Restaurant POS News

Surcharging and Cash Discounting Explained

Jul 22, 2020 12:44:00 PM / by Lynn Skurla Perkins

Heartland Restaurant recently shared this article with us, and we thought it would be helpful to share with you too:

If you’re confused about surcharges, cash discounts and convenience fees, you’re not alone. Below is a brief overview to help you understand the differences.

Nerdy scholastic young woman wearing geeky glasses standing thinking with her finger raised and a grimace of concentration in a humorous stereotypical depiction, over a dark background with copyspace

Credit Card Surcharge

A surcharge is when a business charges a customer an additional fee to cover the cost of accepting credit cards. The surcharge is a percentage of the sales amount and cannot exceed 4 percent or what the business pays in swipe rates.

Surcharges cannot be levied on debit cards or prepaid credit cards.

Currently, all but six states and Puerto Rico allow surcharges. The states where it is illegal are Colorado, Connecticut, Kansas, Maine, Massachusetts, and Oklahoma.* If you are operating in more than one state, you can only surcharge in states where it is legal.

Visa, Mastercard and other major card brands have strict guidelines for surcharging. For example, you can’t charge more for one card than another. Additionally you must:

  • Post a notice to customers, at your store’s entrance and register, that your business imposes a credit card surcharge, including the rate of the surcharge, and that it does not exceed your processing fees.
  • Have a point of sale system capable of disclosing the surcharge on a receipt as a separate line item, as well as reporting the surcharge in the network authorization request and in settlement.
  • Notify your processor/merchant account provider in writing at least 30 days in advance of the date you plan to start surcharging. In turn, they will inform card associations.

Cash Discount

A cash discount is not a surcharge because it does not levy a fee to a credit card transaction.

Instead, it allows businesses to offer customers a discount for using cash, check or debit card to pay for purchases – typically 1-4 percent of the sales amount. To participate, businesses must disclose to customers that a discount for paying cash is available. An example of this is a gas station, which posts a price for both the discounted cash/debit price and for credit card payments at the pump.

It’s important to note that a business cannot add a fee on top of the usual price of an item and then give a discount at the register if the customers pays cash. The passage of the Durbin Amendment in 2010 made cash discounting legal in all 50 states.

Convenience Fee

A convenience fee is levied by a business on purchases for the privilege of paying with an alternative payment method that is not standard. For example, a theater or concert venue that allows customers to purchase tickets online or by phone for a fee versus having to stand in line at the box office. Governments and universities also frequently charge a convenience fee when taxes and tuition are paid by a method other than automated clearing house (ACH) transfer.

A convenience fee is typically a flat dollar amount. It is not a surcharge because technically, you're not paying for using your credit card, but for the privilege of using the pay-by-phone or pay-by-online option.

Convenience fees are allowed in all 50 states. As with surcharges, it is best to check with card networks and your processor. For example, Visa allows convenience fees if:

  • Payment takes place across an alternative channel such as online or by phone
  • Customers are told of the fee in advance, or it is clearly disclosed
  • The fee is a flat or fixed price rather than a percentage of the sale

* State status is subject to change. Confer with legal before implementing any fee related program.

If you have questions, please give us a call at 907-243-2683 or fill out the form below and a representative will reach out to you.

 

Tags: Heartland Restaurant, Surcharging, Cash Discounting

Lynn Skurla Perkins

Written by Lynn Skurla Perkins

Lynn grew up in the point of sale and cash register industry working in the family business – and is now at the helm of Skurla's POS Solutions. She enjoys working with local Alaskan businesses, especially restaurants, grocery stores, and retail operations - helping them control costs and increase revenues through well managed point of sale solutions. Besides running the company, Lynn has also served on the Board of Directors, and as Chairman of the Board, for the Retail Solutions Provider Association. In her spare time, she loves cooking, camping and volunteering with organizations that are passionate about helping children.

Save money on credit cards! Sign up here for a free statement analysis

Subscribe to Email Updates

Recent Posts