Which Program is Right for Your Business?
Cash discount and surcharge programs have grown increasingly popular over the past few years. Before implementing either program, business owners should be aware of the key differences between both programs to ensure they are operating legally and avoid card brand regulatory compliance issues, which can result in hefty fines and other penalties assessed by the card brands. But don’t worry, your friends at Salus are here to help!
What is a Merchant Surcharge Program?
A merchant surcharge program is a fee that a business adds to the total purchase amount when the customer pays by credit card, so essentially the customer pays more than the advertised price for paying with credit card. Although surcharging simplifies accounting, bookkeeping, and tax prep (since all payments happen electronically) it is important to know that it is prohibited or restricted in states such as Colorado,
Connecticut, Kansas, Maine, and Massachusetts.
With a surcharge program, you have to jump through hoops to begin charging consumers for credit card transactions. Merchants are now limited to charging a maximum of 3% to consumers and must be on a separate line item and easily identified on the receipt. These programs are limited and do not apply to debit cards, cash purchases, ACH payments, etc. Additionally, surcharges are frowned upon by Credit
Card Companies since they don’t want credit card users to bear the cost of the transaction. However, studies show that people tend to spend more when they use credit cards instead of cash – so is it worth it? Maybe so, but let’s first discuss the alternative.
What is Cash Discount Program?
A cash discount program is a type of pricing model that allows merchants to offer discounts to customers who pay in cash or with their debit card. There is an added fee to the listed price of an item or service, but then removed once the customer uses their debit card or pays in cash. For example, a merchant who charges $10 for a product can list it for $12. If the customer pays with cash they will receive the item for $10. Oh, and this method is legal in all states!
Cash discount programs are popular among merchants because it reduces costs and increases profits; By encouraging customers to pay in cash or debit can save money on processing fees.
The downside of cash discounts is that it is more work. You will have to go to the bank to physically deposit your cash payments and employees will need to be comfortable handling cash and providing change to the customer. Subsequently, you will have to be sure that you have an adequate amount of change on hand for the increase in cash usage. Cash also increases the possibility of security risks such as theft.
As a merchant deciding between a surcharge program and cash discount can be an intimidating task to undertake. While both avenues help reduce processing fees,
understanding the pros and cons between the two is key to making the best decision for your business. If you are still undecided and would like to learn more about your processing options, our team is here to help! Contact us today (760) 429-5008