From the blog Cash Discounting in 2022
What is a Cash Discount Program?
Cash Discount programs have been around for years. You’ve probably seen Gas Station signs at the pump offering a cash price per gallon. The programs have become more prevalent in recent years and there are many variations out there. Here is a short primer.
Traditional credit card processing takes a small percentage of every transaction. On average, businesses pay between 2% to 4% in credit card processing fees every time a card is swiped, dipped, or tapped (or whatever new technology comes along). That’s for every transaction. That adds up for a business owner. With a Cash Discount program, you are essentially offering a customer two pricing options. One for Cash and one for any other type of Credit Card transaction. For Credit Card purchases, the customer is helping to pay for the cost of accepting payment transactions that a business owner would normally incur.
Cash Discount programs are legal in all 50 states, as long as the program is properly disclosed to the customer and program regulations are adhered to. Most programs have a monthly fee, usually $50-$100, and this eliminates the monthly transaction fees which could save businesses hundreds if not thousands of dollars a month.
Don’t confuse Cash Discount with Surcharge programs. Both are legal options for business owners, but they ARE different. As mentioned above Cash Discount is legal in all 50 states, a Surcharge program is not allowed in certain states. With Cash Discount, a customer service fee is added to ALL purchases, but a discount is given for customers paying with cash. With Surcharging, a service fee is only added to the credit card transactions. It doesn’t seem like much, but that difference has an impact on regulations. A Surcharge Program needs to be disclosed to all Card Brands and requires additional compliance regulations.
Why has the program increased in popularity?
Like everything these days, COVID-19 has made everyone approach their daily lives a little bit different. Our new normal continues to evolve. Small to medium size businesses have always been underdogs fighting against their bigger competitors. They’ve had to work extra hard these past couple of years, searching for ways to offset their costs and lower overhead. The challenges keep mounting; trying to hire and retain quality employees, inflation, production delays are all adding unexpected expenses. Credit Card processing has always been a major expense. Cards that reward consumers with cash back or travel points have higher transaction fees and who foots that bill? The Merchant. The money saved through a Cash Discount program can help owners invest back into their business.
Small Business Saturday has been around since 2010 and has been building momentum each year. The spotlight on small business struggles over the past two years has been widespread and has created consumer sympathy. Consumers are more willing than ever to back their local businesses, they want them around and it helps their communities thrive.
What kinds of businesses are taking advantage of Cash Discount?
There has been an uptick in all kinds of businesses utilizing Cash Discount programs. From Personal, Home and Professional Services to Non-Profit Organizations to Consumer and Specialty Goods to B2B. Cash Discount programs are not limited to in-person transactions. For charitable organizations and other business transactions that take place online, cash can be defined as an ACH transaction (taken directly from a bank account).
Typically, if a good or service is highly commoditized in that area and a customer may walk across the street to purchase it elsewhere, it might not be the best solution. Ultimately, it is about understanding your customer base and doing what is right for your business.
What should you look for in a Cash Discount program?
First and foremost, the program should come from a trusted merchant service provider. It needs to be a certified program that is compliant with all state and card regulations. Signage should be provided and be properly displayed by the rules and regulations outlined in the program.
A true Cash Discount program will automatically determine the customer service fee or cash discount amount and will be clearly displayed on the receipt. There should not be any extra work for the business owner on pricing.
If you have any additional questions or want to discuss if this is right for your business, we would be happy to advise you on the ins and outs of Cash Discounting.