For businesses of any type and size, offering various preferred payment methods is critical to be a player in the game. Merchants can offer a multitude of ways to pay—cash, ACH transfer, eCheck, credit and debit card, contactless, mobile, and online. Various channels make transactions much easier and more convenient for the modern consumer and give small and midsize business owners a spot on the playing field in an evolving economy.
With so many ways to pay, credit and debit card transactions have moved to the forefront of preferred payment methods in the digital payment world. Some small business owners trying to run viable and profitable businesses find it challenging to keep up with the Joneses of the payment realm, trying to understand the industry and formulate a plan to integrate the latest payment technology into their offerings. The need education on how to sustain profitability with the high cost of accepting credit and debit card payments. Card processing fees can cut into the already slim margins for these businesses.
As of 2018, 70% of consumers still pay with cash for every day purchases. How can merchants leverage cash to increase profit margins? The answer is simpler than you might think. Offering a Cash Discount Program can boost profit margins, improve customer satisfaction and loyalty, and reduce the burdens associated with credit card processing fees.
What is a Cash Discount Program?
Cash discounting is often confused with surcharging, a method of passing the monthly processing fees onto the customer by adding an additional fee to the price of the good or service purchased. Whereas surcharging is prohibited in six states, all 50 states consider offering a cash discount program a legally compliant method to offsetting credit card processing fees. Merchants provide value to offering a discounted price to those customers who choose to pay with cash.
By offering a discount to cash-paying customers, business owners keep their entire profit while rewarding customers with a discount. Sound too good to be true?
Let’s break it down. Here are five things merchants need to know about cash discount programs:
Businesses are permitted to offer a discount as an incentive to use alternative payment methods. The rule contingency makes a distinction due to the posted price of a good or service. The posted price, or “regular price,” less a discount, includes the item’s cost and the amount for the credit card processing fee. Simply put, if an item sells for $100 (the true price of the good or service), the “regular price” would be $103.50. If a customer pays with a credit card, they pay $103.50. Merchants offer a discount of $3.50 off of the “regular price” to incentivize the customer to pay with cash.
ACH transfer creates an alternative payment method subject to lesser fees eligible for a discount. The transaction price for a customer using ACH to purchase the same $100 item is $101.00.
By adjusting the price to cover the processing fee, the merchant recovers the cost within the price of the product or service, settling a $100 sale in each scenario. Customers must be aware of the availability of a discount verbally, and all prices must be “regular price” with appropriate signage. The customer receipt must indicate the discount received where applicable, to keep with compliance regulations.
Under the Durbin Amendment of the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act, the law in all 50 states permits merchants to offer a discount as an incentive to cash-paying customers. It prohibits merchants to profit on a credit card transaction; therefore, merchants cannot post a cash price and then charge a higher price for card payments. However, merchants can provide a lowered price for cash acceptance.
A cash discount program eliminates business-wide surcharges and reduces costs for both merchants and customers. The right provider can offer the latest technology and hardware integrations needed, including cash discounting as an effective and compliant method of sharing credit card processing fees with customers.
Cash Discount Programs offer numerous benefits. The key advantages include:
• Eliminating monthly processing fees– Reduce overhead as an obvious benefit of cash discounting. With the fees accounted for and absorbed into your price, it’s like they are nonexistent.
• Keeping profit margins consistent– Cash discount programs allow merchants to accurately budget and forecast for the future. Without a cash discount program in place, profit margins can be subject to inconsistency.
• Increasing cash flow– A cash discount program incentivizes alternative payment methods—ACH transfer, eCheck, and of course, cash. When customers pay with cash, your business has more cash on hand. With the right merchant services provider (MSP), many ACH transactions are eligible for next-day funding without disrupting business flow.
• Boosting customer loyalty– Customers love receiving a discount; when they know they can receive a deal at your business over a big-box retailer, they will choose to spend their money with you. Knowing that the discount program, you will incentivize customers to plan to have cash on hand when they shop with you, bringing them back time and again.
The downside arguments for offering a cash discount program include:
• Cash is risky– Having more cash on-premise could pose a potential security risk. It is easy for cash to go missing and, in some cases, requires additional labor and costs for transporting, counting, and preventing cash theft.
• Lowered transactions– Several arguments support the theory that customers spend more when they use their credit or debit cards over cash purchases. Encouraging that your patrons pay in cash could result in lower ticket amounts per transaction.
• Credit and debit cards are more convenient– Most consumers expect to make card-based payments in today’s environment and want to do so quickly and easily. With more and more people not carrying cash or turning to contactless payments, encouraging cash payments could aggravate customers and lose the sale.
Communication is Key
Notify your customers that they can receive a discount when they opt to pay in cash or by an alternative payment method over their credit card. This program requires businesses to communicate verbally they offer the discount and post the correct signage at both the door and point of sale.
Ensure the prices posted are the “regular price” of your goods or services, and the discount received is clearly displayed on the receipt.
Educate Yourself on the Guidelines
To have a successful cash discount program, merchants must follow the rules and guidelines set forth by card issuers for cash discounting and surcharges. Research and become knowledgeable about your state’s laws on surcharges and cash discount programs.
Partner with a Merchant Service Provider
Secure a relationship with a merchant services provider (MSP) that offers the latest technology to support both credit card transactions and cash discount programs. Solutions that integrate with your existing business software create a seamless experience for both merchants and customers.
iCheckGateway.com’s automated payment solutions allow you to implement a cash discount program online while staying within processor guidelines and regulations. With the support of ICG, you can eliminate credit card processing fees for the life of your business. Our merchant services offer transparency paired with technology to accept multiple forms of payments giving our merchants the flexibility and convenience their customers want under one manageable platform.
With ICG as a partner, merchants gain a competitive edge to boost revenues, and future-proof their business processes while maintaining PCI-compliance standards, keeping their business data safe and secure.
Contact iCheckGateway.com today for more information about implementing a cash discount program in your business.