Cash Discount vs. Surcharge Program
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Cash Discount vs. Surcharge Program

Two important words that make retail management difficult to understand are “cash discount” and “surcharge program.” The distinction between surcharging and cash discounts program is becoming increasingly hazy. This can cause issues for those who misunderstand and inadvertently violate the rules and regulations governing these transactions. However, the distinctions are not difficult to grasp, and compliance is simple once you are familiar with the concepts and procedures.

Both terms refer to discounts that retailers offer for paying cash instead of using credit cards or other forms of payment. Cash discounts usually range from 1-4% and apply as an incentive for using cash over other means of payment. The goal is to prompt customers to use cash, which is less expensive for the store, rather than their other options. Surcharge fees are separate from cash discounts and reflect the average cost of products in various retail stores nationwide. This can vary from store to store or country to country.


What are Cash discounts and Surcharges?

Cash Discount is a program that discounts the price of an item by a set percentage if you pay in cash. This discount can be applied anytime, so long as you purchase in person. Cash Surcharge is a program that imposes an additional fee on customers who pay with credit or debit cards. Your credit or debit card may not be processed on your side, but the vendor will receive funds from your institution for the same purchase amount.


Differences between Cash Discounts and Surcharges

Surcharges and cash discounts are transaction fees that can be imposed on a customer to compensate the merchant for certain costs. But there are some key differences.
Discount applies at the time of purchase. A surcharge is added to the original price and reduces the net sale amount.

A cash discount program is not reported to a credit card processing company. The surcharge is reported when acquired and again when billed, which can be used by the landlord or reporting agency to establish the credit rating of the store merchant.

Surcharges are a way of describing an extra cost, but these costs are not typically found on a bill or included in the initial purchase price (rather, they’re tacked on later). Most often, they’re applied when customers buy something with cash. Cash discounts refer to a decreased rate offered for items or services purchased during certain times.

Cash discounts help organizations with big budgets allow their business to work in harmony without having to pull the plug on other departments. Surcharges, on the other hand, work in the opposite way to cash discounts. They are small charges that are added to large orders; this is done to keep cash discounts from being applied too often. These surcharges help balance out the budget and ensure that those with smaller budgets can still get a break from their organizations.


Problems with cash discount and surcharge transactions

Merchants believe that by imposing a service fee on all credit card transactions, they are providing a “CASH DISCOUNT PROGRAM.” These transactions, however, are not exempt from Visa surcharge rules simply because the merchant stated that a service fee is added to all transactions and that cash sales are discounted. A SURCHARGE is the addition of any fee to a displayed price. While it may appear to be a minor distinction, it is crucial regarding legality and compliance with card brand rules. Surcharges are only permitted on credit card purchases under certain conditions. Surcharges on PIN-capable debit cards are not permitted, even if the PIN is not used for the transaction.


Easy Rules

Merchants can participate in a compliant surcharge program, but there are some guidelines to follow.

  • Before implementing a surcharge, merchants must register with credit card companies.
  • Surcharges can only be applied to credit cards; debit, gift, and prepaid cards are not eligible.
  • Surcharges should not exceed the merchant cost of acceptance, with a maximum of 4%.
  • The surcharge must be displayed at the point of entry and acceptance.
  • Surcharges are not permitted in some states.


Risks in cash discounts and surcharges

Many benefits come with using cash for transactions, but one of the most significant risks is how this payment method leaves retailers unprotected from surcharges. Retailers make their profits from surcharge fees, which can devastate a business. Research has shown that up to 30% of purchases in stores across the country have had charges built into them in some way or another, whether given as an incentive on top of the original price or hidden within product pricing (e.g., over 100% markups).

cash discount program


Which is better, cash discounts or surcharges?

Great question! Cash discounts have been around for centuries. They are a way for wholesalers or retailers to make deals with their customers and provide them with the best prices. With so many retail stores going cashless, knowing how much money you save when an item is discounted for cash is important. The term surcharge means that a store has built up a pricing tier for certain items: discounted priced, regular priced, and premium priced. So in this example, if you pay by credit card instead of cash, your purchase will include the premium price tier because it’s not discounted. Surcharges can range from 3%-5% depending on the store and what tier you find yourself in.

Some IT (Information Technology) businesses use the terms cash discount and surcharge interchangeably—but they aren’t. They are advanced ways of getting more business through advanced POS (Point of Sale) technology, done manually or through your iPad or tablet. Cash discounts and surcharges are used to get customers to pay with cash instead of credit or debit cards. This is because cash discounts or surcharges mean you’ll lose out on paying interest rates, up to 30-50% depending on traditional credit cards.


Bottom line

It is more important than ever in today’s market to identify ways to become more competitive. After reading this article, you should have a better understanding of the differences between cash discounts and surcharges and which one to choose between two, depending on the type of business.