Offsetting the Cost of Accepting Credit Cards: Is Cash Discounting Right for Your Business?
You’ve probably been to a service station and noticed that you can get gas cheaper by paying with cash versus a credit card. This type of Cash Discounting program has gained popularity over the last few years in different industries, not just convenience stores and service stations. So, what is Cash Discounting and is it right for your business?
What is Cash Discounting?
Simply put, Cash Discounting is a business offering a discount to a customer who is paying with cash. We see this most often with gas stations and convenience stores who advertise a lower, cash price on their signage. If you are paying with a credit card the price is higher. Cash Discounting is gaining popularity among businesses owners who want to offset the cost of accepting credit cards.
Cash Discount versus Surcharge
Cash Discount and Surcharge are terms often used synonymously; however, they are different. While Cash Discounting is offering a discount to a customer paying with cash, a Surcharge is charging more to a customer for paying with a credit card. Wait, isn’t that basically the same thing? You are not wrong in thinking both sound very familiar. The difference is how each is presented to the customer.
Cash Discounting: requires that the cash price be advertised clearly in your store or for non-face-to-face businesses, clearly listed on the invoice or checkout. The most compliant way to do this is to include both prices, cash and credit card, next to each product. Think of the gas station sign. Changing all the prices on each product in your store may not be tops on your priority list. Many business owners choose to post signage on their door and around the store that says something like this: “All posted prices represent the cash price. There is an additional cost for purchases using a credit card.”
Surcharging: Adding an additional fee to a credit card transaction is called Surcharging. Merchants are required to notify the customer before the transaction takes place, usually with signage at the point-of-sale, and the amount of the surcharge must be listed on the receipt and charged with the original transaction.
In both scenarios, when a customer grabs a product and brings it to the cashier to pay, the point-of-sale automatically adds a pre-defined amount or percentage to the transaction. If they pay with cash, the amount doesn’t change. For businesses that are invoicing their customers, an additional line item needs to be created for the amount of the surcharge.
How Does Cash Discounting Eliminate My Credit Card Fees?
With most Cash Discounting programs, the credit card processor will charge you a flat percentage on your total sales and that percentage is passed on to your customers when they pay with a credit card. For example, if your rate is 3.90%, your terminal is programmed to automatically add that equivalent amount to the transaction. On a $100 sale, you are collecting $103.90 from the customer. Your processor deposits $100 to your bank account and you have no other fees.
Is Cash Discounting or Surcharging Right for My Business?
The ability to pass the credit card fees to the customer is gaining popularity. Whether or not to implement this in your business should be a decision carefully reviewed. We’ve compiled some information for you to consider:
Will I lose customers because of the fee?
If your average sale amount is low ($20 or less,) customers generally do not contest the additional cost. Higher sales amounts make it more difficult to pass on the fees to the customer.
Know your competition. Do my direct competitors have a similar program? If your customer can easily purchase the same product from a competitor at a potentially lower cost, cash discounting may not be right for your business.
Know your customers. The customers of today are very different from yesterday. Many people today do not carry cash and therefore do not have the option to simply paying with cash or check, if that is a payment option. Review your customer demographic and take them into consideration when thinking of a Cash Discount program.
Does a Cash Discount Program eliminate all my fees?
Essentially, yes. You are passing the cost of the processing fees to your customer. There may be some ancillary fees that could be charged to you, such as chargeback or PCI fees.
Eliminating your credit card processing fees is very appealing, but it may not be right for you. Does your business have higher transaction amounts, even large ticket items over $10k? Are you primarily a Business-to-Business seller? Maybe just having an expert review your current processing for reduced processing rates for commercial cards is the best option. Contact us to speak with a payments expert. The team at our siste company Swype at Work can review all the different options and what is best for your business.