If your business accepts credit cards, then you should also offer a cash discount program. Cash discount programs are a cost-effective solution for reducing payment processing costs and saving money. At Velocity Merchant Services, we are happy to help our clients to establish cash discount programs of their own. These programs save clients money on their monthly credit card processing fees. Implementing a cash discount program can also improve cash flow and enhance profit margins for business owners by significantly reducing payment processing fees. Cash discount programs promote pricing transparency by clearly informing customers of the cash price and any credit card processing fees upfront. Offering cash discounts can provide a competitive advantage and boost customer loyalty.
What is a Cash Discount Program?
Before exploring their benefits, let’s examine what a cash discount program is, and how it can work.
As the name implies, these programs exist when business owners offer a reduced price to customers who pay cash for their goods or services. Generally, the easiest way to do this is to apply a service fee to all transactions and remove that fee at the point of sale when the customer pays with cash. Businesses display both the lower cash price and the credit card price to promote transparency and ensure customers understand the difference in pricing.
As you probably know, accepting credit cards can be expensive. As Forbes puts it, “With many credit card companies, each time a customer swipes, they get mileage, cash-back, and other rewards. The store owner typically pays the processing fees with each transaction. In a store with high processing volume, it can be very costly for retailers to process credit cards.”
Some businesses charge a surcharge for using credit cards. This can help offset the processing fees that payment processors charge the business, but whether you should pass processing fees to customers depends on legal requirements and customer expectations. That solution is not always legal.
The National Conference of State Legislatures says, “Eleven states—California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas—and Puerto Rico have laws that prohibit merchants from charging consumers with surcharges on credit card transactions. Minnesota prohibits a seller of goods or services that establishes and is responsible for its own customer credit card from imposing a surcharge on a purchaser who elects to use that credit card in lieu of payment by cash, check, or similar means.”
This is why cash discount programs are becoming more popular with businesses. As we explain on our website, “Cash Discount programs are legal in all 50 states. The Durbin Amendment to the 2010 Dodd-Frank Law states that businesses are permitted to offer a discount to customers as an incentive for paying with cash.” Cash discount programs are legal across the US, provided they comply with federal regulations like the Durbin Amendment, state laws, and card brand rules. Proper signage and clear disclosure at the point of sale are essential for compliance and transparency, and a cash discount program is a smart, legal way to cut processing fees.
While any business can implement a cash discount program, we’ve found that they work best for companies with an average ticket price of around $10-$15. It’s important to remember that most of the transactions will utilize credit or debit cards, even with an offered discount. Cash discounting works by passing fees to card users while offering a lower cash price to cash-paying customers. Properly itemized receipts and clear communication are necessary for compliance with card brand regulations and federal law. The typical benefits of cash discounts for businesses include raising posted prices by 3%–4% and offering discounts to cash-paying customers accordingly.
What Are the Benefits of a Cash Discount Program?
Accepting credit and debit cards has become a necessary part of doing business for most companies. As a result, the costs of credit card acceptance have also become standard. And as we said above, cash discount programs are a great way to offset those costs.
Cash discount programs are cost-effective solutions that provide significant cost savings and help boost profit margins by shifting processing fees to credit card users. Encouraging cash transactions through these programs can improve cash flow and customer satisfaction. By rewarding cash-paying customers with a lower price, businesses can enhance customer loyalty and gain a competitive advantage. A cash discount program can be the industry’s best kept secret, perceived positively as a reward for cash payments rather than a penalty for card users.
In addition, here are some other reasons to adopt a program today:
Eliminate Credit Card Processing Fees
All cash discount programs can offset credit card fees by raising the prices on every transaction. By passing credit card processing fees to customers, these programs help lower processing fees for merchants. This approach can significantly reduce payment processing fees and improve profit margins. Shifting fees to credit card users allows businesses to save a substantial amount on credit card processing fees. If you raise the price by the correct amount, it can make sure that your margins stay intact (we’ll discuss this further in a moment).
Some credit card processors, like Velocity Merchant Services, offer built-in programs that will completely eliminate their processing fees in exchange for establishing a cash discount program through them.
Reduce Credit Card Chargebacks
Credit card chargebacks can cost you money.
explains: “A chargeback is an action taken by a bank to reverse electronic payments. It involves reversing a payment and triggering a dispute resolution process. Generally, chargebacks occur between a merchant and a credit card issuing bank or a consumer. […] Usually, chargebacks are used to reverse a payment in the case of a billing error, unauthorized credit card use, or failure to deliver a product or service.”
Often, when a chargeback occurs, your payment processing service charges you an extra fee on top of the processing fee. These are known as chargeback fees, and they can add up quickly, impacting your profit margins and financial stability. With more customers using cash, there are fewer credit card payments, which means fewer chargebacks and chargeback fees. Cash discount programs can help businesses avoid the risks and costs associated with electronic payments, such as transaction fees and chargeback challenges, and are one of several strategies for lowering credit card processing fees easily. So cash discount programs can help reduce chargebacks.
Attract Bargain Hunters
Everyone loves a good deal, and some customers will seek them out. If you offer a lower cash price, you can attract cash-paying customers who are motivated by direct savings, aligning with customer preferences for value. This approach not only appeals to bargain hunters but also provides a competitive advantage and can enhance customer loyalty through competitive pricing strategies, especially once you understand the top myths about cash discount programs debunked.
As we detail on our website, “Even though customers can save by paying for purchases with cash, 98% of customers will still choose to pay with a credit card. When you implement a cash discount program properly you should not lose any customers.”
Keep Profit Margins Consistent
A challenge of credit cards, traditionally, is that the monthly fees for your merchant account can vary wildly from month to month. If you have a lot of credit card transactions, then your fees will be higher and your margins smaller, and you may even wonder whether you can waive a credit card processing cancellation fee if you decide to switch providers.
Implementing a cash discount program like ours that eliminates all monthly processing fees lets you better predict your profits month by month. By factoring in your monthly processing volume, you can estimate your cost savings and forecast profits more accurately. Businesses using cash discount programs can potentially save thousands of dollars in processing fees over time, leading to significant cost savings and improved profitability.
Increase Cash on Hand
With more customers paying in cash, you’ll naturally have more cash on hand for your business. Encouraging cash transactions through a cash discount program leads to increased cash flow and immediate access to funds. This means less waiting for credit cards to batch out, and for your processor to deposit your funds. Implementing a cash discount program can improve cash flow for businesses by incentivizing more cash payments.
Velocity Merchant Services is excited to introduce you to this new way to utilize our technology. Now you can eliminate virtually all of your credit card processing fees. With our Cash Discount Program, you will not be charged a percentage rate or transaction fee on ANY card you take, backed by a leading merchant services company established in 1998.
We’ve made our program easy to implement and use. Learn more, or enroll in our cash discount program today.
Implementing Cash Discount Programs
Implementing a cash discount program is a smart move for business owners who want to reduce credit card processing fees and improve their bottom line. The process begins with understanding how cash discount programs work and ensuring your approach aligns with federal and state regulations. A true cash discount program is designed to reward customers paying with cash, check, or ACH by offering them a lower price, while customers paying with credit or debit cards pay the standard posted price, which includes the processing fees.
To get started, review your current pricing and determine the appropriate discount to offer for cash payments. This typically involves setting your regular prices to include the cost of credit card processing, then providing a discount at the point of sale for customers who choose to pay with cash. It’s important to clearly communicate this pricing structure to your customers, both at the register and on receipts, so they understand the benefits of paying with cash.
Compliance is crucial when implementing a cash discount program. Make sure your program follows all federal and state regulations, and that you are not inadvertently running a surcharge program, which is subject to different rules. Recent changes, such as Visa’s new surcharge rule and what it means, also affect how businesses can structure fees. Working with a reputable provider like Velocity Merchant Services can help ensure your discount program is set up correctly and legally.
By implementing a cash discount program, you can pass processing fees on to card-paying customers while rewarding those who pay with cash. This not only helps offset credit card processing costs but also encourages more cash transactions, ultimately improving your cash flow and profit margins. With the right setup and clear communication, adopting a cash discount program can be a seamless and cost-effective solution for your business.
