As payment programs and transactions get more diverse, you may come across terms that leave you a little confused. A rising trend is all sorts of cash-based discounts, and in this article, we are going to go more in-depth into a specific one. Let’s talk about what is cash discount credit card processing and how your business can benefit from it.
In order to understand credit card processing in more detail, make sure to read our article that outlays the entire payments ecosystem.
What Is A Cash Discount Program?
This kind of discount program enables your business to embed what it costs to process cards into your product pricing. This allows your company to have the same profit on each sale, no matter what payment form is chosen.
How Does It Work?
Cash discounting are programs that give a small discount to people who pay with cash instead of any card. The customers who pay with a card will have to dish out the marked price since processing costs for credit card transactions are built into it.
This, in turn, lets you, as a business owner, get full payment from what is paid. This also balances out to not incur any credit card processing fees. Let’s look at a practical example of how this would work.
- Cash Payment:
Say you walk into a store, get what you need, then go to the register with twenty dollars worth of items. Then you notice a warning that explains a 4% service charge is added to every sale. You will get an instant discount of 4% by opting for cash payment. The clerk checks all of your products and comes to exactly $20.00.
You tell the person you will pay in cash, totaling $20.00. Most financial institutions will let people withdraw money through cash back to make things accessible to their customers.
Live payments made in physical money end up saving your customers some money. Card usage results in faster and simpler payments, but people are charged small fees or surcharges for doing that.
A discount to customers paying with cash can be given as an incentive. In essence, it is a reward for using that payment method. So, while card companies want clients to pay with cards, people will be encouraged to use money.
- Card Payment:
Now let’s imagine the same situation a little differently. You are still a customer in a random store with your twenty dollars worth of items at the register. The warning by the register, which explains the 4% service charge, is also there.
You know that by paying with cash, you automatically get an automatic discount of 4%. Your things are a round total of $20.00. But this time, you inform the clerk you will be paying with a card instead, changing your total due to credit card processing fees, so you will be dishing out $20.80.
The transaction is completed, and you leave after paying $20.80 for $20 in items due to service fees, knowing you could’ve saved eighty cents if you had paid differently. This may look like a little, but it adds up in more significant transactions.
This specific discount program lets clients pay with cards, just like usual. What makes a difference is choosing whether to pay for credit card processing costs that are usually yours, as the business owner, or use money to get a discount.
What Is The Difference?
Our hypothetical scenarios had items at the register add up to even twenty dollars. This would be what that store set as the card price of your items. By settling that with cash, you’ll have $.80 taken away from the total as a discount for the cash-paying customer rather than keeping those extra 80 cents to cover the payment processing fee.
With cash, you save 4% on your goods by getting them at the regular price.
Doing credit or debit card transactions does make for practical payments. But in the second scenario, the payment processing costs were incurred and paid for, along with costs to process a credit card payment, so the business didn’t have to cover that cost.
Utilizing exclusive cash prices ensures your business gets all the money from a transaction. Otherwise, you’ll have to deal with credit card processing fees.
As payment types evolve, your company will often deal with people using credit or gift cards as payments. It happens due to innovations in the payment industry, making paying with cards much more convenient for those buying.
What Is A Credit Card Surcharge Program?
This kind of program is a process where you have credit card prices by adding a surcharge to whatever is the actual cost of an item. You do that to cover credit card processing company costs.
Surcharge-related programs are legal in 40 states currently, while cash discount programs are legal in every state. Having specific discounts for cash is better viewed by clients when compared to credit card surcharging.
Are Cash Discount And Surcharge Programs The Same?
Companies use these payment systems to get back the service fees charged when customers present a card type as payment. Surcharge programs to customers add a percentage at checkout to cover merchant service fees.
A true cash discount program will give your client a discount for cash payments by avoiding that additional cost. You can usually see this in gas stations.
Posted prices on items are for card payment at most places with cash-based discount programs. Any payment method different from cash will keep the price of goods the same to cover credit card processing costs. Customers will adore you by adopting a cash discount credit card processing program.
Can You Offer Discounts On Cash Payments?
Perhaps the most basic question is on the legality of offering these discounts. We’ve mentioned before, but let’s repeat it: a hundred percent yes, discounts for cash payment programs are legal. And a wide variety of physical cash discounts at retail businesses are legal in all states.
Cash discounting programs are easy to mix up with surcharges on credit cards or a fee to customers. Still, the latter is legal in only forty of fifty states in the US.
Can You Pass The Credit Card Transaction Fees To Customers?
While laws permit the passing of fees to customers through credit prices, you may have the wrong train of thought. The legality of these programs is covered by the 2010 Dodd-Frank Law.
You should be considering what are the card brand rules, companies like American Express, for passing merchant processing fees to customers. Before inserting this into your business, read the rules of acceptance of major credit card companies.
Are Debit Cards Subject To Surcharge Fees?
Don’t worry; these fees do not apply to debit or other prepaid cards, such as gift cards. A surcharge is directed at credit cards, not cash purchases. Debit transactions don’t come with the same fees.
They are also under another fee structure from credit or gift cards. Debit transactions have a flat fee.
The prohibition of surcharge on debit is national, while people paying with AmEx, Visa, Discover, and Master may be subject to extra fees in some states. ‘Surcharge program fees’ can also be called ‘customer service fees’ since they are associated with fixed values.
What Are The Average Fees For Credit Card Processing?
Average fees for credit processing are around 2-4% for most businesses. Your merchant account should have a set credit transaction rate for each card category: qualified, mid-qualified, and non-qualified. Rates will often differ depending on which category the card falls.
Payment processing fees and whatever monthly fees you will pay are decided by card type, and merchant fees are added to the cost of processing a credit payment. The service provider considers how much you make in credit transactions and the average amount. They do so to settle what fees will be imposed on your business.
A higher volume of card transactions and low averages would get different rate percentages and swipe fees than ones with low card transaction volume and higher average tickets.
Mobile payments or online transactions made through virtual terminals also have different fee structures. It will depend on whether the card is present while making the transaction. Rates for a business are based on risk factors, usually averaging between 2-4% of the transaction total.
Now that you understand it a little better, let EcomSidekick tell you.
A Few Benefits Of Having A Cash-Based Discount Program In Your Business:
Processing Fees Are Gone
Your business will never have to pay processing fees again since they will be covered one way or another.
Your Customers Don’t Pay Fees Unless They Choose To
If people decide rewards offered by their card are good enough to pay for the cost of acceptance, they’ll pay with cards. Cash will give them that if they opt to pay the lowest price.
It’s an Easy Set Up
You will receive signs for your store as the law requires you to have them in-store. The specific terminal is also straightforward to set up.
Tips Are Not Included in the Non-cash Adjustment
If your business has a tipping culture, no extra fees will be added on tips to customers or you.
You Can Keep Your Processor Forever
If you don’t pay for a merchant services account, that can be the account used for your business. Please think of how good it is telling card representatives your merchant account costs nothing monthly. Your days of arguing with credit card representatives will be done.
Terminals Can Reach You for Free
Based on how much your monthly card volume is, free terminals can be sent to your business. Those can be made specially to work with cash discount programs.
Point of Sales Payment Systems Con Also Be Yours
Depending on the monthly card volume and your business, you can also get a free point-of-sale system for companies that will work with cash discount programs.
No Surprise Fees
There won’t be surprising items on the statement to hide fees you don’t need to pay. Your statement will have a zero at the end of the month. This will leave you free to do unlimited credit card transactions.
Ask For a Phone Call From a Shift Representative
As a differential to most merchant processors, Shift works on month-to-month contracts only. This isn’t only a marketing move. They do believe in the fact that if you aren’t happy to work with them, you shouldn’t need to. They won’t trap a person on a years-long contract or purposefully hide fees in legal jargon on a twenty pages long document.
Purchases Paid in Cash Are Better to Avoid Fraud
Since many people have cash on them, paying with it means you can test bills right at the point of sale, helping you be certain you’re paid for each transaction. If you maintain PCI compliance rules, you will be safe from fraud.
If you prefer to test out a cash discount/credit card processing program to see if it is the best for your company, giving it a try costs nothing. Suppose any reason makes you not like it. In that case, you can return the terminal to Shift and continue working with your processor.
What Types Of Businesses Can Do The Cash Discount Program?
This credit card processing program does well with many business veritcals. You could argue that is makes sense under almost all verticals.
Across the board, businesses that have been adopting this program have been restaurants, dentist, jewelry stores, grocery stores, food trucks, auto body shops, pawn shops, bakeries, coffee shops and night clubs to name a few.
These programs are gaining popularity as they are fantastic for battling inflation and rising supply chain costs. When you do the math in a busy location the numbers that will go back to the bottom line are not small. Even if you run a small business, every penny counts and this is a way to put money back into your own pocket.
Do you already have a credit card processing/cash discount program? Let Shift show your company how they can offer a much nicer deal, and if they cannot get you something better, they’ll send a $500 gift card.
Discover how they differ from other cash discounting/credit card processing companies! They long to make experiencing freedom from merchant processing fees less risky.
Suppose you feel ready to eliminate your processing fees entirely. In that case, filling out a form takes a straightforward call or a few minutes. Switching over from other companies can give you freedom. You are a little over 10 seconds away from not having to pay a processing fee ever again.
Frequently Asked Questions
Is Cash Discount Credit Card Processing Legal?
Cash discount credit card processing is legal in the United States, as long as it is implemented correctly and in compliance with state and federal laws. Merchants must be transparent about the pricing structure and properly inform customers of the cash discount program. However, it’s essential to be aware that surcharging credit card transactions is prohibited in some states, so merchants should carefully review local regulations before implementing such programs.
What Are the Benefits of Cash Discount Credit Card Processing for Businesses?
Cash discount credit card processing offers several benefits for businesses. Firstly, it can help reduce the financial burden of credit card transaction fees, potentially leading to significant cost savings. Secondly, by encouraging cash payments, businesses can improve their cash flow and reduce the time it takes to receive funds. Additionally, offering a cash discount might attract cost-conscious customers who prefer to pay with cash or debit cards, thus increasing customer satisfaction and loyalty.
Are There Any Drawbacks to Cash Discount Credit Card Processing?
While cash discount credit card processing can be beneficial for many businesses, there are some potential drawbacks to consider. One potential challenge is customer perception; some customers may prefer the convenience and benefits of paying with credit cards and might not be comfortable with the cash discount approach. Additionally, businesses need to ensure they comply with local regulations regarding cash discounts and properly communicate the program to avoid any confusion or legal issues.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.