What is a Surcharge?
A surcharge1 is a charge or fee that is added towards the price of a good or service and is usually added towards an existing tax. 40 states in the US allow surcharge fees to customers who pay with credit card. The remaining states that prohibit surcharges are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Surcharges, however, cannot be assessed on debit cards.
They are added simply for the privilege of using a credit card. Typically, surcharges are based on a specific percentage of the total price of goods or services before taxes are assessed.
What is a Cash Discount Program?
A cash discount is when the merchant provides a discount when the consumer pays with cash. A non-cash price adjustment is passed through to the customer on all card transactions.
Cash discount programs have been available for years to higher education, municipals, gas stations and utility providers, but only recently have independent business owners began to use the same programs.
This program enables merchants to charge a customer service fee to their customers and thereby eliminate their processing fees. This is not a surcharge program, nor convenience fee.
Here is how it works: The merchant will post a sign in their store notifying customers that there is a 4% customer service fee applied to all store sales.
However, if the customer pays by cash, they will receive a 4% cash discount which will eliminate the 4% service fee. For the sake of clarity, if the customer makes a purchase for $100 and they pay by cash, then the total cost will be $100. However, if they pay by any other form of payment, such as the credit card, then the total cost will be $104. This is done automatically and there is absolutely no calculation required on the merchants part.