Cash Discount Program

Cash Discount Program2020-03-31T16:02:54+00:00

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Frequently Asked Questions

What is a Cash Discount program?2020-03-30T14:42:04+00:00

Simply put, a cash discount program provides a monetary incentive for your customers to pay with cash. You’re offering a discount for the customer to pay with cash, which makes sense because you are avoiding paying a processing fee for credit card payments.

How does the Cash Discount program work?2020-03-30T15:59:22+00:00

Each processor may have a slightly different version of Cash Discount, with varying degrees of compliance. The two most popular options are:

  • Non-Cash Adjustment
    This is where every item or service offered by the merchant (that’s you) is subject to a percentage service or other fee. This fee is automatically added to everything in the “customer basket” and if paying cash, the service fee is discounted down to zero.
  • Cash Discount
    Imagine you offered a 10% discount to active duty military. If someone walks into your establishment and orders $50 worth of goods, you charge them $50, right? But once they present their military ID, you discount the $50 down to $45. Cash discount in its truest form is simply that – offering a discount based on the customer paying with cash. Typically, merchants using this version of cash discount will execute, with our help, menu or service sheet price adjustments and possibly some point of sale edits.
What is the difference between Cash Discount and Surcharging?2020-03-30T16:19:50+00:00

Consider this example: you offer a 10% discount to active duty military at your business. When someone comes in and presents their military ID, you take 10% off their bill. That’s a discount for a specific circumstance. Swap out military for cash, and you have yourself a cash discount. Surcharging would be where you offer a 10% active duty military discount, but instead of discounting the total for those who can prove their status, you charge an extra 10% to those who can’t prove status. One is a fee added to the total and one is a discount off the total.

My processor says this is illegal and non-compliant.2020-03-30T16:23:37+00:00

Most likely, your processor does not understand how programs like these are executed or doesn’t want to devote the back-of-house resources to maintain a program like this for its customers. Surprisingly, many processor sales agents don’t even know that their company offers programs like this. It’s not usually their fault – the training available in the payment processing space is abysmal at most companies. The Dodd-Frank Act and the Durbin Amendment confirm the legality of programs exactly like this and when structured properly, it is no different than offering $1 off per draft on your brewery of the month feature.

How do customers react to programs like this?2020-03-30T16:27:12+00:00

It depends. The first step is to be compliant and offer the program according to best practices. The second is to train your staff on explaining it in laymen’s terms to your customers. We provide not just the Visa-approved signage for each of our cash discount merchants, but cue cards on how staff can explain it to the customer. Even with all this, yes, there will be a few customers who get upset. In our experience, those customers are split – 85% of them continue to come back and pay cash or just accept the fee and 15% of them stop coming. It’s all about the numbers. The number of customers who complain is less than 5% so you’re looking at losing 25% of 5% or under 1% of your customer base. That seems well worth it to offset your entire processing bill.

Is it worth the headache to offer Cash Discount programs?2020-03-30T17:53:23+00:00

That depends on you. Here’s some numbers to consider:

  • Business revenue from credit cards is $40,000
  • Average effective rate is 2.5% ($1,000 per month in fees)
  • Owner take-home net-profit $40,000 per year

Eliminating the $1,000 per month in fees would increase take-home net-profit by $12,000 per year. On a $40,000 take-home that is a 30% increase. I’d say that’s worth the headache.

But what if a few customers end up leaving? Let’s explore that…

5 customers are angry and vow to never come back. The business profit margin on sales is 20%. Those five customers spend an average of $75 per month each. On that total it’s less than $94 in take home profit… that’s assuming they spend that every month and the profit margin is truly 20%.

What types of businesses are best for Cash Discount programs?2020-03-30T18:02:04+00:00

While any business can benefit from a Cash Discount program, we’ve found it’s best for lower average ticket locations that have destination type traffic. Consider the following comparisons:

  • Zoos, amusement, and other destination entertainment facilities are a better fit than a health club that has regular customers.
  • The beachfront restaurant is a better fit than the local watering hole as the regulars at the local watering hole are more sensitive to changes.
What if my business isn’t a “great fit” but I want to leverage a Cash Discount program to increase my profits?2020-03-30T19:10:26+00:00

We most commonly see this question from merchants with higher average tickets ($100 and up). They are concerned that customers will balk at an added fee of $2 to $4 per purchase and they are smart to be conscious of the customer’s perspective. The key here is giving options and being clear in communication. There are several strategies that can be deployed on an equipment level or adjustments to your existing payment processing equipment. The idea is relatively simple, but the execution requires in-depth understanding of not just the card brand guidelines, but also equipment programming. Reach out to discuss your specific situation.

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