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Xsellarate Blog


Jon Millikan

Expert Analyst & Contributor

Cash Discount Processing: A Quick Overview

Updated: Sep 29, 2023

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For merchants looking to reduce credit card processing fees, cash discount programs provide an appealing option. Here’s an in-depth overview of how cash discount processing works and its benefits:

What Is Cash Discount Processing? 💵💸

With cash discount processing, merchants can offer discounts or incentives to customers who pay with cash, check, or debit cards. These discounts motivate purchases with cash over credit cards.

It works like this:

  • Merchants set a standard price for all transactions. This is the full, regular price.

  • When customers pay with credit cards, they are charged the standard price.

  • For cash, check, or debit payments, the customer receives a discount off the standard price. Discounts are usually 1% to 4% of the transaction amount.

  • The discount comes out of the fees merchants pay to credit card processing networks on card transactions.

  • By bringing in more cash sales through discounts, merchants reduce their processing fees and retain more revenue per transaction.

Why Do Merchants Offer Discounts?

There are two compelling reasons merchants implement cash discount programs:

1. Lower Processing Costs

Every time a customer pays with a credit card, merchants are charged interchange fees by the card networks. These fees range from 1.5% to 3% of each transaction and quickly add up.

With cash payments, there are no processing fees for merchants. Cash discounts incentivize cash transactions over card payments. More cash sales mean less card fees.

2. Increase Profit Margins

The money merchants save on credit card fees goes right to their bottom line. By reducing fees through cash discounts, they increase profit margins on transactions.

Research estimates merchants can save 10% to 40% on processing costs with an optimized cash discount program. When multiplied over thousands of transactions, these savings are substantial.

The Xsellarate Cash Discount Programs allow for merchants to save up to 90% in some cases.

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How Do Cash Discounts Work?

Here is a step-by-step overview of implementing cash discount processing:

  1. Partner with a Cash Discount Provider

    1. Merchants work with specialized providers like FattMerchant or CardFellow who handle program setup and management.

  2. Configure the POS System

    1. The provider will program your POS system to automatically deduct the discount for cash/debit payments during transactions.

  3. Display Signage

    1. Checkout signs informing customers of the discount are required by card network regulations.

  4. Process Transactions

    1. Employees charge credit cards the standard price. For cash/debit, the discount is deducted from the standard price at checkout.

  5. Deposit the Discounted Amount

    1. The merchant receipt shows the standard price and discounted price for cash transactions. Only the lower amount is deposited.

Have you noticed businesses that utilize cash discount processing in your area?

  • Yes, quite often!

  • I think once or twice

  • I'm unsure

  • I have never see it

What Are the Benefits?

Top benefits of offering cash discounts include:

  • Lower credit card processing fees - discounts reduce card transaction volume which cuts costs

  • Increased revenue and profit margins from reduced fees

  • Draw in new customers by advertising discounts

  • Reward customer loyalty with discounts and build retention

  • Simple to implement for merchants - usually uses existing POS systems

  • Permitted by card networks when program follows all regulations

  • Very positive response from customers who like getting a discount

  • See all benefits: Xsellarate - Cash Discount

Are Discounts Compliant & Legal?

Yes, when implemented properly, cash discounts follow all card network rules from Visa, Mastercard, Discover, Amex, and debit networks. Discounts are distinctly different than credit card surcharging, which is prohibited in some states. Reputable providers ensure full compliance. For a full list of laws and regulations, visit our site:

How Do Customers Respond?

Customers react very favorably to cash discounts for several reasons:

  • They feel good about getting a discount or "getting a deal." It's seen as savings.

  • Cash discounts reward the behavior of using cash, which customers appreciate.

  • Discounts actually change purchasing behavior. Customers will deliberately pay with cash/debit to obtain discounts.

  • Clear signage and staff communication prevents confusion about the pricing model.

  • It is becoming more popular and consumer familiarity is increasing.

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Getting Started

Follow these best practices when implementing cash discounts:

  • Thoroughly research providers and choose one experienced with your business type.

  • Supply detailed information on your volumes, average transaction size, and business model.

  • Work with your provider through all setup steps including staff training and signage.

  • Promote new cash discounts through all customer touchpoints - in-store, website, receipts, etc.

  • Monitor transaction reporting frequently to ensure your program maximizes savings.

*If you are ready to start, check out our Ultimate Guide On Cash Discount

What Matters & Why

Cash discount processing enables merchants to reduce credit card fees by incentivizing cash transactions. The system is simple to implement and provides dramatic cost savings alongside customer rewards.

With an experienced partner handling compliance, merchants of all types can benefit greatly from offering cash discounts.

Looking to get started? 🏃💵

Fill out free same day quote to see how much we can save for your business

Quick Overview FAQ:

How much can I discount cash payments?

Most providers allow 1% to 3% discounts. 4% is generally the maximum discount rate.

Do customers see it as a credit card surcharge?

Can I stop discounts in the future?

Do I need new POS equipment?

Are discounts considered taxable income?

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Jon Millikan

Expert Analyst & Contributor

Jon has been writing for Xsellarate about small business solutions and financing since 2022. He started writing professionally about business related topics in 2012. Jon has been featured in Business Insider, OC Journal, the OC Wave, Entrepreneur Magazine & other publications. He has a bachelor's degree in Business Administration from California State University Monterey Bay and currently resides in Huntington Beach, California.

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