Myths and Misconceptions about Cash Discount Programs

JetPay Communications

December 13, 2018

The profit margin for the average American businesses is between 2 and 18 percent, which means that business owners have to keep their companies’ costs at an absolute minimum in order to be successful.

One way that merchants in every industry can reduce their fixed costs is by enrolling in a Cash Discount Program.

When merchants participate in the Cash Discount Program, they institute a small price adjustment for customers who choose to pay by card. The price adjustment covers all of the processing fees that merchants incur when they accept cards.

Conversely, customers who use cash receive a discount in the amount of the price adjustment, which gives them the power to make payments in the way they prefer. Additionally, merchants participating in this program have the card fees 100 percent funded by their sales. At the end of the month, all fees are put into one, easy to read statement – for easy bookkeeping, and transparency.

There are a number of misconceptions and myths about cash discounts.

Here’s a closer look at some of these misunderstandings and the realities of cash discount processing.

Myth: Cash Discount Programs are illegal.

Fact: Cash Discount Programs are legal in all 50 states and US territories. They are permitted by the Durbin amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2011. In fact, gas stations across the United States and many government services, such as the Postal Service and the Department of Motor Vehicles, charge less to process cash transactions.

Myth: Payment card companies don’t permit Cash Discount Programs.

Fact: As a result of a 2013 lawsuit, the major payment card brands like Visa and MasterCard allow merchants to apply a fee for card processing.

Myth: Cash discount is just another name for surcharging.

Fact: Though they are similar in concept, cash discounts and card surcharges are different. As opposed to cash discounts, card surcharge programs require merchants to observe several stipulations. Card surcharges can only be applied to credit cards, merchants must post signage for 30 days before programs can be enacted, and the maximum surcharge that can be applied is 4 percent.

With Cash Discount Programs, merchants only have to display signage to begin saving right away. Also, surcharges are banned in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas and Puerto Rico. No such restrictions apply to cash discount processing.

Myth: Charging customers and clients who pay by card will hurt my business.

Fact: Merchants who use the Cash Discount Program have reported that their customers disregard the convenience fee in 99.2 percent of transactions. Moreover, studies have shown that discount programs can actually be highly effective at bringing in new customers.

Myth: After joining the Cash Discount Program, I will have to reprice my business’s products and services.

Fact: All of your company’s products and services will be listed at the cash price. Customers who pay with a credit, signature or PIN debit card will be charged a very small fee on top of the listed price to do so. As such, a costly and time-consuming repricing of existing sales tags, menus, POP and advertising will not be necessary.

Myth: As a small business owner, I don’t process very many card transactions, so a Cash Discount Program wouldn’t be all that helpful.

Fact: Whether your firm is a multinational conglomerate or a single-location mom-and-pop store, a reduction in fixed costs will benefit your business. And at the small business level, no longer being forced to give away between 1-4 percent of your revenue will have a profound impact on your bottom line.

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