A cash discount is an incentive that a seller offers to a buyer in return for paying a bill owed before the scheduled due date. The seller will usually reduce the amount owed by the buyer by a small percentage or a set dollar amount. If used properly, cash discounts improve the days-sales-outstanding aspect of a business’s cash conversion cycle.
Learn How Paylo Signapay in New Brighton MN Works!Much like everything in life, credit card processing fees continue to rise. With tight budgets and stiff competition, businesses are ever vigilant in looking for strategies to lower the fees. The need to accept credit cards comes with the heavy burden of various brand fees, aka the swipe fees. These fees range from 1-4% and can significantly impact the bottom line over time. Understanding the difference between a cash discount and surcharge can help you choose if a Cash Discount program is right for your business. Giving businesses the opportunity to accept non-cash payments at significantly reduced fees is a gaping hole of opportunity that entrepreneurs are aggressively seeking solutions for. One solution to this opportunity is the cash discount program, which was federally authorized in all 50 states in 2011. The confusion with this opportunity lies with the wide interpretation of what cash discounting is and how it differs from surcharging. To educate you on what is acceptable and legal we need to understand the differences between a cash discount and surcharge program. Only after you understand the differences will you be able to make an educated choice on what you should consider when evaluating a cash discount solution. Surcharging Surcharging is the process in which a business owner adds a fee to a transaction to cover the cost of credit card processing for the business. As an example, the pizza shop sells a pizza for $10. When the customer pays for the pizza with their credit card, the bill is wrung up as $11.50. ($10 for the pizza and $1.50 for the surcharge) Currently there are 40 states that allow surcharging to customers that pay with credit card. The states that prohibit surcharging are Texas, Oklahoma, New York, Massachusetts, main, Kansas, Florida, Connecticut, Colorado and California. The surcharge is a fixed percentage of the overall price before taxes are assessed. Surcharging is not allowed on debit cards. Cash Discounting When the merchant offers a lower price for the use of cash, this is a cash discount. Cash discounts differ from the credit card surcharge as it is not an additional fee added to the credit card transaction. The Durbin Amendment (as part of the 2010 Dodd-Frank Financial Reform Act) gives the most succinct definition of cash discounting. It states that businesses are permitted to offer a discount to the consumer as an incentive/encouragement for customers to pay by an alternate method other than credit/debit cards. Alternative methods include cash, checks and gift cards that are applied to the transaction at the time of sale. The cash discount works by applying a customer service fee, in the form of a fixed amount or percentage, on all customer transactions. This fee is removed if the customer pays with cash, check or gift card. Technology that automatically determines the service fee or discount amounts by payment type are mandatory. For a cash discount program to be legal it must present a clear receipt detailing the service fee or cash discount amount. The technology provider collects/escrows the service fees and then pays off the credit card charges on behalf of the merchant, essentially removing the need for any back-end accounting or complex statements. The statements from the technology provider show a dramatic reduction in credit card fees along with a modest monthly fee to pay at the end of the month. State laws vary widely with respect to surcharge programs. At the time of this article, there has yet to be any direct language prohibiting a merchant implementing a cash discount program if consumers are notified prior to purchase.
What is Cash Discounting?
Reasons to Paylo Signapay – New Brighton MN – If used properly, cash discounts improve the days-sales-outstanding aspect of a business’s cash conversion cycle.Business owners everywhere are asking, "What is Cash Discounting?" Simply put, cash discounting is the decision by a business owner to give a customer a discount for using cash as a form of payment. As an example, imagine a car dealership selling a car for $1,000. The owner decides to give a discount for a cash offer on the vehicle, agreeing to sell the car with the cash price of $950. That is cash discounting. But if a business owner already has his/her pricing set, how can they offer cash discounting without losing money. Well the answer is simple. By prominently displaying signage that states “The prices listed represent the cash or cash discounted price”, the business than can simply adjust the price at the till for credit and debit transactions. Now, as with many things in life, a simple solution is made a lot more difficult because of government interference. Many owners take the path of least resistance and add a percentage to each transaction for credit and debit transactions. And although fundamentally similar, this type of surcharging is not legal in most states. The critical difference to ensure compliance is the signage you use and the verbiage your staff employs. A Note on Surcharging To charge more for using credit cards is called a surcharge. Surcharging is not allowed in ten of the biggest states, including Texas, California, New York, Florida, and Colorado. Even when it is allowed, you may not surcharge check cards or pin debit cards. Since those comprise probably 60% of the volume, the ordeal becomes very confusing. So they simplest and safest solution to the problem is cash discounting. When you offer the customer a cash discount by informing them that the price they see in the store is the cash price, you have satisfied Visa and the politicians. In retail stores a sample sign would read something like this, “The posted prices represent the cash price for purchase. There is an additional cost for credit card purchases.” Specific language may vary by state and a reputable cash discount processor will help you with the correct signage for your state. Regardless of language, posting signage and executing the cash discount pricing is currently legal in all 50 states. There is tremendous freedom for a business owner to implement cash discounting. When that is coupled with the prospect of eliminating up to 90% of your credit card fees, cash discounting could be a great strategy to put more cash in your till.
With retailers feeling the effects of customers who can’t get credit, Paylo Signapay shoppers with cash in their wallets have the ultimate bargaining chip when it comes to getting good deals. Cash discounts may not be as plentiful as in the past, but there are still some places where cash is king. Here are some things you can often get cheaper with cash. (Saving money can be a chore, but these tricks put money in your pocket with no effort at all. We are located near New Brighton MN for better service.
The Five Keys to Evaluating a Cash Discount ProgramTo implement a successful cash discount program, the merchant educate their employees and customers on many of the confusing aspects of the cash discount program. The card brands require the merchant to provide at least one point of program notification prior to the sale that states that a service fee is applied to all sales and a discount is given for a cash payment. (We recommend several points of notification) Typical notification points include doors, registers, end caps and other prominent, highly visible areas. Every employee should be educated on how to verbally reference the program and should be announced at every transaction. Correct and consistent language is imperative for a successful implementation. Phrasing such as “Did you know you can save $X.00 by paying with a cash?” or “We offer X% discount on your purchase by paying in cash, would you like to take advantage?” can help encourage new buying behaviors. Language like this clearly conveys a discount for paying in cash. It is also recommended that merchant has some form of reference information handy to pass along to the customer if they have any questions. In working with countless business owners, there is one consistent fear about going to a cash discounting program. The fear is that by offering a cash discount program, they will anger and ultimately lose customers. Beyond the psychological advantage of using the jargon “Cash Discount vs. Surcharge”, the statistical data does not show any appreciable difference in sales loss due to cash discounting. In fact, our data shows that nearly 99% of customers simply disregard the convenience fee. By sticking to these key points and choosing a reputable service provider, you should be well on your way to implementing a successful cash discount program.
Cash Discounting Program SwyftPAY New Brighton MN – Permanently lower your processing fees using cash discounting. Your customers will enjoy the benefit of the optional lower cash price and you will enjoy the benefit of more cash in your till at the end of the month. With many different Paylo Signapay now available in the marketplace, it is important to know what programs are legal and effective. Cash Discounting from SwyftPAY is a Visa Approved, patented technology that is fully compliant with all state laws. To get the right information to make the best decision for your business, call us today 888-256-8917.