Understanding Cash Discount Programs

Do you think the term “cash” is only relevant for brick-and-mortar operations? Think again! Even if your business only accepts payments or subscription management online, your customers—and your bottom line—can benefit from a cash discount program that eliminates credit card processing fees from select transactions.

In this article, we’ll review how cash discount programs work, their benefits and how you can start your own program, fast.

What is a Cash Discount Program?

If you’ve purchased anything or set up a subscription online, you’ve probably come across businesses offering cash discount programs. So how can online businesses even discuss taking cash?

First, let’s define what “cash” means regarding digital payments. Cash refers to transactions that do not go through a card network. This includes:

• Physical cash
• Checks
• ACH payments

It does not include transactions processed through a card network, like:

• Credit card payments
• Debit card payments

Cash discount programs allow customers to pay less for their purchase when using cash, check or ACH, while those paying with a credit or debit card pay more to absorb the credit card processing fee.

A cash discount program allows businesses to offer a lower price to customers who pay with cash, check, or ACH instead of a credit or debit card. Because these payment methods generally cost less to process, businesses can reduce or eliminate many payment processing expenses while providing savings to customers.

How do cash discounts impact compliance?

It’s important to note that the acceptance and legality of cash discounts and surcharges can vary by region and are subject to local laws and regulations. Some locations may have rules or laws that govern pricing strategies to protect customers from unfair practices, so be aware of the relevant regulations in your area before implementing a new pricing strategy.

Remember: you can offer discounts for cash, but you cannot post the cash price and then charge a higher price for cards unless both options are presented clearly. Think of what you see at gas stations—generally, the cash and card prices are posted together, side by side.

What are credit card processing fees?

You must understand payment gateway and card fees if you’re new to online payment processing. These fees, charged per transaction, cover the cost of processing payments and moving funds from your customer’s account into yours via the credit card networks.

Credit card processing fees can range from 1.5% to 3.5% of the total sale. If you’re processing hundreds or thousands of transactions a month, those fees can add up to substantial revenue!

Save money by ensuring you’re getting the best rate per transaction through your payment gateway. Offer cash discount programs for cash, check and ACH payments that aren’t processed through a credit card network to reduce your total cost per transaction.

How do Cash Discount Programs Work?

When you offer a cash discount online, buyers can choose a payment method that reduces their total purchase price.

Here’s how a typical cash discount program works:

1. Standard Price: The business sets a standard or regular price for its products assuming customers will pay with a credit or debit card or a method that incurs processing fees.
2. Cash Price: Customers are offered a discounted rate if they choose a cash payment method at checkout. The discount is generally equal to the card processing fees.

Customers can choose to check out with the standard price if they plant to pay with a credit or debit card or opt for the cash discounted price if they’d prefer to pay with ACH or check.

If customers are willing to pay the higher standard price, why offer a cash discount at all? When customers are presented with a price discount, it’s perceived as a monetary gain and a higher level of savings for a product, making them more likely to complete the purchase to take advantage of the opportunity.[1]

“As always, we encourage customers to look at their customer retention strategy and work with their internal teams to determine if a cash-discount program is the right choice for their business,” says Dan Nadeau, co-founder of Payway. “If they decide it is, we are here to support them. The nice thing about our program is customers can stay on their current gateway, so there’s little to no impact to current business operations.”

Cash Discount vs. Surcharge: What’s the Difference?

While both cash discount programs and surcharges can help businesses offset payment processing costs, they work differently. A cash discount rewards customers for paying with cash, check, or ACH, while a surcharge adds a fee to eligible credit card transactions.

Benefits of Cash Discount Programs

• Lower payment processing costs
  By encouraging customers to pay with cash, businesses can significantly reduce the credit card processing fees associated with each transaction. Over time, these savings can have a meaningful impact on profit margins.

• Encourage lower-cost payment methods
  Offering a discount for cash payments incentivizes customers to choose payment methods that cost less to process, helping businesses better manage operating expenses.

• Reduce chargeback exposure
  Cash transactions are not subject to credit card disputes and chargebacks, which can help reduce administrative burdens and revenue losses.

• Increase payment flexibility
  Customers can choose between paying by card at the regular price or receiving a discount when paying with cash, giving them more options at checkout.

• Improve profitability on recurring transactions
  Businesses with frequent or high-volume transactions can benefit from cumulative savings on processing fees, improving long-term profitability.

• Create a positive customer perception through savings
  Customers are generally more receptive to receiving a discount than paying an additional fee. By framing the program as a way to save money when paying with cash, businesses can create a more positive checkout experience while encouraging lower-cost payment methods.

Cash Discount Program Compliance Requirements

Ready to start rewarding your customers? Then it’s time to set up your cash discount program. Fortunately, this program is fully automated following a one-time price increase to accounts for standard transaction fees.

As you may have guessed, Payway has cash discount capabilities built into our payment gateway. In fact, we were the first recurring payment solution to offer a true cash discount program for online businesses.

Implementing a cash discount program is fast and easy with Payway, and it can lower your administrative costs and provide customer incentives. If you’re ready to get started or want to explore your options, contact us at 800.457.9932 or complete this form.

Frequently Asked Questions

Cash Discount vs. Surcharge: Which Option Is Best for Reducing Credit Card Processing Fees?

The Complete Guide to Payway’s Cash Discount Program

^[1] Effects of price discount on consumers’ perceptions of savings, quality, and value for apparel products: mediating effect of price discount affect (Source)