Credit card processing is killing merchant margins, especially small business margins. Cash discounts and surcharges are two ways that merchants can re-coup some of their processing costs.

The incentive for the merchant is evident- a reduction in processing costs. However, the challenge is finding and implementing a cash discount program that is compliant and will remain compliant amid ever-changing laws and regulations.

Merchants need to understand the difference between a cash discount and a surcharge to make an informed decision.  A surcharge is a charge added to the price of a good or service added towards an existing tax.1

Surcharge fees apply to transactions where the customer chooses the convenience of using a credit card. Surcharges are a specific percentage of the total price of goods or services before taxes. Surcharge fees are prohibited in seven states and cannot exceed 4% or the merchants’ effective rate.  To calculate your effective rate, IntelliPay offers a free calculator here.

A compliant cash discount program requires a merchant to post and advertise credit prices. Credit prices include the costs of processing credit cards. When a customer pays with cash or in-store gift card, there is a decrease in the price taken at point-of-sale.   Legal cash discount programs present a clear receipt detailing the fee or cash discount amount. Cash discount programs are not credit card surcharges because they do not levy a fee added to a credit card transaction.

Cash discounting is complex, and the results for being non-complaint can be severe.  Intelligent payment platforms with compliant cash discount technology automatically determine the fee or discount amounts depending on the payment type.

The fees are collected by the payment platform, with the technology provider paying the credit card charges for the merchant. The merchant realizes a dramatic reduction in credit card fees and pays a smaller technology fee each month.

State surcharge laws vary by state.  Currently, there isn’t any language prohibiting a merchant from implementing a cash discount program as long as consumers receive notification before purchase.

Why it Matters

Cash discounts are permitted in all 50 states, whereas surcharging is prohibited in Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, and Oklahoma.

Often people associate cash discount programs with surcharging, and that has caused much confusion.  Recently there has been an increase in non-compliant cash discount programs. When asked about cash discounting, Visa made the following clarifying statement:

“A discount for cash is different from a surcharge. The rule states that 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.”

The authority on cash discounting is in the Durbin amendment of the Landmark Dodd-Frank  Act.   The amendment states that businesses are permitted to offer a discount to customers as an incentive and to encourage customers to pay by alternative methods other than credit/debit cards. Such alternative methods include checks or cash to receive a discount applied at the time of sale.

When A Cash Discount Program is Non-Compliant

Cash discount programs are non-compliant when they post cash prices, but then add a fee at the point-of-sale.  This type of cash discount program falls under card networks surcharging rules making the program non-complaint.

The Penalties are Severe

A non-complaint cash discount program risks fines and the loss of your merchant account.   Fines start at around $1,000 per occurrence and can increase up to $25,000 per occurrence for repeat violations.

Implementing A Compliant Cash Discount Program

To implement a cash discount program, merchants need to overcome the confusion and questions from consumers and employees that will naturally arise.

A merchant must provide at least one point of notification before completing a sale that there is a fee applied to all purchases and a discount given for cash payments. A best practice would be to have notifications at the point-of-entry, point-of-sale, and other places in the merchants’ location.

There is also a requirement for a verbal notification at point-of-sale.

The verbal notification needs to use the correct language.  For example,  “Would you like to save (X amount) today by paying in cash or use your card?” This language indicates that the service charge applies to all transactions. A best practice is for the merchant to have a quick reference guide handy to give to customers with additional questions.


Cash discounting and surcharging can be complicated.  A compliant program requires diligence and knowledge of ever-changing laws and regulations.   Intelligent payment platforms like IntelliPay helps merchants reduce or eliminate credit card processing fees in a 100% compliant way.   For more information, contact an IntelliPay consultant at 855-877-6632 or


Cash Discounts and Credit Card Processing Fees  – Card Fellow

Payments Journal