Is It Legal To Give A Cash Discount?

Cash discounts are a form of financial incentive. Many sellers and service providers will offer a price reduction from an overall bill. These cash discounts can be lucrative both for sellers and buyers. After all, they encourage prompt payments.

However, you might be wondering “is it legal to give a cash discount?” This guide aims to provide all the information that you need to know about cash discount laws, along with some other useful information.

So let’s get into it!

Cash Discount Laws – Is It Legal To Give A Cash Discount?

Yes, cash discounts are completely legal. This practice is not prohibited by law, making it a valuable asset for merchants.

Interestingly, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act prevents networks from impeding the use of cash discounts. This law may have an impressive name, but this Dodd-Frank act stops networks from interfering with cash discounts.

For example, if a merchant is selling a product at $60, the card company would be unable to charge the customer $64 when using a credit or debit card. Yet, customers can be rewarded for using cash, as the price can be lower than using a card.

Sellers and service providers don’t have to offer cash discounts. This is not a legal requirement. Instead, it is entirely up to the vendor to decide whether or not they will implement this incentive.

What Are The Benefits of Cash Discounts?

Now that you know the legal situation surrounding cash discounts, let’s move on to the benefits that this incentive has to offer. There are numerous benefits to cash discounts, such as:

It’s Simple

Cash is a simple payment method. Likewise, cash discounts are also very simple for customers to understand.

Therefore, this system can work for both merchants and customers alike. Other discount systems can be more complex.

If you are looking for a phenomenal platform for payment solutions, Moonlight Payments may be valuable. This platform can help businesses to find the correct payment processing strategies.

They Can Reduce Fees

One of the main benefits of cash discounts is that they can result in reduced fees. This is because retailers are often charged for processing credit cards. The businesses that process credit card fees are known as merchant service providers (MSPs), which give companies the ability to take card payments.

These merchant service providers normally don’t charge much for their services. In fact, they tend to charge between 0.25% and 3%. Though this isn’t a large percentage, this can reduce the amount of money that vendors make. As a result, your profit margin will be reduced.

By encouraging your customers to use cash instead, you can limit these fees.

Generally, payment services like PayPal are free to use. However, this platform does have fees for certain financial translations. 

You Will Have More Cash On-Hand

If a customer pays in cash, you will have more cash on hand. It’s always useful for businesses to have extra cash available. So if a customer needs change, you can easily give them cash back.

This is known as cash flow. As you can imagine, it’s important for businesses to have good cash flow.

It Will Appeal to Customers

Most customers love bargains. Simply by using cash instead of card payment, customers can save themselves money. As a result, customers are more likely to opt for a deal if it’s a bargain.

Moreover, this will encourage customers to use your business again. This is known as a repeat customer. Simply by using cash discounts to entice customers, you can encourage new customers to buy from your business.

The Cash Can be Reinvested Into the Business

From time to time, businesses will suffer from a cash shortfall. This means that customers will have less access to cash.

By implementing a cash discount scheme, you can increase the cash flow. This cash can be reinvested into the business. Research has found that 41% of businesses have experienced an increase in friendly fraud.

Luckily, you won’t have to deal with this issue when using cash and cash discounts. After all, it’s impossible for customers to claim friendly fraud when a product has been paid for by cash.

You Won’t Have to Deal With Friendly Fraud Cashback

Friendly fraud is an improper form of cashback. Essentially, friendly fraud occurs when a customer buys something with their credit card. These customers will appeal for a chargeback rather than asking for a refund.

While this friendly fraud can be accidental, some customers use this technique intentionally. Friendly fraud can cause merchants to lose a lot of money. 

Frequently Asked Questions

What Is A Reasonable Cash Discount?

Cash discounts can either take the form of percentages or fixed amounts. Cash discounts tend to be between 1% and 2%. This is a reasonable discount, though other businesses could offer 5% cash discounts. It’s rare for businesses to give cash discounts that are over this percentage.

Can You Ask For A Cash Discount?

Yes! If you want to save yourself a little extra money, it won’t hurt to outright ask for a cash discount. The worst thing that can happen is that the merchant will simply say “no”. Though it can be a little intimidating to ask for a cash discount, it can also be incredibly worthwhile.

What Are The Disadvantages Of Cash Discounts?

Though there are loads of benefits to cash discounts, there are also some disadvantages that you should be aware of. This includes:

 

• • There are often more risks associated with cash than with other payment methods.

• • Keeping cash on site can cause security problems. 

• • Many customers prefer using cards to cash. Cash is becoming increasingly unpopular as a payment method.

To ensure that a cash discount is right for your business, you must seriously weigh the advantages and disadvantages. 

Final Thoughts

Overall, cash discounts are a great idea. They are entirely legal, so merchants should take advantage of cash discounts. By doing so, sellers can reward customers for using cash instead of other payment methods, such as paying by card.

Therefore, you should seriously consider implementing cash discounts! Learn more in our extensive card processing guidance center.