Cash Discount Program: A Simple Guide for Merchants

There’s no denying that COVID has had long-lasting effects on all types of businesses. But ask the owner of any brick-and-mortar store, and they’ll tell you that COVID killed cash payments. 

Unfortunately for business owners, the downfall of cash and the rise of contactless and digital payments has only increased the financial burden of payment processing costs. In addition, credit card processing has become increasingly expensive for merchants who are now looking for avenues to help them reduce this expense. 

With customers preferring non-contact payments, businesses must get creative to encourage cash payments from their customers. One way to do that is through cash discount programs. With cash discounting, consumers can save money on their purchases while also lowering payment processing costs for business owners. 

Curious if a cash discount program can help your business? Check out our simple guide on cash discounting!

What is a cash discount program?

A cash discount program is when a business offers customers a monetary incentive to pay with cash rather than using a credit or debit card. This helps lower merchant processing fees for the business.

Consumers are drawn to card payments for a variety of reasons. They are easy to use, convenient, and often come with incentives like cash back or airline miles. So to get customers more inclined to make cash payments, businesses have to offer them something even better - discounts! 

In order to encourage cash payments, merchants implement cash discounting by waiving the service fee that comes with card payments. Offering cash discounts to customers can result in Tidal Commerce clients saving up to 90 percent of their monthly payment services fees.

How does cash discount work?

The best part about implementing a cash discount with a merchant services provider like Tidal Commerce is that the entire process is built directly into your payment terminal. The software is designed to encourage your clientele to pay via cash or gift card.

When a customer goes to check out, a small service charge is applied to the sale. Here, they have the option to pay with cash or a gift card, which will result in an automatic discount. However, if they choose to continue with a credit or debit card, the standard price that includes the service charge will remain. 

The transparency at checkout makes it clear to customers that they will receive a discount if they pay in cash while also empowering them to make their own decision and pay how they want. The result is that the business owner can pass payment processing fees to the customer while also allowing them the chance to earn a cash discount.

Is a cash discount program legal?

A cash discount program is completely legal across all the states in the US, unlike credit surcharges which are illegal in ten states. The Durbin Amendment that passed with the Dodd-Frank financial reform legislation protects the allowance of cash discounts across the country. 

That being said, there are regulations, including state laws and card brand rules, that must be followed when implementing cash discount merchant services. Tidal Commerce will assist you in guaranteeing compliance as well as ensuring you have the proper register and door signage necessary.

Benefits of a cash discount program

The main goal of cash discounting for most business owners is to offset their payment processing costs. However, the benefits of a cash discount program don’t end there. Some of the other merchant benefits may even surprise you.

1. Reduce transaction fees

One of the most apparent benefits for merchants that adopt a cash discount program is reduced or eliminated card-processing fees. When the incentive works and customers opt to pay in cold hard cash, you eliminate expensive merchant fees altogether. If they still move forward with a credit or debit payment, you’ve already built those processing fees into the product's final price. Either way, you can lower your payment processing fees by up to 90 percent.

2. Encourage cash payments

As we mentioned, credit cards come with built-in incentives, so getting customers to change their payment method can take a lot of work. Offering cash discounts will make customers feel like they're being rewarded for cash payments. This means you'll also have faster access to those funds as you won't have to wait for processing times.

3. Automated terminals

By implementing the cash discount program with Tidal Commerce, there’s little to no work on your end. The terminals you use, including most third-party terminals, will automatically apply the discount, gently encouraging your customer to pay with cash.

4. Minimize chargebacks

A chargeback is a reversal of a credit or debit card charge, implemented initially as a safety feature for customers paying with plastic. However, chargebacks are extremely costly for merchants and can be taken advantage of. Cash payments aren't subject to chargebacks, and if a cash-paying customer wants a refund, there won't be chargeback penalties for your business.

5. Please customers

Everyone loves a discount. And for many customers, receiving a discount just for paying cash seems like being rewarded for nothing. While some business owners worry that cash incentives may discourage their customers, people are used to seeing cash discounting at car dealerships, gas stations, and more. A cash discount program allows customers to save money and pay through their preferred method.

6. Simplify statements

Fewer card payments result in more straightforward monthly statements for your business. Since the cash discount program is fully implemented into your existing merchant services, there's no drastic change to your system.

Cash discount vs. surcharge program

While cash discounts may seem the same as a surcharge program on the surface, the way the programs operate is completely different, and they are subject to different rules and regulations. The key difference is that cash discounts offer a lower price for cash payments, while a surcharge adds additional fees on top of the posted price.

Law compliance

Cash discount and surcharge programs each face different guidelines from state legislation or card brand rules. Cash discounts, when implemented properly, are legal in all fifty states. Surcharges are illegal in ten states and require advance notice to some card brands.

Marketing, baby!

While it may just seem like semantics, consumers may behave differently when confronted with a discount versus an extra charge. While at the end of the day, most customers will see that credit card processing fees are being passed on to them, the marketing of the process makes a big difference. Allowing customers the opportunity to receive a discount will likely be better received than charging a surcharge for credit card payments.

Is cash discounting right for your business?

Certain businesses may be more inclined to consider cash discount merchant processing programs. For example, hospitality companies offering quick service or casual dining spots can definitely benefit from such programs. Other great fits include retail outlets and boutiques that sell clothing, specialty items, or gifts. 

While those types of businesses may be some of the best fits, your business may still benefit from cash discounting! If you're not sure whether it's a good idea for your business, consider the following:

• Do you prefer cash payments? An increase in cash payments will also mean an increase in cash on hand. While this minimizes the chance of credit card fraud, it may increase employee theft or target burglary. In addition, you'll be responsible for counting cash every night and ensuring it arrives at the bank safely.

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• Are similar businesses offering cash discounts? Take note of your competition. If they’re offering cash incentives, then it’s likely a successful initiative that can be beneficial to you. If customers receive a cash discount from your competitors but not you, it might drive them to alternative merchants.

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• What is your average ticket price? While you certainly can still offer cash discounts for high-end services or products, the average person will be less likely to have large amounts of cash on them. Cash discounting tends to work best for smaller ticket items like coffee or snacks. 

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• What are your customers saying? You know that old saying, "the customer's always right?" Listening to your customers is always a bright idea. If your clientele is constantly complaining about your cash discount program or alternatively asking why you don't have one, it's a good idea to give them what they want.

The best cash discount program

The best cash discount program is one that can be seamlessly implemented into your existing payment processes. Tidal Commerce clients can rest assured knowing that the software they're already using can be used for cash discounting and lower monthly processing fees by up to 90 percent. In addition, we'll ensure that any cash discount program complies with all relevant regulations and help prepare all necessary signage.

For business owners that aren't already using Tidal Commerce for their merchant processing needs, the transition is simple. Switching to Tidal can save you up to 35 percent on transaction fees. Combine that with our cash discount program, and the savings are endless.

Reach out to us today to schedule a free savings analysis and start saving with Tidal today!

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