The Problem with Cash Discount Programs (And the Safer Alternative)
Staying competitive is a hard realty for all successful retail operations. As a business owner, you’re constantly looking for ways to save your business money. But you should always be cautious about how you go about doing this. Some practices you implement can be too risky or even illegal.
Take cash discount programs, for instance. This is when a business charges their cash-paying customers a cheaper price simply for paying with cash. This is an easy way for business owners to recoup some of the extra cost of running a credit card and the high merchant processing fees they pay every month.
Cases Pending on Cash Discount Programs
As a business owner, you should cautious and think twice before implementing a cash discount program. Although in the past all states have been fine with cash discounts, in the future, that may no longer be the case.
Cases are currently pending in states where cash discounts are legal. For example, in New York, the case Expressions Hair Design v. Schneiderman may end up banning cash discount programs once the final ruling is handed down. If other states follow suit, cash discount programs may become illegal.
The Better Alternative to Cash Discount Programs
There is a legal alternative to cash discount programs where you can still help cover the expense of credit card processing fees. It’s called “surcharging.” This is a small convenience fee customers pay if they choose to use a credit card. When you’re implementing a cash discount program, the prices you have posted are your credit card prices and you discount them you’re your cash-paying customers.
With surcharging, the prices you have listed are your cash prices, and you only add the surcharge (extra fee) if your customer pays with a credit card. This practice has been legal in the U.S. since 2013. Surcharging and cash discounting may sound similar to one another, but credit card companies and the law view these as very different practices.
Laws about Surcharging
Surcharging is legal in most states. Until just August of this year, Texas had a ban against surcharges, but it was overturned in the case Rowell v. Paxton. Before being overturned, the law had been in place since the 80s. If other states follow in Texas’ footsteps, there may be no more bans on surcharges in the future.
Surcharging isn’t just practiced in the United States. In Australia, the practice of surcharging is very common. In fact, 42% of all merchants pass a surcharge along to their customers who use credit cards. Surcharging has also been going on longer in Australia, when it was legalized in 2004.
There are still regulations that you need to follow in order to legally surcharge your customers. These regulations include displaying the proper signage, limiting the surcharge, and notifying the credit card companies you partner with that you will be surcharging. When working with Wholesale Payments Direct, we make it easy to follow these regulations and stay compliant. Call us today if you are interested in implementing a surcharge.