Cash Discount Pros and Cons

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According to a recent infographic from Community Merchants USA, 66 percent of all point-of-sales (POS) transactions are done with plastic – credit, debit, or gift cards. As we all know, there are VISA/MC and association fees that must be paid by the retailers to accept credit cards. A major trend in many industries is to pass on the expense to the customer at the time of the sales transaction. Tacking a small percent onto each sale, can result in a significant savings for the business.

Are Cash Discounts right for you and your customers? Here are pros and cons that can help you decide.


Reduce Fees – Obviously, the biggest pro is reducing or eliminating card processing fees associated with accepting credit cards. If you don’t process cards, you don’t have to pay for the service.  

Easier to implement and explain than a credit card surcharge  – Another way some merchants pay for card processing is to assess a surcharge on products bought with a credit card.  There is sometimes push back. For instance, it’s illegal to add a card processing surcharge in 11 states. Implementing a cash discount, though, is legal everywhere.  And it’s pretty easy to explain that all items in the store are priced with a built-in service fee, but that the fee is deducted if you pay with cash.

Encourages cash payments – Although many people prefer credit cards, a cash discount may encourage a customer to use cash instead of a card for their purchase. These means less time between the sale and when you have access to the funds. There is no processing time or wait period for cash in your hand.  Plus you eliminate some fraud exposure.

Reduce chargebacks  – With fewer people using cards in your store, it’s likely the number of chargebacks will also decrease. If this has been a problem for your business, this decrease may actually help reduce the card fees you do pay, because you’d be perceived as less of a risk.


Some customers may not carry cash – Lots of people simply don’t carry cash anymore. Expecting to use ApplePay, some shop armed with just their phone. And if a customer is opposed to making a purchase without getting a discount, they may walk out without buying anything.  You could experience a drop in sales volume.

Conspicuous signage – To offer cash discounts, you must post what the law refers to as “conspicuous signage” throughout your place of business to let customers know they can receive a discount if they pay by cash or gift card rather than using a credit card. Also, while expressed as a discount and not as a fee, some customers may view the posted “offer” in a negative light.

Implementation – To be compliant with a cash discount program, your receipts must clearly reflect that there is a service charge on items and that that service charge was removed for a cash payment. That means revising your POS system software.  Plus you’ll want to be sure you follow any changes in the laws around cash discounts in the future to avoid any penalties.

Potential Drop in Sales  – Studies have show that consumers spend more when using their credit cards. If cash appears to be a more attractive option in terms of managing credit card processing fees, be aware that it could end up discouraging and depressing your overall sales results.

If you chose to implement a cash discount program, make sure you go into it with your eyes open. Follow the rules closely to avoid issues and penalties, and be sure to evaluate the success of the program against any declines in sales you may experience to be sure the program is working for you.

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