A merchant discount rate refers to the rate charged for payment processing services to a merchant on the credit and debit card transactions. The merchant is expected to set up this service and to agree to pay the rate while accepting the payments through credit and debit cards.
mediaimage
Credit card processing is slowly becoming expensive for merchants. It is the reason they are looking for avenues to reduce the expense. One such avenue is the cash discount merchant services. It offers incentives to customers to pay by check or cash, and allows business owners to offset the payment processing costs.
Cash discount program
Businesses use a cash discount program and offer discount to customers paying by check or cash, instead of paying using a debit or credit card.
Merchants incentivize by offering discount for the cash payments done to the customers and include a service fee. The cash payments are a way to offset the processing charges of the payment coming with card transactions.
How does it work for the merchant?
The merchant services cash discount program offers various benefits to the merchant such as:
Reduced fees- It is the obvious benefit that merchants get on adopting cash discount program. Their processing fees on cards get eliminated or reduced. Deciding not to process the cards implies avoiding paying for the services.
Reduction in chargebacks- With the card payments frequency reduction, the chargebacks also reduce. People or merchants can opt for the cash discount program, if they are struggling with high chargebacks number. Opting for the program of cash discount is a way or reducing the risk of continuing with the current rate.
Increase in cash payments- Customers commonly prefer using cards, but providing the customers a discount will certainly bring more cash payments. It also means faster access to funds as processing times for the merchant gets eliminated. The decrease in card payments reduces drastically the likelihood of fraud and cash is favored.
Increase purchases- The customers and merchants have alike benefits that it is best to consider adopting the cash discount program. It is good and may suit most businesses to see increase in purchases.
There are few enticing tricks of marketing than offering sales discounts on the prices marked. Customers also love saving money and when they get to save through cash discount, they appreciate it. Even if the saving is a small amount, it is enough for people to use this facility and there is the possibility of increasing additional purchases.
The popularity of the cash discount programs has given birth to different questions. For instance, the question regarding the legality of the credit card processing cash discount program has begun. Are there any states that prohibit credit card processing? Let us understand the credit card processing hereunder:
a. What is Credit Card Processing Cash Discount Program?
A cash discount is a benefit that is offered by a seller to a purchaser in exchange for making a payment before the due date. A cash discount is when the seller reduces the amount owed by the purchaser by a modest percent or a specific monetary amount.
Following we have explained in detail regarding the credit card processing:
Customers are rewarded with cash savings if they pay their bills within a particular time range.
A cash discount allows a seller to get her money faster than she would if she didn’t provide the reduction.
A vendor who gives a 2% reduction on an invoice due in thirty days if the customer pays within the first 10 days after receiving the billing is an example of a cash discount.
b. In Which States Is A Credit Card Processing Cash Discount Program Not Legal In?
Eleven states have seen the error of their ways. They have made it unlawful to engage in cash discount merchant services programs. Merchants are prohibited from imposing surcharges on credit card purchases in California, Colorado, New York, Oklahoma, Texas, Puerto Rico, Massachusetts, Florida, Kansas, and Connecticut. Minnesota bans a vendor of products or services that establishes and is responsible for its consumer credit card from charging a premium to a buyer who chooses to pay with that credit or debit card rather than cash, check, or other similar methods.
The PFP team believes that the majority of states that consider this unlawful will keep rising. All businesses, in our view, should avoid these types of initiatives and urge their customers to return to a no-surcharge setting, such as free lollipops or a give-back scheme.
Conclusion
Cash Discount Merchant Services Programs are currently illegal in 11 different countries around the world. The vendors, in the mentioned countries, should not use the cash discount programs at all. Other states in America are also imposing restrictions on the employment of cash discount programs. Many more states will declare the cash discount programs as illegal.