What is Cash Discounting

What is Cash Discounting?

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.

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