Surcharging
vs
Cash Discount Program (CDP)
The Full Story
Surcharging adds a fee to credit card payments, while cash discounting offers a lower price for cash—both aim to offset processing costs, but differ in customer impact and compliance.
A surcharge program is when a business adds a fee to a customer's bill if they pay with a credit card, passing the cost of processing directly to the cardholder. This method can help recover transaction fees but often feels like a penalty to customers and comes with strict legal and card network compliance requirements. In contrast, a cash discount program offers a reduced price to customers who pay with cash. Instead of adding fees, it frames the savings as a reward for using a lower-cost payment method. The listed price is typically the cash price, and card users pay the standard rate. Cash discounting is generally easier to implement, more customer-friendly, and fully compliant when done correctly with proper signage and pricing structure. For small businesses, especially those operating on tight margins, cash discounting can improve profitability and reduce fraud risks like chargebacks, while maintaining goodwill with customers.
Colorado and Surcharging
In Colorado, credit card surcharging is legal—but tightly regulated. Merchants must cap fees at 2% or match actual processing costs, and they must clearly disclose charges before payment. Colorado allows businesses to apply a surcharge to credit card transactions to help offset processing fees, but only under specific conditions outlined in Senate Bill 21-091 and C.R.S. § 5-2-212. Merchants may either charge up to 2% of the transaction total or match the exact cost incurred to process the payment—whichever is lower. This means blanket surcharges above 2%, or fees that exceed the actual processing rate for a given card, are prohibited. Surcharges are only permitted on credit card payments—not on debit cards, cash, checks, or gift card redemptions. Violating these rules could result in penalties under Colorado’s Uniform Consumer Credit Code. To remain compliant, businesses must also provide clear signage or online disclosures before the transaction is completed. For in-person sales, this means visible notices at the point of sale; for online transactions, the surcharge must be disclosed before checkout. For Colorado-based merchants, this means surcharging can be a viable strategy—but only if implemented with precision. POS systems must be able to calculate actual processing costs, or merchants should stick to the 2% cap. Transparency is key: customers must know about the surcharge before they pay, or the business risks non-compliance. Compared to cash discounting, surcharging in Colorado demands more technical accuracy and legal awareness—but it can still be a useful tool for managing costs.
Key Takeaways:
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Surcharging is limited to 2% of the sale OR the interchange fee, whichever is lowest.
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Surcharging is illegal for Debit Card transactions
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Surcharging requires a complex structure to implement and can leave businesses open to risk and legal/compliance issues.
Colorado and Cash Discount Program
Cash discounting is fully legal in Colorado and protected under federal law—businesses may offer lower prices for cash payments, as long as pricing and signage are clear. In Colorado, merchants are allowed to implement a cash discount program that offers customers a reduced price when they pay with cash or check instead of using a credit or debit card. This practice is supported by the Durbin Amendment of the 2010 Dodd-Frank Act, which prohibits card networks from restricting a business’s ability to offer discounts for non-card payments. To stay compliant, Colorado businesses must ensure that: The listed price is the card price, and the discount is clearly applied at checkout for cash payments. Signage is visible and accurate, informing customers that the listed price includes card processing fees and that a discount is available for cash. No additional fees are added at checkout—if the customer pays more than the advertised price, it’s considered a surcharge, not a discount, and must follow different legal rules. Unlike surcharging, cash discounting is generally easier to implement and more customer friendly. It avoids the perception of penalizing card users and instead rewards cash-paying customers. For Colorado Springs merchants, this approach aligns well with community values and small business transparency. It’s also a smart way to reduce processing costs while maintaining goodwill.
Key Takeaways:
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Implementing a Cash Discount Program is LEGAL and compliant.
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Cash Discount programs will have a better customer response due to discount.
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Merchants don't have to manually enter any special or extra functions and have secure processing that works for them.
Cash Discount Program or Surcharging?
What's Right For Your Business?
Choose cash discounting if you want a customer-friendly, legally simple way to reduce fees; choose surcharging if you need to recover exact processing costs and can manage compliance.
Here’s a breakdown to help you decide which model fits your business best:
💵 Cash Discounting: Best for Simplicity and Goodwill
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Customer perception: Seen as a reward for paying with cash, not a penalty for using cards.
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Compliance: Easier to implement legally, especially in Colorado. Just ensure the listed price is the card price and the discount is clearly disclosed.
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POS setup: Requires a system that can show the discount at checkout.
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Best for: Small businesses, retail shops, service providers, and community-focused merchants who want to maintain positive customer relationships.
💳 Surcharging: Best for Precision and Cost Recovery
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Customer perception: Can feel like a penalty, especially if not disclosed clearly.
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Compliance: Heavily regulated. In Colorado, surcharges must be capped at 2% or match actual processing costs, and only apply to credit cards—not debit.
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POS setup: Must calculate actual processing fees and itemize the surcharge separately.
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Best for: Businesses with high average ticket sizes (e.g., auto repair, dental, legal services) where card fees significantly impact margins and customers are less price sensitive.