Cash Discount Program: A Simple Guide for Merchants

There?s no denying that COVID has already established long-lasting effects on all sorts of businesses. But ask the owner of any brick-and-mortar store, plus they?ll let you know that COVID killed cash payments.

Unfortunately for business owners, the downfall of cash and the rise of contactless and digital payments has only increased the financial burden of payment processing costs. Furthermore, credit card processing is becoming increasingly expensive for merchants that are now looking for avenues to help them reduce this expense.

With customers preferring non-contact payments, businesses must get creative to encourage cash payments from their customers. One way to do that is through cash discount programs. With cash discounting, consumers can cut costs on the purchases while also lowering payment processing costs for business owners.

Curious if a cash discount program can help your business? Check out our simple guide on cash discounting!

What is a cash discount program?
A cash discount program is when a business offers customers a monetary incentive to pay with cash instead of utilizing a credit or debit card. This can help lower merchant processing fees for the business.

Consumers are drawn to card payments for a number of reasons. They are easy to use, convenient, and often include incentives like cash return or airline miles. So to obtain customers more inclined to create cash payments, businesses have to offer them something better still – discounts!

To be able to encourage cash payments, merchants implement cash discounting by waiving the service fee that comes with card payments. Offering cash discounts to customers can lead to Tidal Commerce clients saving up to 90 percent of these monthly payment services fees.

How does cash discount work?
The best part about implementing a cash discount with a merchant services provider like Tidal Commerce is that the complete process is built directly into your payment terminal. The software is made to encourage your clientele to pay via cash or gift card.

When a customer goes to check out, a small service charge is put on the sale. Here, they have the option to cover with cash or perhaps a gift card, that will result in a computerized discount. However, if they choose to continue with a credit or debit card, the standard price which includes the service charge will stay.

The transparency at checkout makes it clear to customers that they will receive a discount if they pay in cash while also empowering them to create their own decision and pay how they want. The result is that the business owner can pass payment processing fees to the customer while also allowing them the opportunity to earn a cash discount.

Is a cash discount program legal?
A cash discount program is totally legal across all of the states in the US, unlike credit surcharges which are illegal in ten states. The Durbin Amendment that passed with the Dodd-Frank financial reform legislation protects the allowance of cash discounts in the united states.

That being said, there are regulations, including state laws and card brand rules, that must definitely be followed when implementing cash discount merchant services. Tidal Commerce will assist you in guaranteeing compliance along with ensuring you have the proper register and door signage necessary.

Great things about a cash discount program
The main goal of cash discounting for most business owners would be to offset their payment processing costs. However, the benefits of a cash discount program don?t end there. A few of the other merchant benefits may even surprise you.

1. Reduce transaction fees
The most apparent benefits for merchants that adopt a cash discount program is reduced or eliminated card-processing fees. When the incentive works and customers choose to pay in cold hard cash, you eliminate expensive merchant fees altogether. If they still move forward with a credit or debit payment, you?ve already built those processing fees into the product’s final price. In any event, you can lower your payment processing fees by up to 90 percent.

2. Encourage cash payments
As we mentioned, bank cards include built-in incentives, so getting customers to improve their payment method can take lots of work. Offering cash discounts will make customers feel like they’re being rewarded for cash payments. This implies you’ll also have faster access to those funds as you won’t have to wait for processing times.

3. Automated terminals
By implementing the cash discount program with Tidal Commerce, there?s little to no focus on your end. The terminals you use, including most third-party terminals, will automatically apply the discount, gently encouraging your customer to cover with cash.

4. Minimize chargebacks
A chargeback is a reversal of a credit or debit card charge, implemented initially as a safety feature for customers paying with plastic. However, chargebacks are really costly for merchants and may be taken benefit of. Cash payments aren’t at the mercy of chargebacks, and when a cash-paying customer wants a refund, there won’t be chargeback penalties for the business.

5. Please customers
Everybody loves a discount. And for many customers, finding a discount just for paying cash appears like being rewarded for nothing. While some companies worry that cash incentives may discourage their customers, people are used to seeing cash discounting at car dealerships, gas stations, and more. A cash discount program allows customers to save lots of money and pay through their preferred method.

6. Simplify statements
Fewer card payments result in more straightforward monthly statements for your business. Since the cash discount program is fully implemented into your existing merchant services, there is no drastic change to your system.

Cash discount vs. surcharge program
While cash discounts may seem the same as a surcharge program on the surface, the way the programs operate is totally different, plus they are subject to different rules and regulations. The key difference is that cash discounts offer a cheap for cash payments, while a surcharge adds additional fees along with the posted price.

Law compliance
Cash discount and surcharge programs each face different guidelines from state legislation or card brand rules. Cash discounts, when implemented properly, are legal in all fifty states. Surcharges are illegal in ten states and require advance notice for some card brands.

Marketing, baby!
While it may just seem like semantics, consumers may behave differently when met with a discount versus a supplementary charge. While at the end of your day, most customers will see that credit card processing fees are increasingly being passed on in their mind, the marketing of the procedure makes an impact. Allowing customers the chance to receive a discount will likely be better received than charging a surcharge for charge card payments.

Is cash discounting right for the business?
Certain businesses may be more inclined to consider cash discount merchant processing programs. For example, hospitality companies offering quick service or casual dining spots can definitely benefit from such programs. Other great fits include retail outlets and boutiques that sell clothing, specialty items, or gifts.

While those forms of businesses may be the best fits, your business may still benefit from cash discounting! If you are not sure be it a good idea for the business, consider the following:

Can you prefer cash payments? An increase in cash payments will also mean a rise in cash readily available. While this minimizes the chance of credit card fraud, it could increase employee theft or target burglary. In addition, you’ll be in charge of counting cash every evening and ensuring it finds the bank safely.

Are similar businesses offering cash discounts? Take note of your competition. Should they?re offering cash incentives, then it?s likely a successful initiative that could be beneficial to you. If customers get a cash discount from your own competitors however, not you, it might drive them to alternative merchants.

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