Cash Discount: A Simple Guide for Merchants

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As credit card processing becomes increasing costly for merchants, there are avenues that allow businesses to help offset the fees associated with accepting digital payments. One of these options is adopting a cash discount program that incentivizes customers to pay by cash or check to help offset these fees.

What is a cash discount program?

It is a program used by businesses to offer a discount to customers who pay by cash or check instead of using a credit or debit card. Merchants can incentivize cash payments by offering a discount on the posted credit or debit card prices for customers that pay by cash or check. By including a service fee in the posted price, cash payments offset the payment processing charges that come with card transactions.

Differences Between Cash Discount, Surcharge, and Convenience Fees

With a cash discount program, merchants can build credit and debit card fees into their product or service pricing. Then when customers pay with cash, merchants provide them a discount—usually 3-5%—that is shown on their receipt. Merchants are required to display signage notifying customers of the pricing model.

Surcharges are fees—generally up to 4%—that merchants can add to credit card (but not debit card) transactions. Proper disclosure is required by law. Merchants must post notices at a store’s entrance and register that a surcharge is imposed on credit card transactions and point-of-sale systems must also itemize the surcharge on the receipt.

Convenience fees are similar to surcharges but apply only in cases where the consumer is choosing to pay online or by phone versus the standard method of payment for that transaction. The credit card networks (Visa, Mastercard, etc.) limit convenience fees to a select list of payment circumstances, but they are legal in all 50 states. Convenience fees are fixed amounts rather than percentages of a transaction. Again, proper disclosure is required.

Advantages of a Cash Discount Program

  • Reduce card processing fees
  • Increase cashflow due to fast access to funds
  • Reduction in chargebacks and fraud
  • Marketing these incentives can bring more customers through the door

Disadvantages of Cash Discounts

  • Customers preference to use digital payment methods instead of cash
  • Incurring costs associated with producing mandatory signage to advertise the program
  • Implementing the program and adhering to rules and laws required
  • More manual input needed to deal with cash

How to Determine if It Is Right for Your Business

While cash discounts come with many benefits, they aren’t the best solutions for every merchant.  Below are some key things to consider when thinking about using a cash discount program.

  • Does your business prefer dealing with cash payments? It takes time and money to count cash, take it to the bank, and can be susceptible to being stolen.
  • Are customers required to use your products? If a product is a necessity, consumers are more willing to purchase it using cash.
  • Are other businesses in the area offering cash discounts? Customers will choose competitors that best suit their needs if the option is there.
  • Does your business rely on repeat customers? A perceived “extra fee” may drive some repeat customers away.

Offsetting credit card fees with a cash discount program might yield the extra margin a merchant needs to grow their business. Talk to a credit card processor about the programs they offer to see what fits.

To Learn More About Our Cash Discount Program:

Contact us online or call 1-800-621-8931.

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