Comparing Surcharge and Cash Discount Programs: A Guide for Auto Dealerships

Auto dealerships operate in a high-ticket, low-margin industry where every dollar counts. Credit card processing fees, typically ranging from 1.5 percent to 3 percent, can take a significant bite out of profits, amounting to hundreds or even thousands of dollars per transaction.

As such, zero-fee credit card processing can be particularly appealing to industry participants. By implementing a surcharge or cash discount program, dealerships can offset or eliminate these processing fees, directly improving their bottom line.

This blog explores both programs in detail, discussing their pros and cons, implementation considerations, and legal requirements. By better understanding these options, you can make a more informed decision regarding the most suitable program for your dealership, potentially saving thousands in processing fees while maintaining a positive experience for your customers.

Zero Fee Credit Card Processing

The two primary methods to achieve zero-fee credit card processing are via surcharge and cash discount programs. While both are designed to reduce or eliminate merchant processing fees, they function differently for businesses and their customers.

Surcharge Program

A surcharge program adds a percentage fee to credit card transactions to cover the cost of processing.

For example, a customer is charged $50.00 for an oil change. If the customer pays with a credit card, the merchant charges an additional 3 percent of the transaction amount to cover its processing fees. The total paid by the customer would be $51.50.

Surcharge Program Pros

• A surcharge program can eliminate credit card processing fees.
• It’s transparent to customers who choose to pay with credit cards.
• It can be easier to implement than cash discount programs.
• It can improve control over a major financial expense.
• It provides payment flexibility for customers.
• It can provide a competitive advantage over dealerships without surcharge programs.

Surcharge Program Cons

• Surcharge programs are currently prohibited in Connecticut and Massachusetts.
• A surcharge program cannot be applied to debit card transactions.

Cash Discount Program

With a cash discount program, prices are set at the credit card price. Customers who pay with cash receive a discount.

For example, an oil change costs $51.50. This is the amount charged to the customer if they pay with a credit card. If the customer pays with cash, they are offered a discounted price of $50.00.

Cash Discount Program Pros:

• Cash discount programs are legal in all 50 states.
• Cash discounting can be applied to all payment types, including debit cards.
• Programs provide customers with payment flexibility and are often viewed positively.
• It can improve control over a major financial expense.
• It can provide a competitive advantage over dealerships without cash discount programs.

Cash Discount Program Cons:

• Cash discounting may require adjusting shelf prices.

Additional Requirements

Surcharge and cash discount programs include various additional requirements, such as clear signage at business entrances and points of sale, notification procedures for card-not-present transactions, receipt itemization, and reporting obligations to card brands.

Which Program Is Best For Your Dealership?

Choosing between a cash discount and a surcharge program depends on several factors:

• Legal Considerations: A cash discount program is your primary option if you operate in a state where surcharges are prohibited.
• Financial impact: Based on your sales and payment method mix, consider each program's potential savings and revenue implications.
• Pricing Strategy: Cash discount programs may require adjusting your stated prices, which could impact your competitive positioning. Consider how this might affect your marketing and sales strategies.
• Customer Base: Consider your typical customer profile. A surcharge program might be more appropriate if your customers expect to use credit cards. If you have a significant number of cash buyers, a cash discount program could be more beneficial.
• Brand Image: Consider how each program aligns with your dealership's brand and customer service approach.
• Operational Complexity: Evaluate which program would be easier to implement and manage within your existing systems and processes.

Partner With an Expert: RevUpX

For auto dealerships, implementing a surcharge or cash discount program can be a game-changer in managing credit card processing fees. By carefully considering the pros and cons of each approach and aligning the chosen program with your dealership's specific needs and customer base, you could save thousands of dollars annually.

That said, the key to success lies in proper implementation and clear communication. Partnering with a leading merchant services processor like RevUpX can provide the expertise and support needed to navigate this complex landscape effectively and maximize savings opportunities.

Here are some of the benefits the RevUpX team delivers:

• Customized Solutions: RevUpX zero-fee processing programs enable dealerships to eliminate processing fees, significantly cut costs, and boost their bottom line.
• Best-in-Class Industry Partnerships: RevUpX partners with industry leaders fiserv and CardConnect, premier providers in the merchant services space with over six million merchant accounts.
• Industry Expertise: The RevUpX team understands the pain points inherent to the dealership sector and implements programs that directly address these challenges, driving savings and customer satisfaction.
• Compliance Assurance: RevUpX ensures your program adheres to all relevant laws and regulations.
• Implementation Support: This includes program setup, guidance on signage and disclosure language, and staff training.
• Free Processing Equipment: RevUpX utilizes state-of-the-art Clover terminals and CardPointe Gateway virtual terminals powered by fiserv’s processing platform.

As the auto industry continues to evolve, implementing financial strategies like these can give your dealership a competitive edge. By optimizing your payment processing, you can better deploy resources to what really counts: providing excellent service to your customers.

Learn more about RevUpX and how we can help you capture savings and boost profitability for your auto dealership.