Cash Discount vs Surcharge: What’s the Difference?

Jun 27th, 2023

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Every business that accepts credit cards must deal with credit card processing fees. For vacation rentals, these fees can be especially impactful since you’re handling higher sales amounts than the average trip to the grocery store. How can you best serve your guests while protecting your bottom line?

There are a few ways you can offset or reduce processing fees. Considering a cash discount vs. surcharge is one of the most common approaches.

Here’s what you need to know about these options. 

 

What is a Credit Card Surcharge? 

 

A surcharge is a fee that a merchant adds to a purchase at checkout when the guest pays with a credit card. It’s intended to cover the processing costs associated with credit cards, which is higher than other payment methods like debit cards or ACH. 

A credit card surcharge is a straightforward way to avoid paying that credit card processing fee yourself, since instead it's passed along to the customer.

Surcharges are added as a percentage of the total due. These only apply to credit cards; debit cards and other payment options cannot be subject to a surcharge.

Example: Let’s say the property manager adds a 3% surcharge. A guest paying for a $1,000 vacation rental should see a line item adding a $30 processing fee for using their credit card. 

 

What is a Cash Discount? 

 

A cash discount is offered to guests at checkout when they pay with cash or a method with low processing fees, like a debit card, ACH, or e-check.

The discount can be either a percentage or a flat dollar amount and the advertised price must be the credit card price. In other words, the cash price must be an actual discount off the listed price.

Example: If the cash discount is 3%, that same $1,000 vacation rental might now be just $970 for guests paying with debit or ACH.

 

Cash Discount vs. Surcharge: Which is Best? 

 

There are several factors to consider when weighing your options, as each method has advantages and disadvantages.

A surcharge allows you to advertise your normal rental price and only adds a fee when guests pay with a credit card. This allows property managers to cover the cost of acceptance while keeping your pricing low. It directly offsets the cost of running a credit card without giving discounts to guests. 

Surcharging on credit card payments comes with regulations, which may vary by location and card brand. Some include:

• Massachusetts and Connecticut do not allow credit card surcharges.

• You must notify credit card companies that you will be charging this fee at least 30 days in advance of implementation.

• The surcharge must be added as a percentage of the total purchase and cannot be more than your actual cost of acceptance.

•  A credit card surcharge cannot exceed 3%.

• The surcharge must be noted on the detailed breakdown of the receipt for your guest. This itemized breakdown allows guests to understand exactly where their money is going. 

Implementing surcharge requires planning, since you must adhere to compliance rules and regulations. If your process is not compliant, it can lead to significant penalties, like daily fines of up to $10,000 and removal of your merchant account. Card brands will change their rules on occasion (like Visa did in April 2023), so it’s important to stay on top of these updates.

But don’t be intimidated! You just need to have the right technology and support in place to implement surcharges in a compliant way. Payment processing solutions like Ascent make the transition easy, but not all payment providers can say the same. 

Customer experience is another factor in the cash discount vs. surcharge debate. A credit card surcharge at checkout might frustrate guests in the process of booking a rental. They may even second guess their decision to book. To mitigate this risk, provide clear messaging around the reason for the surcharge and offer no-fee payment options.

Compared to surcharges, cash discounts can be more appealing to guests and can be an effective way to encourage cash, ACH, and debit payment methods. However, cash discounts have rules of their own and can heavily impact your margins if you’re not careful.

Cash discounts must be a discount on the advertised price, which can eat into your profit margins unless you raise the advertised price. That said, if you raise your advertised prices to cover your credit card processing fees, you might inadvertently price yourself out of the competitive vacation rental market.

Even with this discount, some people may still pay with their credit card for convenience or to earn rewards points. They might ignore the discount option altogether because they would earn more from using their credit card, so you must be prepared to cover those credit card processing charges yourself. 

Logistically, your property management software must also be able to handle the technical side of applying the discount, which is not always simple. If you offer a cash discount in a card not present (CNP)/non-face-to-face environment, like vacation rental payments taken online, you must have access to technology that tells the system how the guest is paying and whether or not they should be offered the discount.

 

AscentZeroCost Can Help

 

There’s a lot to consider around cash discounts vs. surcharges. In an ideal situation, guests pay with cash or low-fee options like debit or ACH, since it saves both you and your guest from shouldering the credit card processing fee. But in this age of flexibility, forcing guests to pay with low-fee options isn’t the answer, either.

That’s why we offer AscentZeroCost – a smart way to protect your margins while still leaving the payment method in complete control of your customer. Our solution adds a surcharge at checkout if a guest pays with a credit card, while also allowing guests to choose other options to avoid the surcharge.

AscentZeroCost can help you reduce your credit card fees to almost zero while enabling you to remain 100% compliant with federal, state, and card brand regulations. We’re the experts on the topic so you don’t have to be, and our team will ensure you’re compliant with all rules and regulations. 

Get in touch to learn more about how we help you keep more of your revenue while staying 100% compliant!