While they may seem like the same thing; cash discounts, surcharges, and convenience fees are 3 very different options for merchants. Not all 3 can be used in every situation, and they all have different guidelines on how they can be implemented.
A cash discount is a program that allows the merchant to give a discount for choosing to pay with cash instead of a credit OR debit card(unlike a surcharge). There is no limit to how much a cash discount can be, however the typical amount is 4%. Cash Discounting is currently legal in all 50 states as per accordance with the Durbin Amendment.
Like a surcharge, You must have signage stating the implementation of the surcharge, including the amount, at the business entrance as well as the point of sale.
When implementing a Cash Discount the merchant must be clear that it is not a fee that is being added, and that it is a discount being taken off your final sales amount.
When a merchant implements a surcharge it means that they are charging their customers a fee on top of their purchase in order to offset any charges the merchant receives from the credit card brands. Typically a surcharge is a percent of the total sales amount and cannot exceed 4% of that purchase. Debit cards and prepaid cards are not allowed to be charged a surcharge.
All of the major credit card brands (Visa, Mastercard, American Express, etc.) have guidelines for how a surcharge can be implemented. The most important guidelines are as follows:
- You must have signage stating the implementation of the surcharge, including the amount, at the business entrance as well as the point of sale (cash register)
- The surcharge must be clearly shown on the receipt as a separate line item
- You must notify your processor in writing 30 days prior to implementation of your intention to charge a surcharge
Currently, only five states are prohibiting surcharges, they are Colorado, Connecticut, Kansas, Massachusetts, Oklahoma.
A convenience fee is a fee that is placed on the final amount of the total sale price. These fees must be a flat rate and cannot be a percentage of the total sale. Also they can only be implemented on an online or over-the-phone service.
Unlike a surcharge, a convenience fee is added for the privilege of being able to pay online or over the phone. These fees can be placed on debit cards, credit cards, as well as bank transfers (ACH). Convenience fees are also legal in all 50 states.
Similar to cash discounting and surcharging, a convenience fee must be clearly stated at the time of the final purchase.