Cash Discount Program: A Simple Guide for Merchants

October 15, 2021

As credit card processing becomes increasingly costly for merchants, many are seeking avenues that allow them to reduce this expense. One of these avenues is adopting a cash discount program that incentivizes customers to pay by cash or check, offsetting payment processing costs for business owners.

What is a cash discount program?

Businesses that use a cash discount program offer a discount to customers who pay by cash or check instead of using a credit or debit card.

Merchants can incentivize cash payments by offering a discount on the posted credit or debit card prices for customers that pay by cash or check. By including a service fee in the posted price, cash payments offset the payment processing charges that come with card transactions.

What’s the difference between a cash discount and a surcharge?

A cash discount is where merchants offer a discount on the posted price for cash customers, whereas a surcharge is where additional fees are added on top of the posted price for customers that pay with a card.

With a cash discount, the customer pays less than the listed price, and those using cards simply pay the listed price. In the case of a surcharge, customers using cards pay more on top of the listed price.

For example, if a business lists a product’s shelf price at $10.00, a cash discount would mean charging cash-paying customers less than $10.00 at the register. A surcharge would mean charging card-paying customers more than $10.00 at the register.

While they may sound like essentially the same thing, the difference is actually very important in order to comply with laws and card brand rules as mixing the two up could mean fines or even having your merchant account shut down. In fact, eleven states have laws that prohibit surcharging altogether.

Now that we’ve cleared that up, let’s take a deeper look into the benefits of cash discount programs.

What’s in it for the merchant?

Reduced fees

One of the most obvious benefits for merchants that adopt a cash discount program is reduced or eliminated card-processing fees. Simply put, by deciding to not process cards, you avoid having to pay for the services.

Increase in cash payments

While many customers prefer to use cards, offering a discount will no doubt incentivize more cash payments. This means faster access to the funds for the merchant as processing times are eliminated. Not to mention, a decrease in card payments in favor of cash drastically reduces the likelihood of fraud.

Reduction in chargebacks

On the same principle, as the frequency of card payments reduces, so will chargebacks. If you have struggled with a high number of chargebacks, opting for a cash discount program could reduce the risk of them continuing at their current rate.

Get people through the door

As we all know, there are few marketing tricks more enticing than a business offering discounts of “sales” on its marked prices. Customers, naturally, want to save as much money as they can. And while a cash discount may only be small, it’s enough to get people through the door — increasing the likelihood of additional purchases.

With all these benefits for merchants and customers alike, why wouldn’t every business adopt a cash discount program?

Whoa, not so fast. If it sounds too good to be true, that’s because it kind of is. Or, at least, it’s not necessarily the right solution for every business out there.

So what are the problems with cash discount programs, and what kind of businesses should stay away from offering one?

Disadvantages of cash discounts

Preference for cards

Many consumers simply don’t like to carry cash around with them. Others might value the benefits that come from flexing their credit or debit card more than they would a discount for paying in cash. In fact, according to a TSYS survey, 80% of consumers stated credit or debit cards as their preferred payment method.

By only offering discounts on your products by paying in cash, you might inadvertently be driving away customers that prefer paying by card.

Cash discount signage

If you’re providing cash discounts, you have to make it clear in your business’ signage so that all customers know that they will receive discounts when opting for cash instead of cards.

This is a rule set by credit card brands and must be followed. This means incurring the costs that come with producing the signs and making sure they are prominently displayed. An effective sign would briefly explain the percentage that is reduced from the listed price when customers pay with cash.

Implementing the program

In order to comply with the rules and laws on cash discount programs, all receipts should show that there are service charges on products that are paid for by card and that these are eliminated when the products are paid for by cash.

Working with a merchant service provider like Tidal Commerce can help you get all of this in order to make sure you’re not risking compliance.

Now that we’ve covered the pros and cons, let’s take a look at what kind of businesses are best suited to offering cash discount programs.

Is providing cash discounts right for your business?

So, while cash discounts can come with many benefits, they aren’t the best solution for every merchant. There are a few things to consider before jumping into the decision:

Do you actually prefer cash payments?

As stated, offering a cash discount will likely cause an increase in cash payments at the cost of card payments, reducing processing fees that you’d otherwise pay. However, it pays to think about how your business currently operates dealing with cash, and if you wouldn’t mind a spike in that activity.

For example, it takes time and/or money to count cash and take it to the bank, and it’s also more susceptible to being stolen by employees or outside burglars. It’s also been proven that customers paying with cards spend more money, so motivating your customers to do this could risk a drop in revenue.

Are customers required to buy or use your product or service?

If your product or service is mandatory for your customers, they will appreciate having payment options, even if they might incur a service charge. However, if your product or service is discretionary, certain customers might walk away on the basis of a service fee included in the listed price.

Are other businesses in your market offering cash discounts?

This is an important consideration. If you’re the only business of your kind offering cash discounts in your area, customers that prefer paying by card might complain. Alternatively, if your customers are used to seeing cash discounts offered in your rival stores, not providing one might drive them to your competitors.

Do you rely on repeat customers?

If you rely heavily on repeat customers, the perceived “extra fee” on products that are paid for by card might have an impact on them. Customers that prefer to pay by card might be put off by the discounts offered to cash-paying customers, and turn to a competitor that doesn’t offer benefits to those paying by cash.


Hopefully what cash discount entails and what it might mean for your business is now a lot clearer. By evaluating each of these factors, you can make an informed decision on whether or not a cash discount program is right for you.

However, if you think it’s the right solution for your business and you want to take the next step, make sure to choose a payment processing provider that will help you implement it correctly and not disguise surcharge solutions as cash discounts.

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