There are two popular merchant service programs out there that promise to help businesses save money on credit card processing fees. These entail surcharging and cash discounts.
These two merchant service programs don’t focus on providing lower processing rates. They instead concentrate on offsetting the rates that a retailer already spends. The processing charges are passed on to the customers, keeping the retailer’s profit margins in check.
These two points are distinct from one another, but it may be easier for people to plan a cash discount merchant service program than a surcharging system. A cash discount plan is more beneficial, plus surcharging can be inconvenient to some people. There’s also the concern over whether surcharges are legal in certain areas and what limits work here.
The General Concept
Let’s look at what makes these two merchant service programs distinct:
- Cash Discount
A cash discount entails a retailer posting only credit card prices while providing a discount on orders where people pay for things with cash. A customer pays less than the listed price if that person pays in cash. The credit card brands all state that the posted prices people will offer if they provide cash discounts must be for credit cards, ensuring customers know what they are spending when using their cards to make payments.
A surcharge entails a business posting only cash-based prices while charging an added fee for customers who pay for something with a credit card. The customer pays more than the listed price when paying with credit. Anything that entails the customer being charged more at the register than what the listed price shows is interpreted as a surcharge.
The Legality of the Two
Cash discounts are available throughout the entire United States. But surcharging is illegal in some states, including Florida, Colorado, and Oklahoma. While some states have become increasingly lenient on surcharges as credit card companies continue to increase their interchange rates. There is no guarantee surcharging will be completely legal in some places, especially in states where there are limits over what people can charge.
Why a Cash Discount Can Be Easier
The two solutions appear similar, but a cash discount can prove to be more effective than a surcharge for many reasons. A cash discount lists what people will spend on things before choosing to make a payment. By choosing to pay with cash, the customer will end up spending less in the process. Anyone who pays with a credit card will not be surprised by any sudden charges that might appear after a while.
Surcharges Can Be Risky
Surcharges can be challenging because they entail various risks. In addition to the legality of surcharges in some areas, there are many other issues involved with surcharges:
- Surcharges will not apply to all cards. Debit cards are not subject to these totals, primarily because these cards are cheaper and easier to process.
- There may be limits as to how much of a surcharge someone can impose. The value will vary by state, but those that do allow the costs will have rules over what works here.
- Customers could feel offended by some of these surcharges. They may feel they are being punished for using credit cards even though that’s the payment method they would prefer to use.
Some businesses may try to disguise their surcharges as cash discounts. But these surcharges appear after the customer chooses to pay with a credit card. It isn’t a cash discount unless the customer is made aware before paying for something.
A retailer could be in legal trouble if it doesn’t accurately depict how its surcharges work. It could lose access to its merchant account if it does not handle the content the right way. The retailer may also be subject to additional charges and penalties that would offset anything that comes with passing on the costs to the customers.
Cash Discounts Can Still Be Challenging
Cash discounts are more effective when handling payment options, but there are a few points to see when preparing a cash discount plan. Many of these factors entail how some people may not be as willing to pay for items with cash as they would with credit cards:
- The equipment that a retailer uses for processing payments should have support for cash discounts. Automated cash discount technology can help, but not all parties will have access to this solution.
- Providers should be direct in explaining their pricing and fees for planning cash discount systems. They should discuss what they would charge surrounding different solutions while highlighting that their fees aren’t as high as people might expect.
- There should be the option to charge either a flat fee based on average ticket size or a percentage of the sales amount. A retailer should review how much it collects in each transaction and dictate what it will charge from there.
- Having more physical cash in the workplace can be a risk. A disaster could cause the cash to be destroyed, or thieves might directly steal those funds.
- People tend to spend more money on credit cards than cash-based payments. Cash discounts won’t always work for high-value transactions, as people will likely use their credit cards to pay for those things.
- The convenience of using a credit card to pay for things is too great for some people to ignore. Some customers may find traditional cash payments tough to handle, plus they may not get any rewards from these payments like what they would get from credit card transactions.
Merchant services providers are willing to talk with their clients about cash discounts and how they function. The infrastructure and setup for getting such discounts ready should be planned with care to ensure payments will be easy to follow and support. Businesses should not expect all people to immediately be on board, especially since some might still prefer paying for their things with credit cards.