Cash Discount Program Guide: 6 Best Options & How To Get Started
Every small business owner knows that being able to accept credit cards leads to increased sales, as many customers prefer to use them instead of other payment methods, such as cash, checks, or debit cards. At the same time, credit card payments are expensive to process, with the merchant bearing the cost of both processing credit card transactions and maintaining a merchant account or payment service.
To make matters worse, the interchange fees charged by the major credit card brands and issuing banks have steadily risen over the years, making it more expensive than ever to allow your customers to pay for their purchases with credit cards. Fees for eCommerce transactions, in particular, have risen sharply in recent years due to the inevitable increase in fraud that occurs when purchases occur over the internet rather than in person.
The constantly increasing cost of processing credit card transactions has led many small business owners to seek ways to lower this expense. One method of accomplishing this goal is to pass some (or all) of these costs back to consumers who choose to use credit cards. Offering a cash discount to customers who pay with cash or debit cards is one of the easiest and most popular ways to keep more of your money in your pocket and help your business thrive.
This article will explain what cash discount programs are, how they work, and how they differ from credit card surcharges. (Note that this is actually a very important distinction in terms of both legal liability and customer acceptance of having to pay a little more to use their credit cards.) We’ll review several of the best credit card processors that offer cash discount programs and explain how to go about setting one up for your business. Finally — and most importantly — we’ll go over the pros and cons of cash discounting to help you make a more informed decision about whether such a program is right for your business.
Other Featured Options:
- KIS Payments: Best for Canadian merchants.
Read more below to learn why we chose these options.
Table of Contents
- What Is A Cash Discount Program?
- 6 Best Cash Discount Programs For Small Businesses
- 3 Things To Know Before Implementing A Cash Discount
- Trying To Lower Your Merchant Fees? Alternatives To Cash Discount Processing
- Does Your Business Need A Cash Discount Program?
- In Summary: 6 Best Cash Discount Programs For Small Businesses
What Is A Cash Discount Program?
A cash discount program is a system that automatically applies a small discount (up to 4%) to purchases when the customer pays with cash, a check, or a debit card. Only customers using a credit card pay the full price, including the additional cost of credit card processing fees.
Cash discount programs are most typically used in traditional brick-and-mortar businesses but can be applied to eCommerce sales as well. Virtually any type of business can implement a cash discount program.
Is A Cash Discount Program Legal?
Cash discount programs are fully legal within all jurisdictions in the United States as long as all compliance requirements are met. The Durbin Amendment to the 2010 Dodd-Frank Law authorizes cash discount programs to incentivize consumers to use alternative payment methods rather than credit cards.
Cash discounting alleviates some of the burden on merchants for covering the cost of transaction processing fees. It’s important to understand that a cash discount is not the same thing as a credit card surcharge, where the cost of processing is added onto the regular price at checkout if the customer uses a credit card. While anti-surcharging laws have been repealed or overturned in many states in recent years, surcharging remains illegal in a few jurisdictions.
Setting up a valid cash discounting program requires that you comply with federal and state law, as well as policies laid out by the credit card associations themselves. While this isn’t terribly complicated, it can be confusing — especially if your business operates across state lines. We highly recommend that you consult with an attorney or local business consultant who can advise you of the specific requirements and limitations that will apply to your business before you start using cash discounting.
What about Canadian businesses? Well, cash discounting is allowed in Canada by the Code of Conduct for the Credit and Debit Card Industry in Canada. Again, you will have to comply with Canadian law and the rules set forth by the credit card associations if you use cash discounting. The Code of Conduct also allows convenience fees but prohibits surcharging. As in the United States, both cash discounts and convenience fees must be clearly disclosed in advance to the customer.
6 Best Cash Discount Programs For Small Businesses
Providers offering the best cash discounting programs are also among the best providers in general for small businesses. Although your transaction processing fees will be passed onto your customers, it’s still important to select a provider that offers high-quality hardware and software products, flexible contract terms, and excellent customer service.
1. National Processing
Although it’s a relatively small company, National Processing has a lot to offer to small businesses looking to save money on their credit card processing costs. For as little as $9.95 per month, you’ll get a true, full-service merchant account. While the company normally offers interchange-plus pricing, you can pass these costs onto your credit-card-using customers through a cash discount program.
National Processing offers a full range of Clover products, all of which can be programmed to automatically apply cash discounts when a customer pays with a debit card, cash, or check.
If you already have a compatible terminal (or you’re running an eCommerce business and don’t need one), your merchant account with National Processing will come with month-to-month billing and no long-term commitment. Alternatively, the company will provide a free terminal with your account. However, the trade-off is that you’ll need to agree to a three-year contract that includes an early termination fee if you close your account early. We recommend buying your equipment outright rather than accepting the free terminal (just remember that Clover terminals cannot be reprogrammed to work with other processor’s networks).
- No long-term contract if you don’t need a terminal
- No monthly minimum
- Full range of Clover products and services
- Excellent customer service
- A long-term contract required in exchange for a free terminal
- Not available to high-risk merchants
California-based PaymentCloud is one of the best options we’ve found for high-risk businesses that might otherwise struggle to get approved for a merchant account. The company works with a wide variety of banks and back-end processors to get you approved and has a very high success rate in doing so.
You won’t have to pay an account setup fee, and there’s no monthly minimum once you start processing. You’ll also have the option to include a free terminal with your account. Like virtually all high-risk providers, PaymentCloud doesn’t have a standardized set of processing rates published on its website, so you’ll have to obtain a pricing quote that’s custom-tailored to your business.
One word of caution: High-risk merchants typically pay processing rates that are two to three times higher than those paid by comparable low-risk businesses. If you wish to recoup the full amount of these fees through a cash discounting program, you’ll probably have to set a discount that’s above the 4% limit imposed on credit card surcharges. To make this work, you’ll need to raise your advertised prices by more than 4%, which might not go over very well with your customers.
- High-risk specialists
- No account setup fees
- No monthly minimum
- Few public complaints
- Expensive for low-risk merchants
3. Host Merchant Services
Host Merchant Services
Another excellent all-around merchant services provider, Host Merchant Services offers month-to-month billing and low account fees. The company primarily serves low-risk businesses but can accommodate some high-risk categories as well. Interchange-plus pricing is used exclusively, but these costs will be passed onto your credit-card-using customers if you sign up for a cash discounting program.
Host Merchant Services is one of the few providers we’ve found that discloses some pricing information about its cash discounting program. There is no monthly fee for the program for merchants processing over $5,000 per month. Those processing less than this amount will have to pay $19.99 per month. Combined with the company’s other recurring fees, Host Merchant Services can be a little pricey for very small businesses. However, it’s a great bargain for mid-sized or larger enterprises.
- Month-to-month billing with no early termination fee
- No account setup fee
- Excellent customer support
- Free cash discount program for merchants processing over $5,000 per month
- $19.99 per month cash discounting fee for merchants processing under $5,000 per month
A relatively new company, VizyPay is a reseller for Fiserv (formerly First Data). As such, it offers a complete line of Clover terminals and POS systems, as well as several others. VizyPay is unique in that it puts its cash discount program front and center as its primary product offering. This program replaces your traditional merchant account fee structure and processing rates with a single monthly fee. Fees vary based on your monthly processing volume:
- $25 per month for merchants processing less than $5,000 per month
- $50 per month for merchants processing $5,000 to $10,000 per month
- $100 per month for merchants processing over $10,000 per month
While these fees might seem high, remember that they cover both your standard recurring fees (i.e., monthly account fee, statement fee, PCI compliance fee, etc.) and your processing costs for credit/debit card transactions, which are passed onto your customers. If you don’t want to go all-in on cash discounting, a hybrid program is available that only passes on the processing costs for credit card sales. If cash discounting doesn’t work for your business, VizyPay also offers a traditional processing program (i.e., no cash discounts or surcharges) that features interchange-plus pricing.
- Full line of Clover products and services
- Extensive pricing disclosures
- Month-to-month billing
- Excellent customer support
- Only available to US-based merchants
- Does not accept high-risk businesses
5. Shift Processing
Another new company that focuses primarily on offering cash discounting and surcharging programs is Shift Processing. The company doesn’t appear to offer a traditional processing rate plan for merchants who’ve found that charging their customers for credit card processing doesn’t work for their business. Unlike many other surcharging/cash discounting specialists, however, Shift Processing accepts just about every type of high-risk industry, including CBD merchants and cannabis dispensaries.
There’s no application or account setup fee to get started with Shift Processing, and even high-risk businesses can be underwritten and onboarded in three days or less. Once you’ve signed up, there’s no long-term contract and no early termination fee if you close your account. The company claims to have eliminated most of the pesky recurring fees charged by other providers, although naturally, you’ll still have a monthly fee to maintain your account.
Low-risk businesses should be able to eliminate most — or even all — of their credit card processing costs with Shift Processing. However, the company is very upfront that high-risk businesses usually won’t be able to pass on 100% of their costs due to the high processing rates that the high-risk sector has to pay.
- Month-to-month billing with no long-term contracts
- Accepts cannabis, CBD, and other high-risk merchants
- Free terminals available
- Little publicly disclosed pricing information
- Relatively few user reviews
6. KIS Payments/NoPay.ca
NoPay.ca is the cash discounting program offered by KIS Payments, a new Canadian merchant services provider. This program includes a Clover terminal and the Clover Cash Discount app, automating the process of applying cash discounts to your transactions.
KIS Payments bills on a month-to-month basis and does not require a long-term contract of any kind. Terminals are rented rather than being sold outright or leased. As with any Clover device, you’ll have to pay a monthly software subscription fee to use the product. The company currently charges $65 per month for a single terminal or POS system, while additional terminals will cost an extra $39.95 per month each.
Note that this fee is the only one you’ll have to pay and includes equipment rental, software licensing, account maintenance, PCI compliance, and any other recurring expense you might incur. It does not, however, include chargeback fees or any other type of incidental fee. There’s also a one-time signup fee of $99, which is fully disclosed on the company’s website.
- Month-to-month billing with no long-term contracts
- Full range of Clover products and services
- Excellent customer service
- Account signup fee charged
- High monthly fee for multiple terminals
3 Things To Know Before Implementing A Cash Discount
Switching over to a cash discounting program is a pretty significant change from traditional credit card processing, where the merchant absorbs the full cost of processing transactions and maintaining a merchant account. Before you decide to give cash discounting a try, you’ll want to ask yourself the following three important questions to determine whether this is a good idea and how to go about setting up a program. Here’s some information to help you make a more informed decision:
Is Cash Discounting A Good Strategy For Your Business?
One unavoidable truth about cash discounting is that this method works better for some business categories than others. You should be very wary of any provider that tries to tell you that it’s a great idea for any business and pressures you to sign up for their program (especially if that program comes with a hefty monthly fee).
Cash discounting is generally more common and accepted in the services industries than traditional retail businesses. Many of the providers we’ve profiled above publish a list of industries that are particularly well-suited to cash discounting. You should check out these lists, even if you’re not planning to sign up with that particular provider.
We also recommend that you take a close look at your current credit card usage rate in determining whether it’s a good idea or not. Cash discounting generally works best for businesses that already have a low credit card usage rate. Just be aware that if your customers already tend not to use their credit cards, you won’t save much money by implementing cash discounting.
How Do You Get Started With Cash Discounting?
While cash discounting programs are now being more actively marketed by payment processors, the truth is that any merchant services provider can set you up with a discounting program, even if they don’t advertise it. When choosing a provider, your first candidate should be the provider you’re currently using (if you have one). It will be much easier to switch to cash discounting with your current provider than to have to deal with all the hardware, software, and contractual issues that come with switching to a new provider altogether.
The actual process of setting up your cash discounting program consists of three easy steps:
- Sign up for the program.
- Have your processing hardware (and payment gateway, if applicable) reprogrammed to process cash discounts automatically.
- Post the required signage and notices in your store and on your website (if applicable).
That’s it! Switching to cash discounting shouldn’t take any more than a few days, depending on how quickly your provider can reprogram your current hardware. eCommerce-only businesses can make the switch in less than a day.
A note on cash discount signage: Retail merchants must post adequate signage at the entrance to their stores and at the point of sale, notifying customers that they will receive a discount from the advertised price if they use a payment method other than credit cards. Your provider can often furnish you with some official-looking signs, or you can print your own.
Just be aware that no matter how carefully you do this, a disheartening number of your customers will never read them. This is the real reason that cash discounting is preferred over surcharging — customers who haven’t read the signs will be much happier to get an unexpected discount for a cash payment at checkout than if they have to pay an extra fee that they weren’t expecting.
What Are The Requirements To Implement A Cash Discounting Program?
In running a cash discounting program, you’ll need to comply with both applicable state and federal laws and the cash discounting policies set forth by the credit card associations. While legal requirements are pretty minimal, credit card associations are a little more demanding. Be sure to review the policies for every type of credit card that you accept.
You won’t need any special hardware to get started with cash discounting. Virtually every credit card terminal, mobile card reader, and point of sale (POS) system on the market can be programmed to automatically apply a cash discount if a non-credit card payment method is used. If you’re using a Clover product, it’s as simple as downloading and configuring the Cash Discounting app from the Clover Marketplace.
We’ve discussed the requirement to post adequate signage above, but it’s important to reiterate that you should make sure you’ve posted your signs (or website banners) before you actually start applying cash discounts.
If you have employees, it’s important to ensure that they are properly trained and know the rules that apply to cash discounting. While your terminals should automatically apply discounts, employees are still your first point of contact with your customers. They need to be able to resolve any disputes about cash discounts that might arise correctly.
Finally, we’d caution you against trying to implement your own home-grown cash discounting program in an effort to avoid your provider’s monthly fees. Manually calculating and applying a cash discount is risky and prone to errors, so don’t do it.
Trying To Lower Your Merchant Fees? Alternatives To Cash Discount Processing
Although cash discounting can be an effective way to lower your credit processing costs (down to zero, in some cases), it’s not the only way to achieve this goal. Here are some alternatives to cash discount processing to consider before deciding to implement a discounting program:
- Raise Your Prices To Cover Your Processing Costs: Merchants have been quietly using this strategy for years to offset the cost of credit card processing, even though it penalizes customers who pay in cash. It’s essentially the same thing as cash discounting — but without the discount. While it’s easy to implement and completely legal, it can also depress sales and leave you at a competitive disadvantage against other merchants in your industry who can offer lower prices. If you’re just going to increase your prices and call it good, we highly recommend that you only raise them by the actual percentage of your monthly sales volume that goes to covering processing costs.
- Implement A Convenience Fee For Credit Cards: Another popular and completely legal way to lower your processing costs is to add a convenience fee for customers who pay with a credit card. This is not the same as a surcharge, as it’s a fixed per-transaction fee and isn’t based on the actual processing rate. Please see our article, What Is A Convenience Fee & Can You Charge One To Your Customers, for more information on this subject.
- Use Credit Card Surcharging Instead Of Cash Discounting: With the repeal of anti-surcharging laws across the country in recent years, adding a surcharge when a customer uses a credit card is now a viable option in all but four states in the US (note that the practice is still illegal in Canada). However, surcharging is decidedly less popular with consumers than cash discounting and can potentially put a real dent in your sales volume. Although many businesses have successfully implemented surcharging, it might not be the best choice for your business.
- Switch To A Better Merchant Services Provider With Lower Rates: If you’re already paying too much for credit card processing, this may be the best idea of all. Combined with modest price increases, you can cover your processing costs without passing them directly onto your customers through a surcharging or cash discounting program. Check out our recommendations for the cheapest credit card processors in the industry for some great companies to consider.
Does Your Business Need A Cash Discount Program?
Most merchants understand all too well that the interchange fees charged for credit card processing are high and getting higher all the time. Although the COVID-19 pandemic induced Visa and Mastercard to delay raising their rates until 2022, everyone expects these rates to go up again soon. Rate increases will hit eCommerce businesses particularly hard due to the dramatic rise in online fraud during the pandemic.
There is currently a strong push within the payments industry to sell cash discounting programs to merchants as a way to save money. Unlike the problem of higher interchange fees, you can’t blame the credit card associations for this phenomenon. Visa, Mastercard, American Express, and Discover all dislike cash discounting because it disincentivizes customers from using their credit cards. Likewise, the issuing banks hate it because it directly deprives them of lucrative interchange fees when customers put their credit cards back in their wallets and use a different payment method to get a discount.
So who really benefits from cash discounting (besides you, of course)? Of all these business entities, your merchant services provider has the most to gain when merchants use cash discounting. Why? Besides the sometimes-hefty fees they can charge for the program, providers will typically enjoy a much higher markup on credit card transactions than they would with traditional processing. After the interchange fees have been paid, providers can often keep a profit of 1.5% or even higher. Compare this to the 0.30% (or lower) markup that they might typically receive for a traditional interchange-plus processing rate.
Cash discounting ultimately hurts your credit card-using customers — not because they have to pay their fair share of the processing costs, but because they have to pay significantly more than that. Let’s put it this way: Would you sign up with a merchant services provider that was going to charge you a flat 4.0% for every credit card transaction? Probably not, right?
With all that said, cash discounting programs can benefit merchants in some industries where the practice is common and won’t put you at a competitive disadvantage. Just be very careful about which provider you sign up with, and look for one that doesn’t charge a separate monthly fee for their program. For more information on the pros and cons of cash discounting and surcharging, check out our article, The Complete Guide To Zero-Cost Credit Card Processing: What You Need To Know. Good luck!
In Summary: 6 Best Cash Discount Programs For Small Businesses
- National Processing: Best for cost-conscious merchants.
- PaymentCloud: Best for high-risk businesses.
- Host Merchant Services: Best for medium-sized retail & eCommerce businesses.
- VizyPay: Best for merchants using Clover processing hardware.
- Shift Processing: Best for cannabis dispensaries & CBD merchants.
- KIS Payments: Best for Canadian merchants.