What’s Cash Discounting?

In researching and speaking to payment processors, you might have encounter something called cash discounting. When it’s new to you or not, our merchant services specialists are here to break it down.

How Do Money Coupons Work?

Traditionally, business owners are charged a percentage of every credit card transaction. Cash discounting moves these processing charges on to customers using credit cards so companies don’t take the financial hit.

Say a client is charged 10 bucks for their purchase. If they decide to pay in money, their total will remain the same. But if they decide to pay using a credit card, the customer will be charged a small fee as part of the purchase total to cover payment processing. Rather than being billed an even 10 bucks, the consumer may be charged 10 bucks and 39 cents.

Money Discount vs. Surcharge

Something important to bear in mind is that there is a fine line between a cash discount plus a surcharge. When you provide a discount to customers who pay in cash at the register, that is a cash discount. When you charge an extra fee to clients who pay using a card in the register, that is a surcharge. In the U.S., money discounting is legal in all 50 states. However, there are rules against surcharging and it is illegal in 10 states.

Contemplating a Cash Discount Model

Money discounts seem pretty good, right? But the reality is that not all companies will be successful with a cash discount version. We have outlined a few points to take into account below.

  • Industry Norms. How common are cash discounts in your business? Does this make sense for your company to charge processing fees?
  • Purchase Levels. What is your average sale? Based on how big or small your transactions are, it may make sense to have a fixed processing fee.
  • Security Risks. While there is less of a possibility of credit card fraud when you get more money payments, it’s also easy to walk into a store and steal money from a register.
  • Competitors. Do you have regular clients? Can they become frustrated if they prefer paying with a card and take their business to your competitors?
  • More Money Purchases. Cash discounting might lead to more cash purchases. Have you got the time and staff policy to make more frequent trips to the bank?
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Additionally, there are lots of guidelines vendors must follow if they use cash discounting. This includes money discount signage being posted in the door and at checkout, in addition to the service fee, base amount, and total transaction cost being clearly displayed on receipts. (There are rules where those came from… so get in contact with us if you would like to find out more!)

Cash Discounting + Your Organization

If you’re contemplating cash discounting for your small business but want to be certain it’s the correct move, don’t be afraid to reach out to our product specialists. As soon as you’ve put some thought into the fundamentals, we can help you determine whether a cash discount will be beneficial or not.

And if you are already sold on money discounting, be certain that you’re working with business experts to execute it. Without the right technology programmed into your system, you need to cash discount manually, leaving room for error. If a fee is wrongly applied to a transaction, it may be thought of as a surcharge and potentially damage your company.

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