There are two types of programs that have become popular with certain types of businesses – cash discounting and credit card surcharge.  With a credit card surcharge, the credit card terminal charges an extra fee when a card is used – with that extra fee shown separately on the receipt.  With a ‘cash discounting’ you post two prices for a product, one if paid with cash and a different price if paid by credit cards.  If someone pays with a credit card, they pay the higher price.  Some states prohibit these types of programs and most states and card brands (Visa, MasterCard) have regulations and rules on how these programs are disclosed to customers at your store.

I have posted some pros/cons of Cash Discount Programs below. 

The Pros of Cash Discounts

Reduce Fees – Obviously, the biggest pro is reducing your out of pocket card processing fees – as the fees are effectively passed on to your customer. 

Less risky to implement than credit card surcharges  – Cash discounting has fewer regulatory restrictions than card processing surcharges. For example, it’s illegal to add a card processing surcharge in 10 states. In comparison, implementing a cash discount is legal nationwide.

Easier to explain than credit card surcharges – If you post the higher credit card prices in your store, it’s relatively easy to explain that all items in the store are priced with a built-in credit card service fee, but that this fee is deducted from the published price if you pay with cash.

Encourages cash payments – Although many people prefer credit cards, a cash discount may encourage a customer to use cash instead of a card for their purchase. These means that you receive your money immediately and have access to the funds right when the customer pays you. There is no wait period or potential for chargebacks with cash payments.


The Cons of Cash Discounts

Not all customers carry cash – Many people simply don’t carry cash anymore, with this number increasing with the growing popularity of mobile payments. Customers without enough cash and opposed to paying the higher price without a cash discount may leave your store without buying anything.

Conspicuous signage – To offer cash discounts, retailers are required by law to post “conspicuous signage” throughout their stores to alert customers of the discount that they will receive of they pay in cash rather than via a credit card. Also, while expressed as a discount and not as a fee, some customers may in fact view the difference between these two prices as a extra fee.

Higher posted prices – One of the requirements of a cash discount is publishing the price including the fees for using credit cards. This will result by definition in high prices than the price if paid with cash. As a result, your stated prices including the fee be higher than other business that do not use this type of pricing scheme.

Potential Drop in Sales  – Multiple studies have show that consumers spend more when using their credit cards. If cash appears to be a more attractive option in terms of managing credit card processing fees, be aware that it could end up discouraging and depressing your overall sales results.

Backlash from Customer – If you post separate prices for cash and credit card sales, you could receive a backlash from customers  paying with credit cards – as they will have to pay the higher price if they use their credit card.

Questions to Ask Your Processor

There are mixed views on whether these types of programs are good or bad for retailers. As a result, you should understand how it would work and what impact it will have on your business.  Here are the questions to ask your processor before you roll out a program:

1) Is this type of program legal in your state?

2) If you decide on a ‘Cash Discount Program’, are there any legal requirements to post signs to customers on this policy?  

3) Is it feasible to list both the cash price and the credit card price at your business (like gas stations do)?

4) Be sure that you understand the cashflow. For If you have a price tag of $100 on the item, how much will a customer using a credit card be charged and how much will you receive? 

5) For a credit card surcharge program, who determines how much extra fee the processor will charge the customer.  So if an item is priced at $100 at the store, can your processor charge whatever they choose?  Or is there a fixed rate stated in the contract?

6) How is this fee disclosed on the receipt?  If you ring up a product for $100, how does the receipt disclose the $103.50 charge (excluding tax).

7) Will the monthly statement from your processor show the total amount of fees and charges that your customers so you can calculate the total % cost of processing? Despite you not coming out of pocket for these fees, you should understand the total processing cost – as the fees charge or discounts made could have been passed onto the customers in the form of a higher price.   

8) Are there any early termination fees or penalties for cancelling prior to the end of the contract?  What would be charged if you cancel your contract after 3 months?

Is This the Right Move for You?

If you chose to implement a cash discount program, make sure you go into it with your eyes open. The biggest question is how will your customers feel about being charged 2.5-4.0% for the privilege of paying with a credit card. This may turn off some customers, particularly if your competitors do not pass on credit card fees so obviously. Follow the rules closely to avoid issues and penalties, and be sure to evaluate the success of the program against any hit to sales you may experience to be sure the program is working for you.