Updated: 3 days ago
Cash discount processing is a smart payment solution that allows merchants to incentivize customers to pay with cash or debit instead of credit cards. With traditional credit card processing, merchants pay a percentage fee known as a "merchant discount fee" to the credit card companies every time a credit card transaction is processed. These fees can really add up, especially for small businesses with tight profit margins. Cash discount programs provide an effective way for merchants to reduce these expensive processing costs.
How Does Cash Discount Processing Work?
With a cash discount program, merchants offer a discount to customers who pay with cash, check, or debit card. This discount essentially passes on some of the merchant's credit card processing savings to the customer.
For example, a merchant may implement a cash discount program with a 3% discount for cash/debit payments. If an item costs $100, a customer paying with credit would pay the full $100. But a customer paying with cash or debit would only pay $97 due to the 3% discount.
The key is that the cash price becomes the standard base price. Signage clearly advertises the new standard cash price. The credit card price is then considered a 3% "surcharge" or "convenience fee" added on top of the new cash price. This allows the program to stay compliant with major credit card processing rules.
The Benefits of Cash Discount Programs
There are a number of excellent benefits of cash discount processing for merchants:
1. Lower Processing Costs
The main benefit is reduced credit card processing fees. By incentivizing more cash/debit payments, merchants pay less in credit card processing costs. For businesses with tight margins, these savings can have a big impact on profitability.
2. Pass on Savings to Customers
The cash discount enables merchants to share some of the credit card fee savings with customers. This provides a "win-win" that benefits both parties. Customers get a discount for choosing cash/debit, while merchants reduce expenses.
3. Attract More Customers
Many customers are drawn to stores that offer discounts or rewards programs. A cash discount can help drive more foot traffic and increase customer loyalty. The program essentially functions as a modest rewards program for selecting cash/debit.
4. Improve Cash Flow
More cash/debit sales mean faster access to funds. With credit cards, merchants usually don't receive the funds for a couple days. But with cash or debit payments, funds are instantly available. This can help improve cash flow for businesses.
5. Reduce Credit Card Fraud
Cash and debit card payments come with much lower risks of fraud or chargebacks compared to credit cards. Bringing in more cash and debit transactions translates to lower fraud costs.
Is a Cash Discount Program Right for My Business?
Cash discount programs tend to work best for certain types of merchants in particular industries. The best candidates include:
Retail stores - Any business with a physical location and a lot of credit card transactions will benefit the most from a cash discount program. This includes retail shops, restaurants, convenience stores, liquor stores, gas stations, salons, auto shops, etc.
Service businesses - Landscapers, contractors, general services, house cleaning services and more can also benefit from cash discounts.
Healthcare services - Many doctor's offices, dentists, chiropractors and other healthcare providers offer cash discounts on services.
Non-profits - Charities, churches and non-profits can offset expensive card processing fees with cash discounts.
Essentially any business with tight margins that processes a high volume of smaller credit card transactions is an excellent candidate for a cash discount program. Businesses with average transaction sizes over $500 may benefit less since the percentage-based processing fees are smaller on large transactions.
Explore the Xsellarate Package Offering:
Setting up a Compliant Cash Discount Program
When setting up a cash discount program, it is extremely important that it adheres to card network rules and regulations. The major card brands have specific requirements that must be followed to avoid non-compliance fees.
The cash price must be established as the standard base price readily available to all customers. This is the key factor that makes these programs compliant. Credit card surcharges on top of the cash price must be applied evenly across all card brands accepted.
Merchants must clearly disclose their pricing to customers at the point of sale and the entrance of the business. Signage should highlight that discounts are offered for cash/debit payments. All advertised pricing should lead with the cash price.
Receipts must show the cash price and then display any credit card surcharge separately. Customers should see the math breakdown of the discount or surcharge on every receipt.
No Minimums or Maximums
Cash discounts must be offered consistently on all transactions of any size. Discounts cannot be limited to payments above or below certain amounts. All customers must have equal access to the cash discount on every purchase.
Honoring Published Prices
If any advertised pricing mentions only a single price, merchants must honor that price for credit card customers. Published ad pricing must be available to all customers regardless of payment type, unless otherwise disclaimed at the time of check out.
With the right point-of-sale system and payment processor, implementing a compliant and effective cash discount program is straightforward. The experts at Xsellarate offer customizable cash discount programs tailored to your unique business needs. Their solution combines compliant cash discount software with seamless POS integrations and transparent pricing.
Below are some easy steps and procedural elements to remember when setting up your Cash Discount Business:
1. Check for Federal & State Requirements
Every zero-cost credit card processing strategy is subject to federal and state regulations. Ensure transparency, proper disclosure, and non-discriminatory business practices.
2. Apply for a State Cash Discount Program License (if needed)
Some states may require additional steps before merchants can run a compliant cash discount program.
3. Reach Out to Your Payments Provider
Most merchant account and payment processing service providers can support a cash discount program. Work with your current processor to reprogram the system and gather necessary information.
4. Post Correct Signage
Correct signage must be posted at the door and checkout. The posted prices are considered cash prices, and the signage allows for a fee if the payment is not made with cash.
5. Display Service Fee on Receipt
The amount of the added service fee must be clearly displayed on the receipt.
6. Offer Cash Discount Verbally
Offer your customers a cash discount verbally at checkout.
7. Use Compliant Technology
Ensure that the technology you use is compliant and displays the required line items on the receipt.
8. Stay Updated with Regulations
Stay updated with federal and state regulations to ensure ongoing compliance.
Cash Discount POS Integrations
To run a smooth cash discount program, the point-of-sale system must integrate properly with the payment processing solution. The POS system needs to be able to easily process transactions at the cash price or credit price based on the payment type selected.
Xsellarate offers seamless POS integrations including:
Clover Integrations - Custom cash discount apps for Clover stations.
Vend - Cash discount functionality built directly into Vend POS.
Shopify POS - Shopify POS cash discount integration.
Square - Square payment processing with cash discounts.
PayPal / Gravity Payments - Cash discounts integrated into PayPal POS.
NCR Silver - NCR point-of-sale cash discount capabilities.
The Xsellarate platform offers simple cash discount apps for mainstream POS systems like Clover, Square, Vend, etc. Their app store continues to expand support for new platforms as well.
Cash Discount Pricing & Rates
One confusing aspect of evaluating cash discount programs is deciphering the pricing models. Providers use varying pricing structures that determine the total processing costs.
There are a few key pricing factors to understand:
Interchange rates - The underlying card network rates paid on credit transactions. Varies by card type.
Transaction fees - Added fees per transaction in addition to interchange, usually $0.05 - $0.10.
Markup % - The % markup the provider adds on top of interchange. Usually 0.5 - 2%.
Monthly fees - Account charges like monthly minimums, statement fees, PCI fees, etc.
Cash discount % - The % discount offered for cash/debit payments. Often 2-3%.
When comparing providers, it helps to calculate the effective rate you would pay across your card mix. Take into account all the above pricing factors to determine the true total processing costs.
Xsellarate stands out by offering a simple pricing model with no inflated markups. Their “Pass-Through Pricing” strategy passes along wholesale interchange costs with no markup % added. Low monthly fees and competitive cash discount rates result in substantial savings for merchants.
Top Cash Discount POS Systems
If you currently lack a point-of-sale system, you’ll want to select one that integrates smoothly with cash discount processing. Here are some top options:
Clover offers versatile POS hardware stations and integrates nicely with Xsellarate’s cash discount software. Clover’s customizable apps enable detailed sales reporting and inventory management.
Vend focuses on retail and ecommerce businesses. It’s intuitive interface works well for employee training. Xsellarate provides direct cash discount integration with Vend POS included.
Shopify offers robust omni-channel capabilities alongside its iPad based POS system. It syncs seamlessly with the Shopify ecommerce platform. Shopify POS integrates with the Xsellarate cash discount program.
The popular Square system works great for restaurants, retail shops and service businesses. Square’s simple pricing and powerful software make it a go-to choice for many merchants.
PayPal Zettle POS
PayPal Zettle combines payment processing, point-of-sale capabilities and business financing. Zettle offers flexible month-to-month contracts. Xsellarate can enable cash discounts on Zettle POS.
List of Top Cash Discount Merchant Services Companies For You And Your Business:
Many merchant providers now offer comprehensive cash discount programs. Here is a short list of some of the most popular options with pricing and features:
Merchants seeking cash discount + web development + marketing help
Variable monthly account fee ranging from $99 - $1,000, depending on services required. Transparent single monthly fee structure
$9.95+/month account fee and $0-$30/month for the cash discounting program
Variable monthly account fee and variable cash discounting program fee
Host Merchant Services
Medium-sized retail & eCommerce businesses
$14.99/month account fee and $0-$19.99/month cash discounting program fee
Merchants using Clover processing hardware
$15/month account fee (traditional processing; N/A for cash discounting) and $25-$100/month cash discounting program fee
CBD & other high-risk merchants
Variable monthly account fee and variable cash discounting program fees
Variable monthly fees for standard (non-cash discounting) account and $65/month cash discounting program fee (+ 39.95/additional terminal)
Is a Cash Discount Right for My Business?
While cash discounts provide substantial benefits, they are not right for every business. Certain types of merchants may not benefit as much from cash discounts or have issues with implementation.
High Ticket Merchants
If your average transaction size is over $500, cash discounts provide fewer benefits since card processing fees are a smaller percentage of large transactions. However, gas stations with higher price points still benefit greatly from cash discounts on fuel pumps.
Selling online courses, software subscriptions, digital media or other virtual products? In these cases cash discounts don’t apply since there are no in-person payments.
For accounts receivable workflows where customers are billed and pay invoices later, cash discounts integrated at the point of sale will not help. However, early payment discounts can incentivize faster B2B collections.
Required to Accept Cards
Some merchants in certain industries are required to accept credit cards and cannot offer discounts for cash or debit payments. Examples include government entities, schools, hospitals, etc.
Be sure to evaluate whether a cash discount or credit card surcharge aligns with your business model and customer base. Reach out to our payments experts at Xsellarate to discuss the best payment solutions for your needs.
FAQ's: Cash Discount Processing
What is cash discount processing?
Cash discount processing allows merchants to offer a discount to customers who pay with cash, check, or debit card. This incentivizes customers to use lower cost payment types to help merchants reduce their credit card processing fees.
How does a cash discount program work?
The merchant sets a lower cash price as the standard base price available to all customers. The credit card price is then effectively a surcharge added on top of the cash price. Customers paying with credit cards pay the surcharge, while cash/debit customers pay the discounted price.
What are the benefits of a cash discount program?
The main benefits are lower processing costs, ability to pass on savings to customers, increased foot traffic and customer loyalty, improved cash flow, and reduced risk of credit card fraud.
What types of businesses benefit most from cash discounts?
Retail stores, restaurants, service businesses, healthcare providers, non-profits, and any merchant with tight margins and high credit card usage typically benefit the most.
How do I set up a compliant cash discount program?
Proper pricing structure, signage, receipts, discounts offered on all transactions, and honoring advertised pricing are key to remaining compliant with card network rules.
What POS systems support cash discount processing?
Top options like Clover, Vend, Shopify POS, Square, and PayPal Zettle integrate smoothly with cash discount programs. Xsellarate offers seamless POS integrations.
How does cash discount pricing work?
Pricing involves interchange rates, transaction fees, markup percentage, monthly fees, and the cash discount percentage. Calculate your effective rate based on your specific card mix.
Is a cash discount right for my business?
Evaluate whether your average transaction size, business model, industry regulations, and customer base align with a cash discount program. Speak to an expert to discuss the best options.