Cash Discount Program for High-Risk Industries

Accounts Wizard
November 23, 2021
cash discount

Cash Discount Program for High Risk Industries

Credit card processing for high-risk merchants has many benefits, such as selling online, selling internationally, and offering multiple payment options to customers. These benefits consequently lead to others, including improved seller-customer relationship, increased sales, and business growth.

However, accepting credit cards also has a big drawback: processing fees. You, as the merchant, pay these processing fees, which means you lose a percent of your profit. And, no one likes to see part of their money going away, right?

Well, the processing fees go hand in hand with credit card processing so there’s no way to avoid them. But, there is a way to not pay for them. It’s known as a cash discount program.

What Is a Cash Discount Program for High-Risk Industries?

The cash discount program for high-risk industries allows merchants to save money while accepting credit card payments. Using this program, merchants don’t pay for the credit card processing fees but the customers. In that way, the merchant receives the full amount of funds processed in a day.

By receiving 100% of the profit, you will save with each transaction and improve your cash flow. You can use the saved money to cover some unexpected expenses, invest them in your business, or do whatever you want to do with them.

On the other hand, the cash discount program incentivizes customers that pay in cash. Merchants offer a discounted price (around 4% of the full price) for in-cash payments because cash is much easier to process and there is no middleman – the card-issuing bank or credit card processing company. Plus, by offering a small discount to the customers, you make them want to spend a bit more, which leads to more sales.

Are Cash Discount Programs Legal?

Cash discount programs are legal in the United States as long as they follow the laws. They are allowed by the Durbin Amendment of the 2010 Dodd-Frank Law to encourage customers to use cash payments instead of credit card payments. When using a cash discount program, you must comply with state and federal laws as well as the policies from the credit card associations.

It’s very important to understand that a cash discount program is NOT a surcharge. A surcharge is when the credit card processing fees are added to the regular price of a product at checkout and customers pay it. And, of course, it’s illegal!

A cash discount program allows you to offer your customers a discounted price per product if they pay in cash. If they pay with a credit card, they will pay the full price, without a discount. So, you don’t add the processing fees to the full price, but the customers pay the full price without a discount.

Cash Discount Programs vs a Surcharges

Speaking of cash discount programs and surcharges, let’s dive a bit deeper to understand them better.

At first glance, there’s not much difference between these two since the customer covers the processing fees in both scenarios. However, it’s not like that. In fact, there’s a big difference between a cash discount program and a surcharge. Better said, there are several differences that make cash discount programs legal.

Differences Between a Cash Discount Program and a Surcharge

     1. The Method

The first difference is in the method itself. Namely, the cash discount program gives a small discount to customers who pay in cash. Those who pay with a credit card are charged the full price which includes the processing fees.

On the other hand, the surcharge adds up the processing fees to the product’s price. That means the customer pays more than the actual price of the product(s) they buy. This is considered illegal in many states in the US and it’s forbidden.

     2. The Level of Compliance

Both, cash discount programs and surcharges are regulated by laws. According to them, cash discount programs are legal and merchants can offer them as long as they comply with the laws.

On the other hand, surcharges are not legal because they increase the price of products so that customers cover the processing fees. They are not supported in many states across the continent. As a matter of fact, there’s no option to charge surcharges in some states.

Moreover, since they aren’t legal in all 50 states, merchants first need to learn the laws before adding a surcharge.

     3. Applicability

Another very important difference between cash discount programs and surcharges is their applicability. Namely, you can offer a cash discount program to all types of payments that are not in cash. This includes debit card payments, credit card payments, ACH payments, and similar. On the other hand, you can add a surcharge only to credit card payments since their processing fees cause higher costs to merchants.

     4. Customer Satisfaction

Customer satisfaction is one of the most important factors that determine the success of a business. If a customer is satisfied by a merchant’s products, prices, and service, they will continue shopping at the merchant’s store and vice versa. That’s why you have to be very careful what you offer to your customers.

By offering a discount to customers who pay in cash, they will be happier and even more loyal, no matter how small the discount is. As a result, they will keep on coming back to your store.

On the other hand, by adding a surcharge to your customer’s bill, they will notice it sooner or later and won’t be happy for paying a higher price. As a result, they won’t come back to your store again. Moreover, they may leave a bad review online and spread the word about your surcharges, which will lead to great financial loss and, eventually, closing your business.

Benefits of Cash Discount Programs for High-Risk Industries

Cash discount programs have many benefits for your business, including:

Eliminate Credit Card Processing Fees

By using a cash discount program, you get rid of the much-hated credit card processing fees. If your customers pay in cash, they get a discount because you won’t pay the fees. And, if they do pay with a credit card, they pay the full price, which includes the processing fees. So, you win in both cases!

Offer Your Customers More Choice

When you offer a cash discount to your customers, you give them the option to choose between two prices: a discounted one and a full price. They can choose which one they want to pay. Either way, this is great for your business since discounts attract more customers, especially those hunting for bargains. Even if your customers choose to pay the undiscounted price, you will still be free from paying the processing fees.

Ensure Constant Profit Margins

When customers pay with a credit card, the payment processor charges a fee for each transaction. This not only reduces your profit but also doesn’t allow you to keep track of your profit and plan your budget ahead.

Fortunately, cash discount programs eliminate these issues since you don’t pay the processing fees. This means you keep your profit entirely and know exactly how much you’ve earned so you can plan your budget in advance.

Increase Cash Flow

Cash purchases may be old-school but they still have many benefits over the modern payment methods, such as mobile payments and contactless payments. First of all, there are no processing fees. Second, there’s no waiting for the transaction to process. And, lastly, you get your money instantly as they are physically present, not electronically stored in your bank account.

Simplify the Payment Process

Cash discount programs encourage customers to pay in cash. By doing so, you reduce the risk of chargebacks, fraud, data breaches, and other issues that arise when using credit card payments. Plus, you eliminate the middleman, a.k.a. the credit card payment processor, so your transactions are processed in no time.

Boost Sales and Support Business Growth

Cash discount programs are a great marketing tool for businesses. You can use discounts to attract more customers and boost your sales. By getting more and more customers, your business will grow and expand. Most importantly, you retain your customers, which ensures the success of your business.

Drawbacks of Cash Discount Programs

Offering a discount to customers who pay in cash has many benefits. However, it also has some drawbacks which may or may not occur but you need to be aware of. Those are:

  • Customers may still prefer credit cards over cash because it’s more convenient.
  • Customers may consider your cash discount program as a penalty for using credit cards for making payments.
  • Accepting cash requires more work, including going to the bank to deposit the money into your business account, calculating and providing change to customers, constantly counting your cash register.
  • Higher risk of mistakes, such as having more or less money in your register as a result of a miscalculated change.
  • Higher security risk – There are many ways you could stay without your money. For example, if thieves break in, they can easily open the drawer of your cash register or safe and take all your money. Also, you can lose them while rushing around, serving customers. And, in case of a disaster, e.g. an earthquake or fire, you will lose all your money.

How to Start Offering a Cash Discount Program as a High-Risk Merchant?

You’ve thought and thought and decided to offer a cash discount program to your customers. But, how to get started with it?

One way is to ask your high-risk merchant processor for help. Any merchant services provider can offer you a cash discount program whether they advertise it or not. However, we advise you to choose the program your provider offers because it’s much easier to switch to the program. You won’t have to replace the hardware and software or change your provider.

The other way is to look up the best cash discount programs available, read about them, and then decide which one to choose.

Regardless of which option you choose, the process of setting up your cash discount programs includes the following steps:

  1. Sign up for the cash discount program you have chosen
  2. Have your hardware and software reprogrammed to process cash discounts automatically.
  3. Add a notice in your store that you offer a discount for cash purchases.
  4. Share the news that you offer discounts for cash purchases to your website and social media profiles.

That’s it!

As you can see, setting up a cash discount program is simple. It doesn’t require much work on your side and the whole process takes only a few days. It all depends on whether you’ve chosen a program your merchant provider offers or not and how quickly they will reprogram your hardware and software.

Cash Discount Program Implementation

What Do You Need to Implement a Cash Discount Program?

Comply with the Laws

As a high-risk merchant, you need to make sure you comply with all state and federal laws as well as the cash discounting policies set by the credit card associations. Make sure you read all there is about the laws and the credit card associations’ policies before implementing your cash discount program.

Use Proper Signage

Another thing to take into account is the use of proper signage. This means that you need to add signage, either as a simple notice or a banner, to your storefront to tell people you offer discounts for cash purchases. You have to do this before you start applying discounts.

Have Your Hardware Reprogrammed

While you don’t need any special hardware to start with cash discounting, you do need to have your hardware reprogrammed. It doesn’t matter what type of hardware you use since every POS system, credit card terminal, and mobile card reader can be reprogrammed to apply the discount automatically when there is a cash purchase.

Train Your Employees

If you have employees, you need to train them properly so that they know the rules of the cash discount program. Although your terminal will automatically apply discounts, your employees need to know the program well so that they can present it and explain it to the customers.

How to Implement a Cash Discount Program?

Offering a cash discount program is a great way to attract customers, increase your sales, and grow your business. However, you need to know how to implement it properly.

Fortunately, implementing the cash discount program you’ve chosen isn’t complex. To do that, you need to follow these steps:

  • Determine the amount of your discount – How much discount do you want to offer to your customers? Is it 1%, 2%, or maybe more? To calculate your discount properly, you should consider the percent you have on credit card processing and the average profit margin.
  • Plan how the program will work – Will you offer discounts only to customers who pay in cash? Or, maybe you will apply the discount to gift cards as well? While this is up to you to decide, it’s a good idea to apply the discount to gift cards if you already use them since it will add another incentive to customers who buy prepaid cards. By doing so, you will make them want to buy from you again and again, thus becoming loyal customers. Plus, it will attract new customers who will buy prepaid cards.
  • Explain the program to your employees and customers – They all need to know how the program works exactly.
  • Makes sure your hardware is properly programmed – Your POS system, terminal, or whatever payment hardware you use has to be programmed to automatically calculate the discount when there is an in-cash payment.

Final Thoughts

As a high-risk merchant, you know how important credit card payments are for you. But, the associated processing fees take a good percentage of your profit. This makes deciding upon whether to accept credit card payments or not really hard.

Using a cash discount program will help you grow your business even without credit card payments. Even if your customers choose to pay with a credit card, you will still keep your profit because they will cover the processing fees.

We know this sounds awesome… what about you?


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