Starting and maintaining a business can be an expensive but rewarding endeavor. With payroll, utilities, inventory, service fees, payment processing costs, and other necessary expenses, business owners always look for ways to increase their bottom line.
Top Expense for Businesses:
Credit card processing fees are one of the few expenses that business owners can quickly reduce. This low-hanging fruit can no longer be ignored because credit card processing costs are one of the most significant expenses for most business owners.
Cash discount programs can allow you to accept credit card payments without paying credit card processing fees.
Typically, processing fees are wrapped into the price of the product. This way, the business does not have to “pay” for the processing costs for offering the convenience of credit card use.
Customers who prefer cash payments benefit from cash discounting by paying in their preferred method.
Simply put, a cash discount processing program is the price of a product when paid for in cash, without the extra merchant fees charged by the merchant account from significant credit card companies. In other words, it is the cash price of the product without any added costs.
Many businesses worldwide have embraced cash discount programs. The reason why is apparent, almost all business owners lose around 2-4% in merchant service fees per transaction by accepting major credit cards and debit cards.
In today’s world of immediate gratification, everyone wants easy and quick discounts or rewards. This has made businesses adapt by giving customers what they want and offering prompt cash refunds or cash discounts.
Adding a credit card terminal and credit card processor can often seem expensive to new business owners looking to avoid additional expenses. However, one way to ensure the money keeps coming into the business is by accepting credit cards.
New business owners might be surprised to find that there are many ways to reduce the costs and service fees associated with using credit card processors for debit cards and credit card transactions.
Although there is no way to eliminate all costs, the added benefits of accepting credit cards and debit cards from customers, paired with a cash discount program, cash discounts, and monthly processing volume, should outweigh any expenses incurred from having a merchant account.
What is a Cash Discount Processing Program?
Cash Discounting is Becoming Popular in the US
Yet, they have been provided for years by many businesses already.
Cash discount programs are offered across the country.
The use of cash discounting can be seen everywhere. For example, gas stations currently sell fuel at a cash discount. This can be seen by cash discount signage placed directly on the gas pumps, advertising a lower price for customers who prefer cash payment.
While many customers prefer the ease of credit card payments when making purchases, many still prefer cash payments when they see the cash discount price.
How does a Cash Discount Work?
As previously mentioned, credit card processing fees are typically included in the price of an item.
You can ensure steady profit margins by including credit card processing costs in your initial price points.
This approach lets you focus on running your business without worrying about hidden fees or unforeseen charges.
A processing fee is delivered by applying a small customer service fee to all client transactions. However, this cost is waived if the customer pays with cash or an in-store gift card.
A true cash discount program will automatically calculate the service charge, or cash discount amount, based on the form of payment.
The merchant processing provider handles all your credit card transactions and remits them to the merchant service provider. When a customer pays cash, there are no credit card processing costs, chargebacks, or hidden fees to worry about.
Cash-paying customers help companies avoid paying the processing fees that many significant credit cards charge. When your customers pay in cash, you will have more physical money available for daily needs like payroll, supplier payments, or general upgrades to your business.
Cash discounts mean the merchant offers customers a lower price if they make a physical cash payment instead of a debit or credit card.
Are Debit Cards Considered Cash?
Yes and no. A debit card can only be considered for cash discount programs when a PIN is entered. A debit card presented as a credit card will incur merchant processing fees and is, therefore, never included when discounting a sale for cash. For this reason, most cash discount programs exclude PIN debit as an option, meaning anytime a card is used to pay, no cash discount is available.
Are Cash Discount Programs and Surcharge Programs the Same?
It is important to know that cash discount and surcharge programs are different.
A cash discount program works by giving customers a discount for making cash purchases while also allowing the business owner to completely eliminate processing fees for a credit card transaction to their merchant account.
A surcharge program adds a fee at the point of sale, increasing the total amount the customer must pay to complete their purchase. These programs only support passing on fees for credit cards, and the business owner must still pay processing fees for debit card transactions.
Surcharge Programs:
With a credit card surcharge program, the credit card processing fees are added to the total price of the product or services rendered, passing the processing fee onto the customer. Surcharge programs involve adding a flat fee or percentage markup to the price of goods or services if a customer pays with a credit or debit card. The additional fee can help cover the costs associated with credit card processing fees and merchant services/service fee(s).
What are credit card surcharges?
Credit card surcharges are additional processing fees added to credit card transactions by credit card processors. These surcharge fees are typically added to the price of a product or service when a customer uses a specific type of payment method, such as a credit card. The extra fee is designed to offset the monthly costs of accepting that particular payment method, such as the transaction fees charged by many payment card networks.
Extra fees can be applied to other payment methods, such as mobile payments, debit card transactions, or electronic check payments.
In some cases, businesses may offer cash discounting for customers who use cash or check to pay for their purchases to offset the cost of credit card processing.
Why Would You Implement a Surcharge Program?
Surcharge programs can offset the costs of accepting particular payment methods, such as credit cards, and businesses apply surcharge fees.
Credit card companies and other payment processors charge merchants transaction fees for credit card processing.
These fees can be substantial and accumulate over time, particularly for companies with a high monthly processing volume.
By imposing a surcharge fee program, businesses hope to recuperate a portion of these costs and avoid incurring a financial loss due to taking credit card payments. Surcharge fees are often a percentage of the total purchase amount and are added to the price of a product or service when a specific payment method is used.
Knowing that you cannot just assign a surcharge to a transaction is essential. This is why working with your merchant account and discussing different surcharge programs is necessary.
Surcharges over $10.00 charged to the customer at the register/check-out time do not comply with laws. It could cost your business additional expenses in fines. Sometimes, it can cause you to shut down the merchant account, leaving you without your merchant services provider.
Working with your merchant service provider to set up a surcharge program to collect surcharge fees that complies with laws, rules, and regulations is essential. This can eliminate any chances of losing your merchant service provider or fines. As well as ensure you are successfully collecting or incorporating card processing fees, monthly fees, or any other additional fees.
What is the Difference Between a Cash Discount Program and Surcharge Fees?
When it comes to offsetting the costs of card processing fees, business owners who accept credit cards may decide to implement one of two distinct forms of financial strategy to recoup the money spent on credit card processing fees: Cash Discount Program or Surcharge Program
A cash discount program is a type of incentive businesses offer to encourage customers to use cash or other payment methods with lower processing costs for the company. For instance, a business owner may offer a 3% cash discount on all cash purchases. In this case, a customer who spends $100 and pays with cash would only pay $97 ($100 – $3 cash discount). The goal of this program is to encourage customers to use some money so that the business can avoid processing fees and other merchant services associated with credit card processing. The cash discounting method provides the customer and the merchant with immediate gratification.
On the other hand, the same business owner may include an additional 3% processing fee for purchases for customers who pay with credit cards. This would mean that if a customer purchasing a product for $100 uses a credit card to pay for it, the total purchase price would be $103 ($100 for the product + $3 for the surcharge fee). Extra credit card fees are often called service or convenience fees and are added to most major credit card sales.
A surcharge program adds additional fees to the base price of a product or service when a customer uses specific payment methods, such as a credit card. The additional fee is designed to offset the processing costs of accepting that payment method, such as the transaction fees charged by credit card companies. Surcharge program fees are typically a percentage of the total purchase amount, not a flat fee.
In summary, a cash discount program will reduce the price offered to customers using specific payment methods that are less costly for the business. In contrast, a surcharge program adds cost to a purchase when a customer uses a particular payment method to offset the cost of credit card processing and merchant service fees.
Is a Cash Discount Legal?
Yes, a cash discount program is legal.
Programs that provide cash discounting to customers paying cash are permitted under the law because they allow customers to save money while cutting back on the business owner’s credit card processing costs. Nevertheless, cash discount programs must be available to all clients unbiasedly and consistently.
Customers routinely voice concerns about the authenticity of cash discount programs. They frequently believe that it is illegal to operate such initiatives in the states they reside in. However, this misconception is unfounded due to the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.
The term “discount” is defined under the Durbin Amendment as a price reduction method provided below the originally posted cost and communicated to the consumer.
The modification emphasizes that to qualify for a cash discount, there first needs to be a price reduction. A merchant cannot mislead consumers regarding the accurate cost of a product by only displaying the cash price. The stated price must include any surcharge or processing fees to keep the cash discount program legal.
How do you explain a cash discount program to customers?
When establishing cash discount programs, it is critical to ensure customers know the program’s specifics and how it works. One of the most important aspects is to avoid posting the cash price of products and instead post the price that already includes the credit card fees. Rather than justifying card processing fees, the company should emphasize how people can save additional money by paying with cash. It is easier for people to trust a business when it focuses on the discounts available instead of any charges the merchant services provider may impose.
A business can post signage at the entrance, near specific products, or at a cash register, informing customers how to save money by paying in cash. The specifics of the cash discount should be clearly explained here. Many payment processing companies will provide signage to business owners. Employees can also verbally inform the customer about the cash discount program and how cash discounting works.
The customer’s cash discounts can also be shown on the receipt. The discount will appear on the receipt to emphasize what benefit someone receives from a cash-based transaction. By customizing your receipt details, you can ensure customers see their savings by adding their cash discount.
How Much of a Discount Should The Cash Discount Program Be?
The type of business, the typical transaction size, the monthly processing volume, and the expense of processing electronic payments are just a few of the variables that might affect the amount of discount granted through cash discount programs.
Customers who pay with cash typically receive a minor discount from cash discounting programs, typically between 1 and 3 percent of the total transaction value. These cash discounts seek to decrease the cost of credit card processing, which can be expensive due to fees levied by payment card networks and merchant service processors while encouraging customers to pay with cash.
A cash discounting program’s discount percentage must be carefully considered because offering a discount that is either too big or too small may not be cost-effective for the business or sufficiently entice clients to pay with cash rather than a credit or debit card.
The best discount for a cash discount program will ultimately be determined by the merchant services provider and should be carefully studied in light of the advantages and disadvantages of providing a discount.
Summary of Credit Card Processing
Adding a merchant service provider can initially sound daunting to new business owners. However, to be successful in the ever-changing market, a merchant service provider is necessary for doing business.
Businesses shouldn’t fear credit card processing fees for credit card transactions. Instead, they should work with their merchant service provider and see how to recoup costs associated with merchant service fees effectively.
To offer the best experience to the customer, it’s vital to provide a variety of payment options for your customer. This includes credit, debit, and mobile payments.
Customers paying cash can be offered cash discounting for their cash purchases as long as the cash discounting is offered relatively to all customers.
Businesses should look at the added value of having a credit card processor.
Doing so allows them to increase significantly the number of sales transactions that can be made. Which then leads to a more significant average profit margin.
At the end of the day, we do business to make money! So why not take advantage of credit card processing?!
