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Cash Discount Program & Credit Card Processing

Credit card fees can be high and add up quickly for businesses. One of the best ways to reduce credit card fees is by working to avoid them from occurring in the first place. Understanding the different types of fees allows businesses to put measures in place to help avoid them. One of these strategies is through the use of a cash discount program.

What Is a Cash Discount Program?

A cash discount program is a program in which a business incentivizes customers to pay with cash as opposed to a credit or debit card. This helps businesses avoid credit card processing fees through an enticing discount or other incentive. Getting customers to avoid using a credit or debit card is tough. It’s the most convenient way for customers to pay, leading consumers to be drawn to that type of transaction. According to one study published through the Pew Research Center, roughly four-in-ten Americans (41%) do not use cash for any of their purchases. This number almost doubled between 2018 and 2022. The incentive or discount through a cash discount program motivates customers to use cash instead.

How It Works

To use a cash discount program, merchants must offer customers a monetary incentive to pay with cash as opposed to credit or debit card. The monetary incentive can come in the form of a discount applied to the transaction when consumers use cash. It is an enticing offer for consumers, who are more inclined to use cash when a discount applies. On the technical side of the transaction, cash discounts can be programmed directly into the payment system that a business uses to track transactions.

Is a Cash Discount Program Legal?

Cash discount programs are a legal way to pass credit card fees to customers in the United States. This makes them an even more ideal way to reduce credit card fees than using a credit card surcharge.

Reduced Credit Card Fees

Cash discount programs are a great way to reduce high fees incurred from credit card processing. Those fees can add up quickly between consumer transactions. Rather than try and find ways to reduce them after they have incurred, it is best to avoid them altogether. However, removing the ability to make a purchase through debit or credit cards altogether could prevent consumers from wanting to purchase in the first place. Instead, cash discount programs provide something even more valuable than ease of purchase – a discount!

Minimized Chargebacks

Cash discount programs help minimize chargebacks for businesses. Chargebacks occur when a card issuer returns funds from a transaction back to the cardholder’s account. These occur during disputed charges for anything from fraud to technical issues with the transaction. Chargebacks can come as a surprise to businesses when they see reduced funds in their merchant account after transactions have already occurred. For small businesses with tight profit margins, these can be stress-inducing.

By promoting the use of cash, merchants are more aware of refunds needing to be issued, as the consumer would have to talk to the merchant directly to issue a refund for cash. With a credit or debit card, this can come from their card issuer instead, making the process less transparent to the merchant.

Cash Discount vs. Surcharge

Cash discounts offer a discount to customers who use cash for their transaction. This is opposed to surcharges, which charge a fee to customers who do not use cash for a transaction. That fee sits on top of the price customers should pay for the purchase.

Should Your Business Use Cash Discounting?

If your business is looking for ways to cut costs on credit card processing fees, cash discount programs can be an ideal solution. In addition to reducing fees, you can increase customer satisfaction through the excitement of making a purchase at a discounted cost. It is a win-win situation for both customers and businesses in regard to transactions. The amount you discount can vary based on the needs and goals of your business. It would be the amount that you could save by avoiding credit card processing fees for the transaction.