I’ve witnessed a recent spike in interest in cash discount programs. I’ve heard from our sales executives and partners that business owners increasingly are asking about cash discount programs. Google Trends data indicates that searches for “cash discount program” doubled in the second half of 2017.
This activity made me wonder, why the sudden interest in cash discounts? After all, cash discounts have been around for many years. It also made me curious about the interest in cash discount programs compared to convenience fees and surcharges, which have grown in recent years. Upon reflection, I came to realize that, when implemented properly, cash discount programs combine the most attractive elements of cash discounts and surcharges in a single program.
The topic of cash discounts and surcharges can make your head spin, as they are subject to many specific laws and rules. So, what is a cash discount and is it the same thing as a surcharge?
A cash discount is a reduced price paid by customers who use cash or check rather than a credit or debit card. A surcharge is an extra charge that applies to customers who pay with a credit card rather than other forms of payment, including debit cards, cash and check.
The payment networks such as Visa and MasterCard have specific rules for surcharges to comply with a settlement with the U.S. government in 2012. In addition, ten states prohibit surcharging.
Cash discounts are permitted according to U.S. law and Visa and MasterCard rules. One way of implementing a cash discount program is gaining popularity. Businesses post signs indicating that a service fee such as 3% will be added to all posted prices, but the fee will be waived for those who pay with cash or check. In other words, the fee will apply to purchases made via credit card, debit card and prepaid card – anything except cash or check.
The service fee can offset the costs of processing card payments, yielding significant cost savings for merchants. While surcharge programs are limited by rule to credit cards, cash discount programs have the advantage of offsetting the costs of debit card payments as well. Of course, they also motivate more customers to pay with cash and check. I believe this explains the recent interest in cash discount programs.
Is a cash discount program right for your business? That depends on many factors, as discussed in this blog post.