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Understanding How Cash Discount Merchant Services Work [2023 Update]

A cash discount program can be useful if you’re aiming to accept credit card payments, but you want to avoid the fees associated with the effort. Cash discount merchant services can provide this by passing the cost of acceptance or processing fees on to the customers. The customers will pay extra for something to cover the cost you’d normally spend on processing fees.

You could spend about 3 to 5 percent in fees for each credit card transaction you complete. Cash discount merchant services will add that percentage to the customer’s transaction, meaning the customer will pay that extra to offset the charge for accessing and maintaining a credit card network.

How Does This Work?

A cash discount merchant works with a general standard for how you’ll charge your customers. You can encourage people to pay for their items with cash. They will save on their cash purchases because they won’t be subject to a surcharge through a credit card transaction.

For example, a customer might receive a 4 percent surcharge on one’s order when using a credit card. A $30 purchase would become $31.20. The customer pays the extra $1.20 for the privilege of using a credit card. The $1.20 will offset whatever processing charges and interchange fees you’d spend on a card transaction. But if the customer chose to pay with cash, that person would pay $30 for the order.

Will the Customer Appreciate This?

You will let the customer know before completing a transaction about the cash discount offer. The customer won’t be surprised when getting a bill that it costs extra to utilize a card.

The process works best if your business focuses on small-value transactions. A cash discount would be welcome for cases where you handle $50 or less in most transactions. But for high-ticket sales, this effort could be excessive. 

Is This a Legal Solution?

Cash discount merchant services are legal, as you can partner with a service provider to produce a promotion where someone can spend less money on straightforward cash orders. The cash discount effort is different from a credit card fee, which is illegal in some states.

How Is This Different From a Surcharge?

Cash discount merchant services don’t entail surprise charges. With a cash discount program, you are letting your customers know beforehand that they can get a good deal on something of value.

Customers will be more likely to accept a discount deal than a surcharge. The point is especially true for businesses that accept tips. Customers might not be willing to provide tips if they notice there are surcharges added to their transactions.  Therefore, you would have to offer something friendlier like a cash discount to make this point more marketable or easier for people to support.

You can benefit from providing cash discount merchant services for your transaction needs. The system is direct and lets customers know what they are getting out of their orders. You’ll also ensure you can cover the costs for accepting card payments.

Frequently Asked Questions

Should Merchants Surcharge?

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Should Merchants Surcharge?

In many states merchants have had a decision to make. Recent developments allow merchants that accept credit cards to pass card processing charges on to their customers. So should merchants surcharge their customers?

First of all, in at least ten states there are laws that prevent merchants from assessing their customers a surcharge. In any case a debate rages among consumer protection groups; how will merchants react to this new legal ability to pass on credit card charges to their customers?

Merchants have now had almost a month to start surcharging but not many have done so. It would seem that under the current economic climate and with a do nothing Congress, that merchants both large and small realize it would be a mistake to upset their customers.

Merchants should do more than quietly not pass on these charges. They should inform their customers that they are not, and will not, pass on such charges. Consumers are much more aware than before. On the first day that merchants could pass on credit card processing charges I asked at the market if my grocer was passing on these fees. The clerk told me no and informed me that at least seventy-five percent of customers on that day had asked the same question.

Merchants are being watched very carefully as our society is very distrustful of those that have, and how they treat those that have less. Should merchants start passing on surcharges it could be expected that customers would react in a way that would not be favorable for the merchant.

Thanks to technology and widely available access to the Internet consumers now have more of a voice in business. With social media website growth where people share thoughts and ideas, the word will spread quickly about any merchant passing on such charges. Worse yet will be the response to any merchant that tries, albeit little by little, raising prices quietly to cover these charges. That is the reason merchants should declare their policy on this matter and assure customers why they are not passing on credit card surcharges. Honesty and truthfulness is always the best policy, especially for merchants that depend on customer loyalty to remain in business.

When a social issue goes viral things can get out of hand. One negative aspect of the Internet and online social interaction is that rumors often spread faster than facts. Once social networks get down on a person, subject or organization it takes time, attention and money to set the facts straight. This has happened most recently to restaurant chains. Their response to online social pressure was naive and just made the situation worse. This is another reason that any merchants that accept credit cards should publicly and obviously answer the question; should merchants surcharge?