When merchants speak of credit card processing it is often regarding the expense of processing cards. Rarely is the conversation about the savings to business owners when their customers pay with cash. When customers pay with credit or debit cards, they are often getting with airline miles, cash back, points, or some other type of reward. American Express, Discover, MasterCard, and Visa aren't paying for those rewards. Neither is the issuing bank. The merchant is paying for those perks which drive the cost of processing credit and debit cards. To incentivize cash payments, some merchants offer a cash discount.
Even in a strong economy, cash flow can be a real struggle for small business owners. Add to that a global pandemic that has hit small businesses particularly hard. The Coronavirus has already caused thousands of businesses to close while others have reduced hours or have shifted to eCommerce, curbside pickup, delivery, and so on. That’s why many business owners looking at programs that can help them share their credit card processing costs and result in real savings. Cash Discount and Fee-based programs can help business owners cut costs and save money. These programs result in nominal charges to the consumer and real savings for business owners. BOTH results in additional cash flow for you, the business owner.
What is a Cash Discount?
A Cash Discount is when a business offers a discount to customers who pay by cash, check, or store-branded gift card, instead of with a credit or debit card.
Is it Legal to Offer Cash Discounts?
Yes, it is legal. This is due primarily to the Durbin Amendment of 2013, which was added to the 2010 Dodd-Frank Law. The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted financial reform in the wake of the 2008 financial crisis. The Durbin Amendment expanded on the Dodd-Frank laws by placing limits on transactional fees when using credit and debit cards to make purchases. As for cash discounts, the Durbin Amendment protects the rights of business owners to offer cash discounts in all 50 states.
Cash Discounts Rules and Regulations
As part of this right to offer discounts, business owners must also adhere to a handful of rules to do so legally, including:
Posting cash discount signage at the entrance and the checkout counter
Denoting any cash discounts or convenience fee and non-cash adjustments on receipts
Offering the cash discount verbally before completing the transaction
With a Non-Cash Adjustment, the merchant’s list prices have a built-in cash discount incentive. Customers who pay with credit and signature debit cards do not receive the discount and will see a Non-Cash Adjustment on their receipt.
What are Convenience Fees?
Convenience Fees are charged for the “convenience” of paying with a credit or debit card.
Benefits of Offering Cash Discounts to Customers
For customers who are looking to get the lowest possible price, they have the option of paying with cash. For customers who prefer the convenience of a credit card at a slightly higher cost, that option exists as well.
Other benefits exist as well. For example, for businesses with high transactional volume and low profits per transaction, the amount of savings from avoiding credit card processing fees can be massive. So massive that it can surpass offering cash discounts, which of course lowers the price for your consumers as well.
Credit card transactions also run a certain risk of issues such as charge-backs. Cash transactions eliminate these risks, which again benefits all parties involved. Your customers will likely appreciate the option of paying with cash and receiving the discount no matter their preferred payment method.
Cash Discount & Service Fee FAQs
To figure out if these programs are right for your business, start by asking yourself the following questions:
Are you open to sharing your processing fees with your customers?
Some business owners are worried about how their customers will react to paying their processing fees. The fact is consumers are used to paying more when paying by credit card. Gas stations have been doing it for years. Convenience fees are added to most utility bills when paid online. Tickets to concerts, festivals, movies, and sporting events are all great examples. More and more retailers and service providers are doing the same. Most consumers are looking for ways to support small businesses during the COVID-19 crisis. Sharing the cost of processing with the business owner is one way they can do that.
Are you willing to build your processing costs into the cost of your goods and services?
If you currently take credit card fees into account when pricing your products and services, or are willing to do so, offering a Cash Discount is simple. As long as those prices are posted, you can offer a discount on those set prices to customers who pay with cash.
Would you like your customers to receive an additional charge or get a discount?
This question is all about how you would like to position the program to your customers. Do you want them to pay an additional fee for using credit or debit? Or would you prefer to give them a discount when they pay with cash?
Are you willing to post the signage required by Visa and MasterCard?
Signage is mandatory when you participate in these programs. Consumers value transparency, so prominently displaying signage at the entrance of your business and the point of sale keeps them informed about your pricing policies and keeps you compliant with the card brands.
How can I present a cash discount to customers?
With customizable receipts, you can itemize cash discounts just like any other purchase or savings. How you choose to represent this information is up to you, but many customers appreciate seeing the “cash discount” item so that they can see exactly what they saved.
How do I apply a service fee for card customers?
Depending on your merchant services agreement, terminals, and/or the nature of your credit card processing, this will likely take care of itself. Your system will recognize that a customer has used a credit card, debit card, or another form of electronic payment and apply the relevant service fees accordingly.
Can I apply a cash discount to EBT purchases?
No. EBT is a federally regulated program and must be processed differently. EBT cards can't be used for traditional or cash discount processing and only for EBT purchases. Conversely, credit and debit cards can't be used for EBT purchases either. Some terminals can process both types of purchases but they are processed differently.
Are there any limits to service fees?
Yes. It is illegal for merchants to take a cut of credit card processing service fees. In other words, these service fees must go directly to your credit card processor or the credit card companies, and not to you, the merchant. Any business with an automated system should be free and clear, but it is important to understand that even accidental overcharging of service fees can have serious legal ramifications.
Is there a contract involved?
No. This is a month-to-month agreement. If you find that the Cash Discount Program is not for you, we can switch you back to traditional financing with the flick of a switch
Do I need new equipment?
Probably not. Most terminals and POS systems can be used for the Cash Discount Program. You may even qualify for new equipment FREE of charge
Contact Us today for a FREE, No Cost, No Obligation Analysis of your recent statement. We’ll provide you a side-by-side comparison of traditional processing versus the Cash Discount Program. If it makes sense to move your processing, great! If not, at least you know you have the best available program.