What Is a Cash Discount Program?

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Financial companies charge service fees to process payments. As a result, you may lose between 2% and 5% on every credit card purchase you make. Over the course of the year, that could result in a significant loss of revenue. You could refuse to take credit card payments, but that could alienate a lot of potential customers. Many people do not carry cash with them, or if they do, it is not enough to make significant purchases. Fortunately, however, a cash discount program offers a way to eliminate most of your fees by passing them on to the customer.

How Does It Work?

The listed price for the product includes the service fee that you as a vendor must pay to process a credit card transaction. The customer assumes this charge when choosing to pay with a card instead of cash. When you run payment through the credit card machine, the receipt shows the charge in the interest of transparency.

When a customer chooses to pay in cash, the receipt looks a little different. The customer sees a discount on the receipt where the fee for processing a card transaction has been taken off. He or she pays a little less than the listed price.

How Is a Cash Discount Different From a Surcharge, and Why Is That Important?

A surcharge is an extra fee that a vendor charges to credit card customers on top of the listed price. With a cash discount program, credit card customers pay the listed price, while those who use cash pay a little bit less. In other words, a surcharge adds on to the amount that a credit card customer pays, while a cash discount subtracts from the amount that a cash customer pays. This is a subtle but important distinction because, while cash discount programs are legal in all 50 states, some jurisdictions expressly forbid surcharges.

What Are the Benefits of Offering a Cash Discount?

In addition to reducing or eliminating card processing fees, offering a discount also incentivizes cash payments. This provides you with a marketing tool that can help you get people in the door by playing up “cash sales.” There is less likelihood of fraud with cash payments versus card payments, and because the processing times are eliminated, you have immediate access to funds.

What Requirements Do You Have To Meet?

While cash discount programs are legal in all 50 states, you do have to meet certain criteria to be in compliance. For example, you are generally not allowed to charge credit card customers more than the listed price because you would earn an unfair profit as a result. Therefore, it is important that you charge no more than you would pay in processing fees. You also need to inform your customers of the fees charged with signage at the door and checkout.

The receipt needs to accurately reflect the fee and the discount. Credit card machines, such as the Clover 2, can make this adjustment for you automatically. Otherwise, you would have to make the calculation by hand, which would take up a lot of time and leave you vulnerable to costly errors. Find out about the cash discount options offered by card processing companies. They may offer you extra incentives for enrolling.