The procedure of credit card processing is becoming increasingly expensive for global merchants. This holds especially true for small-scale businesses having tighter budgets. It is also difficult for small businesses that are not capable of bringing much revenue then the larger competitors. Through the acceptance of credit cards, businesses tend to face the overall financial burden of going through interchange fees –also referred to as the swipe fees. On an average, the interchange or swipe fees are known to range around 1 to 4 percent. With the passage of time, they can significantly convert profits into a source of loss for small-scale businesses.

Due to this, most small-scale businesses tend to look out for solutions for accepting credit cards, but avoiding the interchange fees on a monthly basis. The solution to this dilemma had been recently resolved through the formulation of lucrative cash discount programs that had been federally given authorization across all 50 states in the year 2011. Still, there are some confusions as to the definition of a cash discount program and how it tends to vary from the concept of a surcharge.

Let us help you understand the differences between a surcharge and a cash discount program that you need to know. 

What is a Surcharge?

A surcharge serves to be a typical charge or fee that gets added on the respective price of products or services. It usually gets added towards the ongoing tax. Around 40 states in the United States of America alone allow surcharge fees to the customers paying through credit card. The surcharge gets added for providing the privilege of the credit card. Usually, surcharges are known to be based on a particular percentage of the entire price of products & services before the assessment of the taxes. 

What is a Cash Discount Program?

A typical cash discount is known to occur when the merchant will be decreasing the prices for proper cash purchases. It also offers the merchants a secure alternative to the process of credit card processing. The respective cash discount programs cannot be regarded as credit card surcharges. This is because credit card discounts do not levy a fee that gets added to the respective credit card transaction.

There are several confusions that revolve around the concept of cash discount programs. This is because people tend to associate the same with surcharge programs. A cash discount program is known to work by imposing a small customer charge or fee on all the customer transactions. The given fee gets removed when the customer will be paying with cash or in the form of in-store gift cards. An ultimate cash discount technology will help in automatically determining the discount demands or the service fee depending on the type of payment. Cash discount programs that are legal should be capable of presenting clear details of the receipt regarding the amount of cash discount or the service fee. 

Usually, the service fees are collected by the respective technology provider who is then responsible for paying off the credit card charges on the merchant’s behalf. This helps in essentially removing the requirement for any complex or back-end accounting statements. The merchant will usually observe the respective credit card fees. This helps in dramatically reducing the small amount of technology fee that is required to be paid at the end of every month. 

While the state laws might vary for different surcharge programs, there is still not the presence of a direct language that prohibits the merchant from implementing the cash discount program. This stands true until the customers will be notified before the respective purchases.

The Implementation of a Legal & Successful Cash Discount Program

For the successful implementation of a cash discount program that turns out to be successful, a merchant is expected to overcome the overall confusion. The merchant should also question the consumers as well as employees to come up with a surrounding cash discount program.

At its minimum, a merchant is expected to offer a single point of notification at the least before the sale that there is going to be a service fee that will be applied to the respective sales. Moreover, the customers should also be notified that a discount will be given in case the payment is made through cash. Several points of notifications are suggested –including the door, store register, and across the establishment as per the need.

In addition to this, the reference to the program should be made at the point of sale verbally. It is important to make use of the right language. The language should clearly indicate that the given service charge is applied to all the respective transactions. It is also advised that the merchant should possess instant reference information to offer to the customers in case they have any doubts. 

In comparison to surcharge programs, dedicated cash discount programs are observed in the better light. Moreover, the concept is also known to fare better with the end consumers. There is a misconception that the cash discount program will be prohibiting the overall sales in case the customer will not be carrying around cash. However, it is an unbiased fear. In all possible cases, the volume of credit cards has remained consistent while also increasing on a monthly basis. There have been reports that the customers tend to disregard the respective convenience fee in as many as 99.2 percent of transactions.