Credit and debit card transactions have aprocessing fee associated with them that merchants must pay, called an interchange processing rate (for more information, click here). As a result,some businesses are reluctant to take credit and debit cards for small purchases. After all, these small fees can add up quickly and when merchants see their processing statement at the end of the month, it can sometimes be quite shocking!
This is where cash discount comes in:designed to work for merchants who do lots of small-ticket transactions, cash discount is a program that allows merchants to pass the card processing fee into their customers by offering a discount for paying with cash or a check.This is different from a surcharge for credit and debit card users in that the “normal” price of the transaction is the price that credit and debit card users would pay, and customers that use cash or check would receive a discount. A surcharge would mean that the “normal” price of the transaction is what cash or check payments would cost, and those who pay with a debit or credit card would have to pay an extra processing fee.
Here’s how Vulacan’s cash discount program works: Say your card processing fee is 3.84%, and the normal price of a certain item is $15.00. The customer who pays with a credit or debit card pays the $15.00, and you, the merchant without cash discount, pay $0.57 in processing fees. However, if you have a cash discount of 4%, and the customer chooses to pay cash or with a check, that customer would only pay $14.40, but the creditor debit customer still pays $15.00, and you pass the cost of processing that transaction onto that customer. The cheaper price encourages more customers to pay cash and customers who still choose to pay with credit cover their own processing fees, which therefore offsets your credit card processing fees.
Important: merchants must post the price for cards on the item, thereby making that price the “normal price.” If you post the price for cash and then charge the customer more for using a credit or debit card, that charge becomes a surcharge, which is prohibited by Visa and MasterCard rules, and also by law in several states: Colorado, Connecticut,Florida, Kansas, Maine, Massachusetts, and Oklahoma.
Is Cash Discount Right for Your Business?
That depends on what kind of business you run and how you run it. Do you process a lot of cash transactions vs. credit card transactions? Do you primarily deal with large tickets or small tickets? If you process lots of small-ticket credit card transactions, cash discount maybe right for you as those processing fees can quickly add up and affect your bottom line. However, you must also think that your customers won’t mind the new prices. If you have regular customers that strongly prefer their credit cards, they may choose to frequent somewhere else that does not do cash discount, which would mean that you lose out on the sale completely. Consider who your customers are and how this program will affect your business—if done correctly, you could save hundreds of dollars per year!
If you’re thinking of switching to a processor that offers a cash discount program, contact Vulcan today to speak with our knowledgeable staff.
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