We’ve written in the past about credit card surcharging and how it’s a gray area in terms of legality and whether or not it’s a great idea. You may have decided that while it’s tempting to pass your credit card processing fees along to your customers, you’ll play it safe and avoid any potential legal issues or backlash. What if we told you that there’s a very similar but distinct option available that has no legal issues? It’s called a cash discount – let’s take a look.
What is a Cash Discount?
Cash discounting means exactly what it sounds like – you offer your customers who choose to pay with cast, check, or debit card a discount on their purchase. The prices shown in your store are the cash prices, and customers will see a service fee added to their receipt as a separate line item. To have the service fee discounted or cancelled out, all they have to do is pay using cash, check, or debit card.
OK, isn’t a Cash Discount Just Surcharging by Another Name?
We admit that at first glance the two programs seem very similar. After all, surcharging is just raising the prices of your products for customers who pay via credit cards. They key here is in the service fee concept. Under a cash discounting program, you’re technically not raising the prices on your products but charging a fee for the service your cashier provides to all customers. The reasoning goes that the merchant can offer a discount to (or waive the fee for) customers whose transactions don’t require the cashier and the business to perform as great of a “service.” Service fees have to apply across all payment methods, but a discount can be offered for customers paying with certain payment methods – like cash, debit cards, and checks.
Seriously? This Still Sounds Exactly Like Surcharging
Maybe to you the difference is just semantics, but in the eyes of credit card companies and the courts it’s a completely separate thing. Visa and Mastercard will not permit you to charge an additional fee for credit card purchases, but they have no such qualms about a cash discount. Again, their reasoning involves this idea of a service charge – it’s not an increase in the price of a product but an additional service that the business provides. Even in states where surcharging is illegal or a gray area, cash discounting is in the clear. Just make sure you are very, very clear that you are offering a DISCOUNT for some methods of payment rather than a SURCHARGE for others.
Is This a Good Idea?
The jury is out on this question. Some businesses that implement a cash discount program experience a backlash much like those who start surcharging. After all, for the consumer the overall effect is the same – customers who pay via credit card have a higher grand total on their receipt than customers who buy the exact same things but pay with cash. We’re in the process of conducting a survey on surcharging attitudes right now – stay tuned for our results in the next few months. At the end of the day it’s up to you to weigh the costs and benefits of a cash discount program. We suggest informally polling your customers if you’re concerned about their reactions.
OK, How Do I Do This?
Contact your credit card processor if you’re interested in starting a cash discounting program. In many cases they can help you get your equipment set up to automatically add the service fee line item to the receipt. You’ll also need to make a few changes to your business practices to make sure you’re completely in the clear. First, make sure that the service charge (and the discount, if applicable) appears on every customer receipt. This means that even if a customer pays with cash, you still need to charge them the service fee and then apply a discount to remove it. Your credit card processor will be able to help you set this up. Second, make sure you have signage at the entrance to your store and at the cash register clearly explaining the service fee and the cash discount.