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Given the current inflationary environment, small business owners are looking for ways to reduce costs and improve margins. One area to look is payment processing costs.  For example, Credit cards average 2.6% of each sale. If your business runs a 10% net profit- it takes $26,000 of sales to cover that $2,600.  That is why many small business owners consider surcharging and cash discount programs as a way to reduce expenses and improve profitability.

However, the challenge is finding and implementing a cash discount program that is compliant and will remain compliant amid ever-changing laws and regulations. For example, the latest changes made by Visa  lowering the caprate to three (3%) and eliminating the 30 day notification go into effect on April 28, 2023.

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.


Surcharge fees apply to transactions where the customer chooses the convenience of using a credit card. Surcharges on debit cards are prohibited. Surcharges are a specific percentage of the total price of goods or services before taxes. Surcharge fees are currently prohibited in  Connecticut, Maine, New York, and Massachusetts and the U.S. territory of Puerto Rico.

According to card brand rules set by Visa and Mastercard cannot exceed 3% or the merchants’ effective rate.  Other rules and regulations like consumer notices also apply.

Listed a below is  summary of what a merchant needs to do to have a legitimate surcharge program:

  • Must disclose a surcharge to customers at business entrances and point of sale.
  • Does not use creative terms to label a surcharge fee, such as non-cash adjustment, non-cash fee, or service fee.
  • Complies with card brand rules of applying surcharge to posted price
  • Applies surcharge to all card brands equally
  • Distinguishes between credit, debit cards and prepaid cards
  • Cannot exceed  3% of the total transaction or the merchant’s cost of processing
  • Discloses the surcharge on the customer’s receipt or with notices in store or online before completing a purchase
  • Applied only to U.S. transactions (international transactions are exempt)

Surcharge Laws Can Vary by State

It is important to note that laws are not consistent across states.

In New York, specific rules apply if a merchant wants yo surcharge. (1) state the policy or price clearly and in advance, and (2) not force the consumer to handle the math involved to determine the price of an item if they pay with a credit card. We recommend that small business owners looking to surcharge consult the laws within their states before proceeding.

Cash Discounting

A compliant non-cash discounting or 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 an 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-compliant 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.

Why a Cash Discount is Not a Surcharge

Cash discounts are permitted in all 50 states, whereas surcharging is currently prohibited in Connecticut and Massachusetts.

Often people associate cash discount programs with surcharging, and a hybrid that has caused much confusion for business owners. It is also not a surprise that since the COVID19 pandemic, there has been an increase in non-compliant cash discount programs. When asked about cash discounting and the confusion that exists, 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 Cash Discounts are Not Allowed:

Here are a few situations where a cash discount is not allowed:

  • Advertised Price: When the business advertises a sale price lower than the regular price, the business cannot offer a cash discount on the sale price. 
  • Financing: When a business offers financing or credit terms, you cannot offer a cash discount. For example, if the business financing for 12 months of interest-free financing, they cannot give a 10% discount for cash payments.
  • Sales Tax: A business cannot apply a cash discount to sales tax. For example, if a city requires a 5% sales tax, the business cannot provide a 10% discount for cash payments.

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-compliant.

The Penalties are Severe

A non-compliant 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 notification before completing a sale stating 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’ brick and mortar 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.

Reduce Friendly Fraud Risk

One of the drawbacks to accepting credit card payments is the risk of “friendly fraud” or chargebacks.  Chargebacks are expensive and can damage the reputation of a business. Too many chargebacks and the business is hit with a high chargeback ratio,  For more detail on chargebacks, please see our post on Chargebacks and How to Avoid Them

The good news is with a cash discount program, your business can completely eliminate chargebacks.


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 small business owners and 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


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