Cash discounting has caused some confusion for merchant services reps who are used to interchange plus pricing. Understanding the effect of the...
What is Cash Discounting?
I’m sure everyone in the merchant services industry has heard of cash discounting. But we need to answer the question, “What IS Cash Discounting?” If you are a business owner who has found my channel, understand that I produce content for people in the merchant services industry rather than business owners specifically. However, […]
I’m sure everyone in the merchant services industry has heard of cash discounting. But we need to answer the question, “What IS Cash Discounting?” If you are a business owner who has found my channel, understand that I produce content for people in the merchant services industry rather than business owners specifically. However, business owners are welcome to email me with any questions at email@example.com. For those of us in the merchant services industry, we receive one or two emails a week usually from various ISOS which say, “Come sell our cash discounting; you can make tons of money.”
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Cash discounting is simply a business owner giving customers who pay in cash a discount. As an example, consider a store which sells all hats for $10. A cash discount offer would mean that each customer who pays cash to buy a hat would only pay $9.50. Yesterday I offered to pay cash for a car. Guess what? The seller offered me a better deal; I got a cash discount.
You may well ask, “How can store owners offer a cash discount when their prices are set?” Rather than offering a lower price for cash payments, owners would prefer to increase the price for credit card transactions. They would like to offset the credit card processing fees. Although the simple solution to this problem would be for owners to charge a percentage more than the sticker price to customers paying with a card, government regulations have interfered that simplicity. Stupid government rules take our freedom in that area by saying, “You can offer people a discount to pay with cash, but you can’t charge more for credit cards.”
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.
There IS an extremely simple solution to this problem. Offer customers a cash discount, informing them that the pricing they see in the store is the cash price. Consider this example to further explain the process: In the car lot, you choose to purchase a car marked at $12,000. Upon learning you need to finance that amount, the sales person informs you that $12,000 is the cash price only. To finance the payment increases the total to $13,500. So, if retail store owners desire to offer cash discounting, they simply post a sign on the door saying, “All posted prices represent cash price. There is additional cost for credit card purchases.” There is very specific language necessary for this. Please realize I am not an attorney; this is not legal advice. This is only my opinion and explanation of the way which ISOS offer cash discounting. At present, posting such information and conducting cash discounts in this way in stores is allowed in all fifty to states. Be aware that government regulations could be imposed at any time on this activity. Therefore, it is definitely a risky building block for your business.
Because of the freedom to implement this type of cash discounting, some companies are saying, “Basically you don’t have to pay anything for your processing if we implement the cash discounting structure for you. In this way we’ll be collecting fifty cents per item or four percent (or whatever amount is correct) to offset the credit card processing fees.”
The next big question is “Why would you consider selling cash discounting?” Please listen and/or read tomorrow to get the answer.
My name James Shepherd. Thanks for reading.
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