With the rising popularity of surcharge and cash discount programs, it is clear why more and more business owners find them appealing. However, a cash discount program is not the same thing as a surcharge, and here’s why.
What is a Cash Discount?
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A cash discount program happens when a business offers a discounted price to customers if they pay with cash for products instead of a credit card. There are many reasons business owners use this program, but the primary one is that cash is much simpler to process than credit cards because there is no intermediary. Not to mention that a cash discount program is legal to use.
Business owners can eliminate fraud or chargebacks by using a cash discount program. These charge reversals are not only costly, but they can be harmful to a business in the long run. Moreover, every time a merchant initiates a chargeback, it may negatively affect the business. The good news is that a business can eliminate the worries of chargebacks with a cash discount.
Then again, one of the biggest purposes of a cash discount program is that business owners do not pay merchant account payment processing fees. The payment they receive in cash will go directly to their cash register without ever incurring any added fees, rates, or percentages.
What is a Surcharge Program?
On the other hand, a surcharge program charges a fee to those who use credit cards. By charging credit card users extra money, business owners will recover the processing fees directly from the customers. Such a program does not affect cash payments, debit cards, or corresponding digital payments, but it can only be used for credit card payments where the processing fees would apply.
However, while surcharge programs are popular amongst many business owners, it is frowned upon by credit card companies because they don’t want credit card users to support the cost of the transaction. In some states, business owners face regulations that prevent them from using traditional surcharging methods. Surcharge laws tend to be elaborate and are only permitted in some of the 50 states, so it is essential to learn the laws before considering adding a surcharge.
Merchants must notify their credit card processor and car association about their decision to use a surcharge program within 30 days before beginning charging. Business owners cannot charge more than 4 percent to a customer.
The Difference Between Cash Discount and Surcharge Programs
In theory, there are a few differences between cash discount and surcharge programs. With a cash discount program, business owners will decrease the costs for cash users, whereas a surcharge program increases the costs for credit card users. A significant difference is the amount of compliance. But more than just the regulations and compliance cause general issues with surcharging. Because surcharge fees are uncommon, the additional costs could offend customers.
It could be a better idea for service providers and business owners to offer a 100 percent legal cash discount for their customers. Highlighting the cost-saving measures of using a cash discount program will put the transaction in a better light, making customers more willing to accept it and, better yet, revisit the business for more discounts.
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