What’s the Difference Between Cash Discount and Surcharge Programs?

If you're a small business owner looking to recover credit card processing fees, you've probably come across two common strategies: cash discount and surcharge programs. While they both help offset fees, they work in opposite ways.

Let’s break down what they are, how they differ, and which one might work better for your business.

What Is a Cash Discount Program?

A cash discount program offers a lower price to customers who pay with cash. Prices are marked slightly higher to include processing costs, and customers who pay with cash get a discount at checkout.

It’s legal in all 50 states and widely accepted by customers when clearly explained. This method rewards people for using cost-saving payment methods.

Example:
Menu price is $10. Credit card customers pay $10.
Cash customers get $0.50 off and pay $9.50.

What Is a Surcharge Program?

A surcharge program adds a small fee (usually around 3%) to credit card transactions to cover processing costs. It’s only applied to credit card payments—never debit.

Surcharges are legal in most states but not all, and they’re regulated by card brands like Visa and Mastercard. Businesses must post clear signage and follow specific rules to stay compliant.

Example:
Item price is $10.
Credit card customers pay $10 + $0.30 = $10.30.
Cash and debit customers still pay $10

👍 Pros and Cons

✅ Cash Discount

Pros:

• Legal everywhere

• Easy to explain as a discount

• Applies to all customers

Cons:

• Slight price increase across the board

• Needs clear signage and training

✅ Surcharge

Pros:

• Only credit card users pay the fee

• Keeps base prices unchanged

• Can be more precise in fee recovery

Cons:

• Not legal in all states

• Can feel like a “penalty” to customers

• Must follow strict rules

🧐 Which One Is Right for You?

If you want a simple, legal-in-every-state solution that rewards cash-paying customers, cash discount might be your best bet.

If you want to recover exact fees from credit card users only and are in a surcharge-legal state, surcharge programs give you precision—but require extra compliance work.

Either way, both programs help protect your profit margins without absorbing rising processing costs.

People Also Ask

1. What is the difference between a surcharge and a cash discount?

A cash discount reduces the price for cash-paying customers, while a surcharge adds a fee to credit card purchases to cover processing costs.

2. What are the disadvantages of surcharge programs?

Surcharge programs aren’t legal in all states and may cause customer frustration. They also require strict compliance with signage and card brand rules.

3. What are the disadvantages of cash discounts?

Cash discounts require you to mark up prices slightly for everyone, which could lead to some customer pushback if not communicated clearly.