Could a cash discount program be right for your business?
Cash Discount Program at a glance
You’ve seen it before, and have most likely participated in a cash discount program. If you’ve ever done business at a gas station, for example. On the sign you saw one price, that is for when you pay cash, and a different, and lower price, if you pay with a card. If you’ve seen this sign, then you have participated in a cash discount program.
Cash discounting basically comes down to who pays to process the check and credit cards that you accept. You the business owner, or the customer who buys your products and, or services. Cash discounting is a way that companies pass the expense involved with processing credit cards directly to the consumer. But, how is it done?
Typically, when a company is on a cash discounting program, the company should have some type of signage that states the price differences depending on how the customer wants to pay. Gas stations have perfected its use, and have made it really easy to see. They typically have large, digital signs that show the difference in prices, whether you pay with cash, or credit. The business owner charges the customer directly.
As a result, they are able to add the money that they used to pay out as an expense, to their bottom line. As attractive as this sounds is it really the best model for your business? How will your customers react to this new plan to transfer the cost of accepting credit cards to them? Could you actually lose business as a result? Is cash discounting even legal?? These are all questions that every business owner must consider.
Weighing out the pros and cons of implementing a cash discount program
Are cash discount programs even legal?
Absolutely
The Dodd–Frank Wall Street Reform and Consumer Protection Act (commonly referred to as Dodd–Frank) is a United States federal law that was enacted on July 21, 2010. Cash discount programs are legal in all 50 states per the act, which states that businesses are permitted to offer a discount to customers as an incentive for paying with cash. For more details, contact one of our representatives.
Absolutely
There are rules to the program, and special equipment that you will need to run a compliant cash discount program. For example, Visa prohibits that you make a profit on this program. They forbid you to charge customers more than what it costs you to process. In addition, your customers have to know that you are on a cash discount program through proper signage, as well as properly programmed line item receipts.
Are there rules to the program, or can I run it however I want?
Discuss the program with an expert
So who should pay?
Should you continue to pay?
Obviously, no business wants to pay an expense, that they don’t have to pay. At the same time, no business owner wants to alienate any of their customers. Choosing to implement a cash discount program really comes down to the percentage of customers who will complain about paying extra to process their credit card. They might not have any cash on them, and don’t want to go to an ATM machine, and pay an even higher fee to take their cash out.
The ATM machine is going to charge $3 – $5. But, is this extra cost of 1 – 4% a deal breaker? Most likely not for small transactions. For example, if you own a restaurant, and you have implemented a cash discount program, and a customer’s total bill ends up being $25.00, the customer would be charged $0.25 cents – $1.00 for paying with their card. Very few people would complain about paying that extra quarter, or even that extra dollar.
However, if the bill is $2500.00, and the extra charge is $25.00 – $100.00, they might think twice. Why not just go to the ATM and pay the $3.00 fee, instead of paying $25.00 – $100.00 just to use their card? If they prefer to go to the ATM, because they don’t want to pay the extra cost, will they come back, or go to another place of business that is not on a cash discount program?
With gas stations, it’s slightly different, because almost all gas stations are on a cash discount program. The customer cannot escape the extra cost. Also, in larger cities and highly populated states, where cash discount programs are common, the customer will have little choice. However, if you are in a location where cash discounting is not the norm, you could lose business as a result.
