discounting programs. Though all 50 states allow cash discounting, each state may have different laws regarding proper implementation. With Surcharging, there may be specific state laws to follow during implementation, in addition to the card brands’ rules and regulations.

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