What Is a Cash Discount Merchant Services Program?

One way you can cover the increasingly expensive credit card merchant fees you might spend is by sending the charges to your customers. One solution that works in this situation entails a cash discount merchant services program. It is a more effective solution than adding a surcharge, plus you won’t need to worry about possible legal issues surrounding the effort.

A cash discount program entails a business lowering the prices of its products or services on cash-based transactions. A customer who pays for something with cash or a check will pay less than if that person used a credit or debit card to pay for the order.

The program works if you have a small margin in your business. You can keep your credit card charges under control by encouraging more customers to pay for their purchases with cash. You will get more money from your transactions without having to spend lots of money on the surcharges you’d have to pay to a merchant services provider for each card payment.

For example, you may say that you will give your customers a 5 percent discount on their purchases if they pay for them in cash. Therefore, a customer might spend $15 on an order with a credit card, but the cost will be $14.25 for a cash-based transaction.

The customer may find an incentive to purchase something with cash through this effort. But it can be dangerous if a customer is aware of what is happening here, as some people may figure that you’re applying a surcharge even though that’s not the case.

Inspired By Financing

A discount program is similar to a financing plan, as you encourage people to pay for something in cash right now. Financing entails people paying for something over time, but there’s an extra charge for paying for things this way. But a cash payment will not cause anyone to spend extra.

Your cash discount plan will be similar to this, especially since you’re collecting the money right after someone finishes buying something. There’s no need to wait for someone to pay for something later.

Not a Surcharge

A cash discount merchant services program is not a surcharge. You are not adding money to the credit card transaction total. Rather, you are encouraging people to use cash or check payments to pay for what they order.

The cash discount is different from a surcharge fee, as the Durbin Amendment in the 2010 Dodd-Frank Law says that businesses are allowed to provide discounts to customers who pay with specific payment methods. In this situation, the customers will get discounts for paying with cash.

The rule is that merchants can post lower prices for cash acceptance, but they cannot post one price for cash and then say that people who pay with cards must pay a higher price. The customer should not feel as though one is being ripped off for paying with a card if that person prefers this choice.

A Simple Approach That Reduces Debt

A cash discount merchant services program makes it easier for businesses to keep their payments in check without risking as much debt. It is easier for merchants to collect cash payments, plus they can manage their assets well. They’ll have the money they need right away without waiting for card payments to clear.

A merchant also has less risk of debt, as the risk of charge offs will be minimal. Customers will also be less likely to bear with credit card debt if they pay with cash instead.

Is This Legal?

No state laws say that a cash discount program is illegal. While surcharging people for credit card payments is illegal in many places, it is not illegal to encourage people to pay with cash for a discount. But the similarities between the two methods of paying for things could be worth noting, especially given the cloudy area between the two segments.

Be cautious when looking at how you’re going to promote your cash discount. Many retailers who offer cash discounts will post signs or messages stating that the listed prices they offer are based on cash payments and that it costs extra to use a credit card. But the language can be tough to figure, as some customers might assume you must spend extra in the process.

Is This Sensible?

You can consider a cash discount merchant plan if you have a business that traditionally manages small amounts in each transaction. You can promote to people in a business that you will charge less for cash-based payments, and people will become interested in paying for these things that way. This works best if you tend to charge less than ten dollars for each transaction.

For instance, you might spend 3.5 percent plus 10 cents on each transaction you handle. The total can add up if you keep on managing low-level payments. An $8 transaction will cost 38 cents to operate in this situation. While the total might not sound like much, it can add up throughout a business day. Offering an alternative where people can pay less with cash payments is sensible in this case, as you will get your money now and not risk losing more than necessary.

Your business may also be one where people are more likely to use credit cards. Some customers might catch on to your cash discount and think that you’re charging them extra for using those cards. Those customers might become turned off by your business through this point.

Look at how you accept payments from people when figuring out if a cash discount merchant plan is right for your business. You may find it easy for you to get more if you look at what works. Also review how you’re going to let people know about the program before going forward with your work.

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