Businesses of all kinds are more actively considering ways to decrease cost. Decreasing cost and increasing profit have always been key considerations for owners and operators, but in the current economic environment the margins are thinner and the ability to make adjustments will mean success or failure for many.
One of the more complicated and frustrating expenses businesses face is the cost of accepting payments. Cash discounting and surcharging programs have increased in popularity lately, but are these options right for your business? Many restaurant operators worry if a fee is imposed to their guests for paying with a credit card that those guests may not return. Concern is also common when considering surcharging or cash discounting in other business concepts simply because of the lack of clear understanding and potential legal ramifications.
Cash discount is when a business posts prices for goods and services that apply if a customer pays with a credit card and then offers a discount if the payment is handled with cash.
Surcharging is when a business posts cash prices and then applies an additional fee for paying with a credit card.
Both options are legal (with restrictions) and businesses are allowed to implement either solution as long as proper guidelines are followed. Businesses can benefit tremendously in cost reduction as long as the guidelines for both programs are understood and adhered to. There are processing companies providing these services incorrectly which can put their merchants at risk. We simplify the guidelines and problems businesses can face if these rules are not followed below.
Key Considerations and Guidelines
When interviewed by CardFellow, a popular payments industry site, Visa said in regards to cash discounting “A discount for cash is different from a surcharge. The rule states the posted price must be for cards, however, merchants can provide a lower price for cash acceptance. Discounts for cash are allowed by Visa. However, merchants are not permitted to post a price for cash, and then charge a higher price for cards.”
This is the most important rule of cash discount programs, to be sure your pricing is posted properly if using this option to reduce your card processing fees. Cash discounting is available in all 50 states.
Surcharging has a few more guidelines to be aware of, and as of the start of 2019 is currently not allowed in Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, and Oklahoma. California has been added to this list since, and the list continues to see potential changes coming. Talking to your trusted legal representative before implementing a surcharge program is recommended.
In addition, surcharges are never permitted on debit cards. This is true even if cards are used without a PIN or “run as credit” and even in states where credit surcharges are legal. Visa’s FAQ on surcharging clearly spells out that surcharges cannot be applied to debit. You cannot apply a fee above the listed price to a debit card, no matter what the fee is called.
When considering the implementation of a surcharge program as well, businesses need to be prepared to notify all card brands that they will be doing so. Posting customer signage is required also, and any surcharge cannot exceed 4%.
In summary, the consequences for breaking cash discount or surcharge rules can be serious. Non-compliance can lead to the loss of your payment processing account.
For violations of the card brand rules, businesses can be fined $1,000 per occurrence, increasing to $5,000, $10,000, and $25,000 per occurrence for repeated violations. Ultimately, the business may be added to the Terminated Merchant File (“TMF,” or MATCH list) which makes it difficult to secure a merchant account from any processor in the future.
Implementing a true cash discount program can be a good way to reduce processing costs with less regulation than surcharging. Businesses just need to display pricing and signage correctly and be aware that some customers may have a negative view of cash discounting and want an explanation.
By contrast, surcharge programs add a fee at the time of checkout. Some surveys indicate the customers react negatively to added fees, so businesses may find more resistance to a surcharge program than to a cash discount program.
Both surcharge and cash discount programs have tremendous financial benefit to a business when it comes to reducing cost if they are implemented properly and when customers of the business are educated about what to expect and why. Probably the most important consideration for businesses looking to reduce cost utilizing cash discount or surcharge programs is to implement them with a processing company you know and trust.