Originally published in Payments Journal
Today there are a multitude of ways to pay – cash, check, credit card, debit card, mobile and online, which is convenient for the younger, tech-savvy generations. However, integrating complex payment technology that requires an overhaul of existing hardware and software can challenge a business owner’s ability to keep their business viable.
One of the most common complaints of small retailers like convenience stores, bars and single location restaurants is the high cost of accepting credit and debit cards. Card processing fees can cut into already thin margins for many business owners.
Demystifying the Cash Discount
Surcharge fees are often confused with cash discounts, creating uncertainty as to the application and legality of cash discount programs. The 2010 Dodd-Frank Law, in the Durbin Amendment , states that businesses are permitted to offer a discount to customers as an incentive for customers to pay by alternative methods. The distinction is best explained through the posted price of an item or service. According to a Visa representative , “merchants can provide a lower price for cash acceptance… However, merchants are not permitted to post a price for cash and then charge a higher price for cards.”
With a cash discount program, merchants can give customers the option to pay a discounted price when they pay with cash. This eliminates the storewide service charge and reduces costs for both the customer and business owner.
Better for Business, Better for Customers
Once the difference is understood, it is hard to dispute the benefits of a cash discount program for both retailers and their customers. Benefits include:
- Reduced Fees . The most obvious benefit is reducing or eliminating fees associated with credit cards usage. Merchants are able to reduce processing fees that cut into their profit margins and consumers avoid credit interest rates on small purchases.
- Simplicity . A discount program is easier for employees and customers alike to understand. Since all items in the store are priced with a built-in service fee that is deducted if consumers pay with cash, pricing disputes, interest rates, processing fees, chargebacks and other complicated accounting items can be drastically reduced for all parties.
- Less Debt. Merchants are able to retain more profit and reduce credit card charge offs. Consumers are also less likely to rack up significant credit card debt if offered a discounted cash option.
With so many types of payment options, credit card processing can be a challenge for businesses with smaller budgets. Retailers who are looking to reduce fees that cut into their profit margin can take advantage of cash discount programs, while offering customers more affordable pricing.
