Credit card surcharges and cash discounts on your POS

Credit card surcharges and cash discounts on your POS

What to consider before charging your guests

Let's face it, profit margins in the hospitality industry are thin enough. Paying a percentage of revenue every time your customers use the credit cards can really make you feel the pinch. So how do you encourage your customers to pay in cash as much as possible?

Well, many merchants are turning to credit card surcharges and cash discounts. These monetary incentives nudge your customers toward the payment types that you prefer, and offload the burden of paying these extra fees from you to the customer.

While these recuperation tactics are becoming more popular among bar and restaurant owners there are important rules and details you need to be aware of before implementing these strategies.

There are laws that determine what types of surcharges for discount can be applied and customers must be notified.

Also, you should understand how your point-of-sale is configured to accommodate the types of fees or discounts you want to use, and how these fees are displayed on the guest receipt.

Additionally, it's important to be aware of how these credit surcharges and discounts are considered by customers. The use of credit card fees may affect customer service relationships and perception.

The rise of credit card surcharges in restaurants and bars

Credit card surcharges are the practice of adding a service fee to customer transactions when using a credit card. This fee can be applied in a couple of ways. One is a percentage of the total transaction amount. The other way is a flat fee applied to transactions under a set amount, for example, a $0.50 transaction fee for payments under $20.

A closely related practice that works in the opposite direction is a cash discount. With a cash discount, product prices are based on the credit card sale price. When paying in cash, a percentage discount is applied as an incentive.

In 2016 a large class action lawsuit against the credit card companies opened the field for the use of these practices. Previously, the credit card companies did not allow merchants the use of surcharges and other incentives to encourage a preferred payment type.

Since that time, and the loosening of these restrictions, the practice has seen increased use to become very common.

Credit card surcharges without running afoul

and credit surcharges are legal at the federal level as of recent changes in law including the 2010 Dodd-Frank law and updates in 2013.

However, there are some rules that must be followed in order to legally implement these practices. These rules are dictated by the credit card processing companies and the card issuers:

  1. Post a notice of your policies on the front door and near the register prominently
  2. Your point-of-sale system must display fees and discounts properly on receipts
  3. Notify your merchant processor in writing 30 days in advance of implementing a surcharge or cash discount policy

Differences in state laws regarding surcharges and cash discounts

While some merchants are having a heyday adding surcharges and cash discounts, others must beware. Some states still do not allow the practice or regulate its use. Keep in mind that laws change quickly around the country, but here are the states that regulate as of this writing:

The following states regulate surcharges and cash discounts:

  • California
  • Colorado
  • Connecticut
  • Massachusetts
  • Oklahoma
  • Puerto Rico

The following states regulate surcharges but allow cash discounts:

  • Florida
  • Georgia
  • Kansas
  • Maine
  • Minnesota
  • New York
  • Texas

The following states allow surcharges but regulate cash discounts:

  • Maryland
  • Nevada
  • Washington
  • Wisconsin
  • Wyoming

The following states do not regulate either credit surcharges or cash discounts:

  • Alabama
  • Alaska
  • Arizona
  • Arkansas
  • Delaware
  • District of Columbia
  • Hawaii
  • Idaho
  • Illinois
  • Indiana
  • Iowa
  • Kentucky
  • Louisiana
  • Michigan
  • Mississippi
  • Missouri
  • Montana
  • Nebraska
  • New Hampshire
  • New Jersey
  • New Mexico
  • North Carolina
  • North Dakota
  • Ohio
  • Oregon
  • Pennsylvania
  • Rhode Island
  • South Carolina
  • South Dakota
  • Tennessee
  • Utah
  • Vermont
  • Virginia
  • West Virginia

Point-of-sale considerations when implementing a surcharge policy

It's important that your point of sale has the flexibility to accommodate the laws and rules you must follow for properly applying your surcharge or cash discount policy. The rules are always changing so it's important to make sure that the settings that you configure are up-to-date.

To be compliant, the point of sale receipt must include information about the surcharge or cash discount on the receipt. A separate line indicating a surcharge or cash discount has been applied to the total must be present. This disclosure makes it clear to your customers what they have been charged.

How do customers feel about surcharges?

Something else to consider is how your customers might react to being charged additional fees. For Quick Service restaurants with already thin profit margins and bargain pricing, charging a service fee may be the difference between making a profit and losing your shirt. In this case, customers may be more understanding.

For higher-end restaurants and bars, the average sale is likely to cover the cost of credit card processing adequately. Charging an additional service fee may be seen by customers as unnecessarily petty or penny-pinching.

For this reason, a cash discount may appear to be less bothersome to many customers. The opportunity to get a discount from the posted price can feel like a bonus, whereas an unexpected fee on top of the purchase price can feel like being tricked.

Ultimately, understanding your customers, their needs and perceptions will determine to what extent you feel your cash discount or credit surcharge policy is appropriate.


In this article, we discussed cash discounts and credit surcharges.

We considered benefits to merchants who choose to pass credit processing cost on to their customers, the rules that must be followed to properly notify customers of the policy, and the states with laws that regulate cash discounts and surcharges. Considerations regarding your point of sale implementation of fees and payment type discounts were discussed, as well as the impact your service fee policy may have on customer perception.

This article is part of the free series included in the restaurant management library provided by Rezku. When you're ready for a new point of sale consult the experts at Rezku. Since 2012 we've been providing innovative technology and solutions to the hospitality industry, including reservation systems, online ordering, gift card systems, customer loyalty and point of sale.

Book a free one-on-one consultation with a Rezku point-of-sale expert today.

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