As a business owner, you may have heard about cash discount and surcharge programs as ways to offset credit card processing fees. But what are these programs, and how do they work?
In this free guide, we'll explore the differences between cash discount and surcharge programs, the benefits of each and which one may be right for your business.
A surcharge program is a fee that a business adds to the total purchase amount when a customer pays with a credit card. The surcharge is a percentage of the transaction amount and is intended to offset some of the costs associated with the card payment process.
While surcharging is legal in some states, it is prohibited or restricted in others, including Colorado, Connecticut, Kansas, Maine and Massachusetts[AB1] . However, even in states where surcharging is allowed, businesses must follow specific guidelines and disclose the surcharge amount to customers.
A cash discount program is a type of pricing model that allows merchants to offer a discount to customers who pay with cash or debit card. It works by adding a fee to the listed price of a product or service, which is then removed if the customer pays with cash or debit card. This fee typically covers the cost of processing credit card transactions.
Cash discount programs are becoming increasingly popular among merchants since they allow them to avoid costly credit card processing fees and pass on the savings to customers who pay with cash or debit. This type of program can be an effective way to reduce costs and boost profits for businesses.
Under a cash discount program, merchants list their product price with an additional fee for credit card payments, instead of separate pricing for card and cash payments. For instance, a merchant who charges $100 for a product can list it at $102. When a customer pays through credit card, he or she pays the full price of $102. However, that same customer can receive a $2 discount by paying with cash or a debit card instead.
With this pricing method, the merchant avoids surcharge fees, and the customer is incentivized to use a payment method (like cash) that costs the merchant less and saves the customer a little extra money.
One of the main benefits of a cash discount program is that it allows businesses to offset the cost of processing credit card payments without charging customers an additional fee. By offering a discount for cash payments, businesses can encourage customers to pay with cash or debit, which can save money on processing fees.
Another benefit of a cash discount program is that it is legal in all states Unlike surcharging, which is prohibited or restricted in some states, businesses can offer cash discounts without worrying about violating local laws.
While both cash discount and surcharge programs can offset credit card processing fees, there are some key differences between the two. One major difference between cash discounting versus surcharging is the way these two options are presented to customers. A surcharge is an additional fee that a customer pays on top of the listed price, while a cash discount is a reduction in the listed price for customers who pay with cash or debit.
Depending on your target user, this distinction can make or break the sale. Cash discount programs may be more appealing to customers than surcharging. While customers may be turned off by the idea of paying an additional fee for using a credit card, they may be more receptive to a discount for paying with cash or debit.
Another difference is the legality of the programs. While surcharging is legal in some states, it is prohibited or restricted in others. Cash discount programs, on the other hand, are legal in all states and do not require any specific disclosures or compliance measures.
However, one downside of cash discounts is that businesses must handle and manage paper money, which can be time-consuming and costly. Cash must be counted, stored securely and transported to a bank for deposit. Additionally, there may be the added expense of purchasing equipment to handle and process cash transactions.
By contrast, surcharging simplifies accounting, bookkeeping and tax prep since all payments happen electronically. If you have payment integration enabled in your credit card merchant account, these incoming credit card transactions can be automatically added to your accounting and tax software, with no manual data entry required.
As a merchant, deciding between a cash discount and surcharge program can be a daunting task. While both methods help reduce credit card processing fees, understanding the differences between these two programs is key to making an informed decision about your payment processing needs. Consider factors such as your business type, customer behavior and transaction volume when choosing which approach to use.
If you’re still unsure about which strategy is right for your business, don’t hesitate to contact us to learn more. Our team of experts is ready to answer your questions and help you find the best solution for your payment processing goals.
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