A surcharge program is a way for businesses to pass on the credit card processing fees they pay to their customers when accepting payments with a credit, debit or gift card. By including a small charge for processing in the transaction, merchants can generate revenue from what would be considered overhead costs.  

Surcharge programs are common in cases where a business does not accept credit cards, but they are also used by merchants who want to encourage customers to pay with cash or online payment methods that charge transaction fees.  In this sense, surcharge programs allow businesses the luxury of avoiding the higher costs associated with traditional credit card processing options.

What are the Benefits of Surcharge Programs for Small Business Owners?

Surcharge programs have several benefits for small business owners.  In addition to being able to keep customers from leaving because of credit card fees, each surcharge program may offer a variety of other features as well:

  • A percentage or flat-rate fee can be added to your transaction without worrying about hidden costs and monthly fees.
  • There is no application process.
  • You can choose to add a surcharge depending on your cash flow needs.
  • There are no start-up costs or hidden expenses.

Considering that the average merchant pays more than three percent of their total sales in processing fees, it’s easy to see why a business might consider a fee-based credit card processing option.  When looking at the pros and cons of surcharge programs, it’s important for business owners to consider their individual needs before making a final decision.

What are the Potential Drawbacks of Surcharge Programs?

There are several drawbacks that should be considered before signing up with a credit card processing service that offers surcharges.

  • Surcharge programs may include higher rates than those of traditional credit card processing options.
  • Some credit card networks, such as Discover and American Express, do not allow surcharge fees on their cards.
  • You may be subject to fines or other penalties if you violate applicable credit card processing laws.

Business owners should also note that the average surcharge fees are roughly four percent of each transaction, which is significantly more than the average acceptance rate for merchant accounts and traditional credit card processing services.  Before choosing a surcharge option, it’s important to consider whether or not your potential costs are worth the benefits. For many businesses, this choice means saving money and maintaining a stable cash flow throughout the year, which is well worth any extra fees.

Surcharge programs can be complicated, especially for merchants who have never used them before. Before choosing one, ask questions about how it works, the costs associated, and the terms of your processing agreement.  Also check with credit card associations in your area to determine whether or not surcharge programs are allowed with their cards, as some are flat out prohibited.

What is Cash Discount Programs?

Cash discount programs are a less-costly way for businesses to generate revenue from sales transactions without requiring customers to pay in cash.  Instead, when payment with a credit card is not an option, businesses can offer their clients the option of purchasing goods or services at a discount.  This means that the customer will have to pay full price for their purchase, but they can take advantage of a discount or rebate by purchasing the goods on credit.

Surcharge programs are available through most major credit card processing services, including Square, Authorize.Net, and First Data.  For businesses that wish to offer customers this option without adding fees to every purchase, cash discount programs can be a great option.

There are several companies that offer cash discount programs, including Merchant Express, United Financial Corp., and Affinity Consulting Group.  These services allow small businesses to issue their own credit cards with special discounts, which can encourage repeat business from existing customers. Cash discount processing allows employers to save money on credit card fees, while also increasing their level of service to potential and existing customers.

The Difference Between Surcharge Programs and Cash Discount Programs

While credit card fees are the primary difference between cash discount programs and surcharge options, there are also several other differences to consider.  These include:

  • Cash Discount programs allow business owners to offer discounts on their own cards, while most surcharge programs require merchants to provide customers with third-party cards that carry brand logos like Visa or MasterCard. This means that business owners must pay the costs of those credit card fees as well, which can significantly increase their processing expenses and reduce their bottom line.
  • Cash discount programs allow merchants to provide discounts on specific items within their store or offer a percentage off an entire order. Surcharging customers essentially forces them to pay more for their purchases, while cash discount programs allow for greater customer service without breaking the bank.
  • Most surcharge processing agreements prohibit merchants from offering discounts or promotions on any other payment method. This means that if a customer comes to your store with cash in hand, you would not be able to offer them an immediate discount on their order. For many businesses, offering a cash discount or rebate is an excellent way to increase customer loyalty and drive more sales over time.
  • Cash discount programs do not require merchants to maintain a minimum transaction amount for each card sale. Surcharging customers essentially forces them to pay more for their purchases, while cash discount programs allow businesses to provide discounts on larger orders without breaking the bank.

There are several other differences to consider between cash discount programs and surcharge options, but for most businesses this is enough information to begin researching which type of processing agreement will work best with their individual business model.