Cash Versus Credit: Which is Better?

by Chasidy Rae Sisk

Accepting credit card payments isn’t an option in today’s economy – most consumers whip out the plastic without even realizing the fees incurred by the shop for accepting credit card payments.

While it used to be against card brand rules to tack on an additional percentage to cover the banks’ processing fees, a lawsuit against the card brands changed all that a few years ago, making it possible in most states.

Although legal surcharging is now available to merchants, it comes with specific rules and regulations. To combat these strict rules, the merchant processing community developed a different program: cash discounting, but this left many merchants confused on the differences.

In either case, most shops don’t realize that they can recover most of these fees, or they don’t understand how to implement the right program for their needs. So, what’s the difference between cash discounts and credit card surcharges, and which one makes the most sense for your business? Ken Racioppi, who has been servicing many AASP/NJ members for more than a decade, offered some insights.

“Everyone is wondering what the difference is because these two phrases are being used interchangeably when they’re actually two very distinct things. With a cash discount, the shop offers a discount off their price if the customer pays cash, so offering a four percent discount on a $100 charge means the bill would be $96. The business does not have to tell Visa or Mastercard that they’re offering a discount, but they are required to display both their credit card and cash prices.”

Gas stations implemented the cash discount model early on by publishing a credit payment price alongside a discounted cash option.

“The fuel industry was an early adopter of cash discounting due to their paper thin margins, and as gas prices increased, their margins shrank, forcing them to charge more for credit cards,” he provided an example. “Having only three choices for fuel made it easy to publish cash and credit prices for each one, but when a merchant sells 100 different items, it would not be as easy to publish a cash and credit price for every item sold. One way to overcome this obstacle would be to show a total due cash price and a total due credit card price before the customer decides how to pay.”

Additionally, enticing customers to take advantage of a cash discount isn’t as easy as it may sound since most consumers enjoy getting cash back or points for using their high value rewards cards. “Consumers just don’t carry cash like they used to,” Racioppi pointed out. “The pandemic made handling cash less attractive for consumers and even merchants to some degree. But the real driving factor is those high value points that consumers get for using credit cards. Why should the business have to absorb fees which pay for that five percent cash back reward?”

Surcharging is different and allows the shop to collect a percentage above their published pricing; the consumer may receive five percent cash back from that purchase, but three percent is paid to the merchant to cover the credit card fees (instead of the merchant paying for all the rewards).

“The shop tacks on a charge above and beyond the published cost, so adding a three percent surcharge to a $100 bill means the customer pays $103,” Racioppi explained. “There are restrictions involved with this route. If a merchant plans to add a credit card surcharge, they are required to notify Visa and Mastercard. It’s also important to recognize that the surcharge cannot be added to debit card payments (whether PIN or signature), and limits dictate how much of a surcharge the merchant can add.”

Unfortunately, few shop owners understand the difference between the two choices, and many who claim to be offering a cash discount are actually including a surcharge beyond their listed price and applying it to debit cards.

“A lot of what’s happening, across all industries, would be considered non-compliant,” according to Racioppi. “It’s like the Wild West with many merchants claiming to offer a cash discount when they’re actually adding a surcharge to their published prices…and then removing it if the customer pays cash. Some businesses call it ‘discounting’ when they’re really surcharging all the cards, even debit. That’s not compliant with the regulations governing surcharges.”

While the card brands have largely ignored non-compliant surcharges, largely due to the pandemic, Racioppi expects them to start cracking down on the cash discount loophole as it gains more acceptance:

“We’re going to see more come out about this in the near future as Visa and Mastercard start to wrangle non-compliant service providers. Currently, no one is really watching or managing this process, but where we are today is not where we’ll be in the near future. Shops may get away with being non-compliant for a while…until they receive a cease-and-desist letter from these major credit card providers. It’s not that easy to unwind this type of process immediately, which is why it’s so important to educate people about the right and wrong way to do this.

“Deciding the best way to recover credit card fees really comes down to what is and isn’t compliant,” Racioppi continued, advising, “I recommend implementing a surcharge to ensure compliance, but businesses need to put controls in place before deciding to do it…you can’t just say ‘I’m going to start surcharging’ and do it immediately if you want to be compliant. We offer programs to help merchants implement compliant surcharges, and we hope AASP/NJ members will take advantage of them.”

Shops that decide to implement a surcharge need to register with Visa and Mastercard, and a sign must be displayed at the point of purchase that indicates that customers will be surcharged on all credit card transactions, excluding debit cards. The surcharge must also be added to all invoices as a separate line item.

Although shops are permitted to surcharge, it’s against the regulation to charge well above the aggregate rate. “You can’t turn it into a revenue center,” Racioppi warned. “Technically, the surcharge amounts should never hit the merchant’s account. Setting up the surcharge program will ensure the fees are immediately extracted before you get your deposit so there’s no way to make it a revenue center for yourself.”

So why are debit cards excluded? Debit transactions carry little risk since the consumer can only charge up to whatever amount is in their bank account. Also, there are no rewards or cash back options when using debit cards. These two factors bring the cost to acquire debit cards down from a high of three percent to 1.5 percent or less. Still, most consumers opt to use their high value rewards card. “We can’t get all fees covered through a credit card surcharge, but merchants are typically a lot happier and much better off when they’re recovering around 97 percent of those fees. Adding a surcharge helps offset the costs associated with accepting credit cards.”

Of course, business owners must also weigh the disadvantages before making a business decision.

“Customers may be angry, especially on collision repairs; the drawback of having a high average ticket translates into a higher surcharge that could result in a loss of business if your competitors aren’t adding surcharges yet,” Racioppi noted. “I always tell merchants to watch the industry’s adaptation instead of being the first shop to do it. More and more shops are now moving toward one of these two methods, making full industry adoption inevitable. We don’t want this decision to lead customers to look elsewhere for their repairs.”

It’s up to each shop to decide whether credit card surcharges or cash discounts are best for their individual business model, but the key to compliance appears to lie in transparency.

“Post a sign, display your cash versus credit prices, add it to your invoices…you need to accurately display these things at the point of purchase if you want to be truly compliant.”

Racioppi offered one more piece of advice to collision repair shops:

“Surcharging credit card transactions helps combat these fees, but understand that you’ll never get 100 percent of your fees covered. If your overhead is high and your profit margins are being squeezed by labor costs, fuel, inflation and everything else, the best way to cover your credit card fees and everything else may be as simple as raising your prices based on the cost of doing business.”

“There’s no obligation when shops meet with me or my team to help separate the facts and fiction swirling around this quickly trending program,” he promised. Shops interested in learning more about the credit card surcharge program through AASP/NJ can contact Ken Racioppi directly on his mobile at (973) 666-0882 or by email at


Want more? Check out the June 2022 issue of New Jersey Automotive!