Cash Discount vs. Surcharging: What Merchants Need to Know (2025)

In 2025, rising credit card processing fees continue to chip away at small business profits. As margins tighten, merchants are urgently looking for ways to recoup those costs. Two of the most talked-about strategies in the payment industry are cash discounting and surcharging. But which one is right for your business, and how do you stay compliant while avoiding fines or chargeback issues?

Introduction: The $1 Trillion Problem

Credit card fees cost U.S. merchants over $100 billion annually. These fees—usually between 2.5% and 4%—come directly off your top line. If you're processing $500,000 a year, you could be losing $15,000–$20,000 just to fees. The good news? There are legal ways to shift that burden without hurting customer loyalty.

Cash Discounting Explained

With cash discounting, you display your product prices as the “cash price.” When a customer pays with a credit card, a small, clearly disclosed adjustment is applied at checkout. This is known as a non-cash adjustment or dual pricing strategy.

How It Works

• All prices displayed in-store and online are the cash price.
• If a customer pays with a card, a small adjustment (usually 3.99% or less) is added at the register.
• The receipt clearly breaks this out, showing the total and the adjustment.

Pros

• Legal in all 50 states.
• Customers see a “discount” for paying with cash.
• No impact on debit card payments (if configured correctly).

Cons

• Requires compliant POS system and receipt formatting.
• Customer education is key to avoid confusion at checkout.

Surcharging Explained

Surcharging adds a fee to credit card payments specifically. The fee is intended to offset the merchant's processing costs.

How It Works

• The base price of the item is displayed as-is.
• At checkout, if the customer pays with a credit card, a line item is added for the surcharge.
• This is typically 3% or 4%, capped by card brand guidelines.

Pros

• Customers who pay with credit cards directly cover the fee.
• Can be used in B2B or high-ticket invoice scenarios.

Cons

• Illegal in some states like Connecticut and Massachusetts.
• Not permitted on debit card transactions per Visa/Mastercard rules.
• Requires very strict signage and documentation to remain compliant.

Cash Discounting vs. Surcharging: Key Differences

Aspect	Cash Discount	Surcharge
Legality	Legal in all 50 states	Restricted in 10+ states
Receipt Formatting	Cash price shown; adjustment added for cards	Surcharge line item required
Customer Reaction	Feels like a discount	Feels like a penalty
Card Type Restrictions	Applies to all non-cash payments	Only for credit cards

Legal and Compliance Considerations (2025)

Cash Discount Legal Notes

Cash discounting is legal everywhere in the U.S., as long as pricing and receipts follow dual-pricing standards. You must display signage at the door and register, and the receipt must show the adjustment line clearly.

Surcharge Legal Notes

As of 2025, surcharging is banned or heavily restricted in several states. These include Connecticut, Massachusetts, Maine, and Puerto Rico. Some states like California allow it with disclosure. Always verify local laws or work with a compliant partner like MidaPOS.

Visa and Mastercard Rules

• Registration with Visa is required before applying a surcharge.
• Disclosure signage must be placed at the entrance and point-of-sale.
• Surcharges cannot exceed the merchant’s effective cost of processing, and typically must be capped at 3% or 4%.

Real Examples: What This Looks Like in Practice

Scenario A: Smoke Shop Using Cash Discounting

A smoke shop in Florida processes $25,000/month. With MidaPOS, they switch to dual pricing. Their signage and receipts are updated. In 3 months, they report $2,200/month in recovered fees and zero customer complaints.

Scenario B: Restaurant Using Surcharging (Incorrectly)

A small restaurant in New York adds a 4% surcharge without registering with Visa. Their signage is vague. Within 6 weeks, they receive a chargeback and a complaint. They switch to a compliant cash discount model with MidaPOS and avoid further issues.

Common Pitfalls to Avoid

• Incorrectly labeling surcharges as cash discounts (or vice versa).
• Failing to adjust your receipt formatting or display prices correctly.
• Not training staff on how to explain the policy at checkout.
• Using outdated or incompatible POS hardware/software.

Why MidaPOS Recommends Cash Discounting in 2025

Cash discounting is more broadly accepted, easier to deploy, and less likely to trigger customer complaints or legal risk. It also aligns better with retail, food service, and mobile businesses who want a simple, compliant way to save money.

What We Offer

• Fully compliant POS systems and terminals
• Receipt and signage templates pre-approved
• Expert guidance and training for your staff
• Ongoing compliance checks and upgrades

Get Compliant with Confidence

We partner with multiple ISOs and POS providers (including NRS) to offer plug-and-play setups tailored to your needs. Our clients reduce or eliminate their credit card processing fees—without legal headaches or customer pushback.

Conclusion

Whether you run a restaurant, convenience store, salon, or mobile service—there is a legal, clear path to protecting your profits. Surcharging may be right in limited cases, but cash discounting is often the smarter play in 2025.

Don’t gamble with compliance. Work with MidaPOS to implement a solution that saves you money, keeps you legal, and builds customer trust.