Cash Discount Payment Processing

May 18, 2023

A cash discount in payment processing is a useful practice that allows companies to increase their revenue and reduce their total number of overall card transactions. Customers also benefit by receiving a reduced price on their purchase simply based on how they pay.

How Does A Cash Discount Work?

A cash discount is one way merchants can reduce the costs they incur from processing fees. Essentially, offers customers the incentive to pay with cash instead of credit card. A merchant reduces the price of the product in order to get more cash transactions rather than card.

Many companies can offer a cash discount, but the most common place we see it is at gas stations and convenience stores. Some places advertise it on their main price board to show the amount you can save when opting for a cash payment.

What is a Cash DiscountWhat’s The Difference Between Cash Discounting and Surcharging?

Surcharging is when a merchant charges the customer the processing fee they would incur from the credit or debit card transaction. This helps a merchant offset the costs a bank would charge them for their processing and transaction fee. The customer sees it as an additional charge on their bill which is either a flat fee or a percentage of the full payment.

Together, cash discounting and surcharging can eliminate all payment processing costs for the merchant. Whether your customer pays in cash or in credit, there is a way to reduce your ongoing charges and increase your revenue.

Cash Discounts vs SurchargingCash Discounting And Surcharging Together

We often see companies that incorporate both fee reduction strategies at the same time. The reasoning is pretty straightforward. If a customer sees there is a cash discount available, it makes them aware that the business makes a distinction in payment preference. This makes it easier for a merchant to present the additional surcharging fee.

How To Present A Surcharge Fee

Some customers may find the fee unfavorable or question the added costs, however, there are a few ways to handle the feedback and ensure your customer comes back for more business.

  • Ask the customer how they’d like to pay
  • This will help you know beforehand if a customer is going to have to pay an additional charge on the listed price of their purchase, or perhaps get a discount. 

  • Inform the customer of their cash discount
  • Some people prefer paying with cash. They will be grateful for the additional discount they receive.

  • Mention the surcharging fee before taking payment
  • This allows a customer the option to pay with other forms of payment before their final transaction.

  • Clearly state the surcharge fee
  • Some customers aren’t used to seeing a surcharge fee or may not recognize what it is. Listing something like “Paying w/ Credit Card Fee” helps them understand what it’s for.

  • Don’t overcharge
  • The maximum you can charge is 4% for surcharging. More importantly, you legally can’t make a profit on it. Remember, it’s to reimburse you for your fees.

How to Implement A Cash Discount and Surcharge Program

Cash Discount Advertising

Make both of these transaction adjustments apartment. You should have a sign at the entrance of your store and one clearly visible at checkout. More than that, you also have to inform your merchant account provider that you’re incorporating these programs.

Be sure to provide a detailed request in writing to your payment processing provider so they can help you get it setup. They’ll work with the bank to make sure you’re following all regulations. Moreover, they’ll help you get your cash discount and surcharging programs compliant.

The Durbin Amendment And Credit Card Fees

The Durbin Amendment was passed in 2010 with the Dodd-Frank Reform and Consumer Protection Act. It limits card fees charged to merchants. Before this amendment, the card swipe fees “averaged 44 cents per transaction”. With such high rates, banks were benefiting substantially every time a consumer bought something with the swipe of a card. Luckily, restrictions were put in place to give businesses a leg up.

The regulation applies to banks with over $10 billion in assets, so small-time local branches weren’t affected. As a result, more businesses were able to accept credit cards without incurring gratuitous fees. The Durbin Amendment along with surcharging and cash discounting empowers businesses to keep their earned revenue and grow their companies.

May 18, 2023 | Merchants | Dustin