To put it simply, the Cash Discount Program is an option for retailers to be able to reduce their current merchant services fees without having to increase overall rates. It’s essentially a way to adopt a fee for customers to cover these expenses while also providing a discount to the customers choosing to use cash. The end result is the amount people can pay with cash becomes the posted rate. Any customers who are paying with cash will avoid paying the services fee, where all others not paying with cash will see a receipt line item.
Why Implement It?
Besides the benefit of almost completely eliminating processing fees and making merchant services more affordable, the cash discount program can assist businesses that have been heavily weighed down by hefty processing expenses. If we consider the example of a small coffee shop, the average transaction tends to be around $5 to $8, if not less, and the interchange fee on a standard credit card purchase is 0.05% plus $0.22 for every transaction before processor fees.
If a credit card is used for a $5 purchase, the effective rate will work out to $0.2225 divided into $5 or 4.45%, and that’s before having to pay other processing costs. If we compare this example to a business that instead has a $100 average transaction, for instance, and their total expenses are $0.27 with an effective rate of 0.027%.
Each transaction used the same credit card, however, as you can see, the overall impact to profit is totally different.
Will it Eliminate My Monthly Card Processing Fees?
Switching over to a cash discount program sounds like a great idea, it can be utilized to offset the cost of debit, credit, and prepaid card payments. As a merchant you will have to post a sign visible to your customers, informing them of the convience fee.
A service fee such as 3% to 4% can be added to all of your posted prices to potentially eliminate the processing fees you pay by either covering the cost of card processing or encouraging customers to use check or cash. This processing model might not be for every business type, but it can be a great way to clear up some overhead costs.