Is the Cash Discount Program Right for My Business?

Cash Discount ProgramCash discounting is becoming increasingly popular among merchants throughout the United States. In fact, the number of businesses who are using a cash discount program has doubled over this past year alone. Cash discounting became legal in 2010 through the passage of the Dodd-Frank Wall Street Reform Act, and subsequent court rulings have affirmed the right of businesses to offer a discount to customers who pay with cash.

How Does Cash Discounting Work?

A cash discount program is similar to a surcharge program in that businesses charge an additional fee to customers who pay by card. A typical service fee for paying by card would be 4%. This means that, on a $10.00 purchase for example, the customer would pay $10.40.

There are two main things that a merchant who wants to implement a cash discount program must do to stay compliant with Visa and MasterCard regulations:

– Post visible signage that clearly explains the program; and

– Use a preprogrammed terminal that processes credit card transactions properly.

This signage needs to be present in a place where customers can easily see it. And the terminal must process the transactions correctly, because merchants are not allowed to make an additional profit on a credit card transaction, which might accidentally happen if they tried to implement a cash discount program on their own.

What are the Advantages of a Cash Discounting?

Of course, the number one advantage for merchants who implement a cash discount program is the ability to keep 100% of all transactions, whether they be in cash or credit card. This could mean a very significant savings, depending on your monthly processing volume. And the more you process each month, the better off you will be under the program.

Here is an example of how much you can save through cash discounting. Let’s say you have a restaurant that processes $100,000 in credit card transactions each month. On traditional interchange pricing, you are probably paying an average of 2% to 3% in overall processing fees. It could be higher if you have a clientele that likes to use high mileage rewards cards to pay for their meals, or it could be lower if most of your card paying customers use debit cards.

Conservatively, let’s say you pay 2% overall on the $100,000 in monthly processing volume. This would still mean $2,000 coming out of your profits each month just to cover the cost of your card transactions. With a cash discount program, you would keep all of that money and pay a fixed monthly fee, usually somewhere between $50 and $100 per month for your processing company to run the program and provide support. So, in this example, cash discounting would save you at least $1900 per month.

What would you do with an extra $1900 per month in profit? Use it to expand your business?  Maybe expand your restaurant? Open a new location? Or maybe spend it on some targeted marketing to help grow your customer base.

There are much better ways that you, as a business owner, can spend this money. And this is why merchants (and their interest groups) fought so hard for so many years to obtain the legal right to implement a cash discount program.

In addition to the cost savings, another major advantage of cash discounting is that it is much easier to implement than a similar program such as surcharging. In the states where surcharging is legal (which now include 45 states along with the District of Columbia), there are still many compliance hoops that you must jump through to properly implement the program.

With cash discounting, all you need is the signage and a properly programmed terminal.  There is no need to change any of your prices, because the signage will state that all prices displayed are for cash payments, and a service fee is added for debit and credit card transactions.

On a related note, psychologically, customers are much more likely to accept a cash discount program than a surcharge program. Consumers never like to pay more for the same product or service, but everyone loves to get a discount. Most consumers also know that businesses have to pay an extra fee to process credit card transactions, and when they see that the merchant is only passing along those fees to those who use cards rather than raising prices on everyone, they tend to see that as a fairer pricing structure.

What are the Drawbacks of a Cash Discount Program?

The number one potential drawback of cash discounting is of course the fear that merchants who implement the program will lose customers. This is a very valid concern, and it is really the only reason every business in America who has heard of the cash discount program has not already implemented it. In an increasingly competitive marketplace, no business wants to do anything that might cost them customers, and that is understandable.

The question is, does a cash discount program really scare away customers? The answer to that question is different for every business. The good news is, cash discounting has been around for several year now, and so far, nearly all of the merchants who have implemented this program have not seen a decline in business.

By and large, customer reactions to cash discount programs have been similar to how they would normally react when a business implements a small price increase. During the first couple weeks, one or two customers might complain. But after a month or so, everyone adjusts, and those who are concerned about the nominal service fee simply start paying in cash.

One thing you would want to look at when considering whether or not the cash discount program is right for your business is your average ticket cost. Going back to the restaurant example, customers are not likely to complain too much if they have to pay an extra $.80 on a $20 meal, or even an extra $4.00 on a $100 meal. This is about the same as an ATM fee, and consumers have grown accustomed to convenience fees like these in our increasingly digital age.

On the other end of the spectrum, let’s say you are a building contractor and your customers pay you $10,000 or more for a typical job. In this scenario, they might be a little more anxious about paying a service fee when it adds up to an extra $400. It might still make sense to do a cash discount, but the higher ticket price is something you will definitely need to think about.

Cash Discounting as a Marketing Tool

As mentioned previously, offering a discount rather than implementing a surcharge can turn your cash discount program into a positive for customers. You can even use the fact that you are offering a discount for paying in cash in your marketing to help bring in new customers.

The cash discount can also be combined with other positive elements, such as loyalty programs and partnerships with local charities, to help market your brand and foster goodwill within your community.

For example, at National Franchise Business Solutions, we work with a preferred processor that donates a portion of the proceeds from each credit card transaction to a charity that is dedicated to providing nutritional meals for poor and disadvantage kids in the local community. Merchants who process through us are able to highlight this fact, giving customers another good reason to support their business.

Is the Cash Discount Program Right for my Business?

Each business owner will have to weigh the advantages and disadvantages of cash discounting for themselves and decide if this program is right for their business. We make things easier for merchants by allowing them to try out the program without any risk. With us, there are never any contracts to sign or long-term commitments to make. Just give the program a try and see if what we are saying it isn’t true.

We believe that, once you realize the amount of money you can save on the cash discount program, and once you see that the program does not scare away your customers (and can actually help you gain more customers), you will never want to go back to traditional pricing again. But if, for any reason, to the program is not working out for you, we will happily switch you back to traditional processing and still guarantee that we will save you money over what you are paying now.

If you want to find out more about cash discounting and whether or not it might be a good fit for your business, give us a call at 651-202-8636 or email us at franchisecity1(at)