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It’s OK to Launch a Credit Card Surcharge and Give Discounts for Cash. Here’s How.



By Ed Burris, President, Burris Advisory Group


Even in these relatively profitable times, independent dealers’ margins are slim. Big boxes and other competitors make it hard to raise gross margins, while personnel aren’t getting any cheaper. But there are a couple of ways to claw back some of the revenue that’s sneaking out of your bank account.


The first is to include a surcharge of between 2.5% and 3% on bills when the customer pays by credit card. Most bank cards charge you this much to process a credit card payment (as opposed to payment with debit card, which shouldn’t cost you anything). Customers increasingly are aware of these surcharges, as charities have begun asking people to include card servicing costs in their donations and small businesses frequently don’t let you pay by card if the purchase is under, say, $5. Meanwhile, for lots of customers, the points rewards to be gained from flashing the card—combined with the continued ability to get extra time to pay a bill—is worth far more to them than the surcharge.


Note that surcharging isn’t allowed in Colorado, Connecticut, Kansas, Maine, and Massachusetts. But everywhere else, it’s legit.


The second tactic is to do something you see at gas stations and other businesses: Charge a lower price for payments in cash vs. credit card. (An alternative is to advertise that all prices posted are for payment in cash.) I believe cash discount is even better than surcharges because it eliminates all your potential card fees and signals to the customer a way to save. Your credit-card price can be as much as 4% above that for cash and still be compliant. And because of what’s known as the Durbin Amendment to the Dodd-Frank Federal Banking Act, all states must allow cash discounting.


A compliant Merchant Service Provider will register you and provide, at no charge, all signage and training to staff. The Provider will be responsible to ensure you are operating legally. A compliant provider also will have the technology to provide Automated Clearing House (ACH) or electronic cash as an option.


A final option is to refuse to accept any credit card, or alternatively refuse to accept the higher-surcharge American Express and Discover cards when accepting electronic payments. However, you can’t discriminate within a group of cards, such as by accepting a Visa card issued by a bank and refusing al Visa card issued by a credit-card specialty firm.

Still unsure? Start by offering a cash discount for 90 days. If it does not yield a predominantly positive outcome, it is easy to switch back to your old ways. Over 18 months of making this suggestion, we have not experienced one business reverting to the old way.



Ed Burris runs The Burris Advisory Group. He is based in North Carolina. Contact him at Ed.burris@burrisadvisory.com.

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