We’ve written in the past about credit card surcharging, how it’s a gray area in terms of legality, and whether or not it’s a great idea. You may have decided that while it’s tempting to pass your credit card processing fees along to your customers, you’ll play it safe and avoid any potential legal issues or backlash. What if we told you that there’s a similar but distinct option available with no legal issues? It’s called a cash discount – let’s take a look.

What is a Cash Discount?

Cash discounting means exactly what it sounds like – you offer your customers who choose to pay with cash, check, or debit card a discount on their purchase. The prices shown in your store are the credit card prices, and customers will see a discount applied if they let you know they are paying with cash or a cash equivalent (debit card, pre-paid card, ACH).

OK, isn’t a Cash Discount Just Surcharging by Another Name?

We admit the two programs seem similar at first glance. After all, surcharging is just raising the prices of your products for customers who pay via credit cards. The key here is the surcharge fee concept. Under a cash discounting program, you raise all your advertised prices, and then provide a discount for paying in cash or cash equivalent.

Seriously? This Still Sounds Like Surcharging

Maybe to you, the difference is just semantics, but in the eyes of credit card companies and the courts, it’s a completely separate thing. Surcharging has historically been more controversial, and 2 states currently prohibit surcharging (Massachusetts and Connecticut). However, cash discounting is a method approved by all 50 states. The card brands have strict published rules around surcharging and cash discounting, and it’s important to adhere closely to these rules to avoid potential fines and penalties. Just make sure you are clear that you are offering a DISCOUNT for some methods of payment, rather than a SURCHARGE or SERVICE FEE for others.

Is This a Good Idea?

The jury is out on this question. Some businesses that implement a cash discount program experience a backlash, much like those who start surcharging. After all, the effect is the same for the consumer – customers who pay via credit card have a higher grand total on their receipt than customers who buy the exact same things but pay with cash. At the end of the day, it’s up to you to weigh the costs and benefits of a cash discount program. We suggest informally polling your customers if you’re concerned about their reactions.

OK, How Do I Do This?

First, you’ll want to adjust all your current prices by a minimum of 3% to cover your card fees. Then make sure your POS system can add a discount line item for a percent you want to apply, typically 3-4%. According to the card brand rules, the discount must be listed next to each price you publish (on menus, signs, invoices, etc). You must also ensure that the discount shows clearly on every customer receipt. Then, make sure you have signage at the entrance to your store and at the cash register clearly explaining the cash discount.

In the end, you’ll collect more money on card transactions to help you pay for your card processing bill at the end of the month. You can also set up daily discounting with your card processor, so card fees are taken out of your daily deposits. This way, you won’t get hit with a large bill at the end of the month. However, your deposits won’t match cash receipts, which can make reconciliations tough.

Too complicated?? We agree!

If cash discounting isn’t right for you, check out 360 Payments Compliant surcharging program. Or, if you’d like more info on Daily Discounting with Cash Discounting, 360 Payments would be happy to help. Give us a call at 1-855-360-0360 or drop us a line on our website. We’d love to show you how we help customers streamline their credit card processing and lower their fees every day.