Cash Discount Program – How It Works and What Are Its Benefits?

January 23, 2020 / Posted in Payment Processing

Even with the ever-growing market of credit card payment processing companies, fees associated with the usage of plastic are still a significant burden on many merchants. The solution for their woes may appear in the form of a cash discount program.

It is an easy and cost-effective way to reduce the processing expenses at the end of each month and leave you with more money and happier customers. However, you should also be able to tell the difference between a cash discount and a surcharge, which is prohibited in certain US states.

How Does the Cash Discount Program Work?

It’s quite simple, actually. As the very name implies, every customer who opts to pay with cash pays a lower price than the one who swipes plastic. The possibility of paying less than the listed price can be a big motive for people to choose your store over others. However, there may be a potential downside: some folks tend to link accepting ready money with tax evasion or other sorts of illicit activities. So be sure that all is transparent and adequately explained.

How Can a Business Benefit From a Cash Discount Program?

In today’s economy, more and more credit card processors opt for allowing this kind of discounts, because they allow the merchant to pass the processing costs onto their customers, and eliminate the expenses related to the usage of plastic. That goes for both credit and debit cards, though there are exceptions. The customer service department of every processing company should be there to help you implement new services that you want your business to offer.

Cash Discount Program Vs. Surcharge

In contrast to CDP, where the customer saves money, a surcharge means charging more than the listed price in case of paying with credit cards. Here, the listed price is for cash, and an additional fee is charged if payment is made with credit cards. Debit cards are never subjected to this kind of fee. On the other hand, for a genuine cash discount program, the posted price for goods on the shelves must be for cards, and therefore must already include all the associated fees.

Are Such Payment Processing Fees Legal?

Surcharge programs are legal in most US states. Average fees for that kind of service range from two to four percent. However, each merchant can set his own rates for transactions depending on the card brand. Fees may also vary between the payments depending on the volume of transactions.

Still, charging a fee on debit is not allowed. Likewise, implementing a surcharge under the guise of CDP constitutes illegal activity.

Where It’s Not Allowed?

For now, such programs are prohibited In California, Texas, New York, Massachusetts, Florida, Colorado, Connecticut, Oklahoma, Maine, and Kansas. CDPs are legal in all of the US.

Is a Merchant Allowed to Charge Fees on Credit Card Payments?

Yes, a merchant is allowed to pass the costs of processing fees onto his customers if the processor’s policy allows it. However, those fees have to be already included in the price posted on the shelves. That’s why it is of utmost importance to read the terms and conditions of your chosen merchant service provider.

Help Your Customers With Dual Prices

An excellent way to help your clients is placing dual prices on all products. That way, the customer will know on the spot how much he will be charged if he pays with good old bucks and how much if he takes out his credit card. That is basically a free service, and yet extremely helpful.

A pile of payment cards

What Happens After the Illegal Activity?

Depending on the merchant service provider, breaking the rules can land you with a fine, bring closure to your account, or get you on the Terminated Merchant File. Once listed there, securing a deal with another processor will become next to impossible, and in today’s economy, their services are vital for every business.

A Few More Words on Benefits for Customers and Retailers

The main benefit of the CDP is that both your business and your customer pay less money. The buyer saves money through a lower price free of credit card processing charges, and you enlarge your profit by not paying an often hefty credit card payment fee.

Another one is that it’s very simple and easy to understand. One more plus is on the side of your customers since payments with banknotes make racking up debt a lot more difficult.

And if you’re still unsure about it all and want to eliminate the risks, feel free to contact your card processing company and gather necessary info firsthand.


It never hurts to know how much you can save.

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