All businesses are aware of the costs that come with doing business and are continually looking for ways to save money while providing a great product and service. There are some expenses that are necessary but are frustrating, because they are variable expenses, and seem to eat up a lot of profit. For example, one such expense is processing credit and debit cards on a merchant account. This is an area that businesses are constantly looking to save money.
Most businesses have moved from one merchant provider to another trying to cut costs, but still cannot seem to be in a position where they feel they are making a dent on the expense. In fact, most business owners would say the rates and fees are out of control and far too high. Every year there are adjustments in the costs of processing cards from the credit card companies. So the potential of costs increasing always exists. One might ask the question, “Is there anyone working for the businesses to help with these rising costs?” The truth is, yes, there has been actions taken to help businesses. Most notably, are the Durbin Amendment in the Dodd-Frank Act, and the Cash Discount Program.
Durbin Amendment in the Dodd-Frank Act
The Durbin Amendment was created to save businesses money when a consumer used a debit card to purchase a product or service. As a part of the 2010 Dodd-Frank Act, the purpose was to sharply cut the interchange rate, and cap how much could be charged by the card issuer for debit card transactions. There is a negative impact on this amendment in terms of pricing of debit card transactions. But, there was one part of the law that actually benefits a business. The law included a section that says the payment card networks cannot restrict merchants from offering customers a discount for using one method of payment over another. This opened the doors for the Cash Discount program to be created.
Cash Discount Program
The Cash Discount program was set up to allow a business to shift the costs of using a credit card or debit card from the business to the consumer. If a consumer chooses to use cash for payment, they receive a discount off the total price. If they choose to pay with a card, there is a fee for using the card. This program in particular, is giving businesses control again for accepting cards as a form of payment.
Over the years, consumers have slowly been introduced to the idea of a cash discount program. We see this occurring at municipalities when we go to pay our utility bills. We also saw gas stations start offering a discount per gallon of fuel if paid with cash. Now, the idea of passing along the fee is gaining momentum in restaurant service, and retail industries.
How the Cash Discount Works
A business that chooses to participate in the program will need to take a few necessary steps and be able to set up the program properly. Below are the next steps for a business to take.
Set up with Merchant Account Provider
The first step for a business is to work with their merchant provider and set up the program. It is important to make sure your provider runs a compliant program to avoid potential risks of having your merchant account closed for non-compliance. By following the steps outlined here, it will ensure proper set up. To change your account to the Cash Discount program, one may need to sign documents in order to upgrade the account. There are 2 ways in which a business can run a Cash Discount program.
- Cash Discount with Processor– The business is set up through the merchant account provider. The equipment is set up to show the product amount, taxes, cash discount fee and total amount to be paid. Not all equipment is set up for the program. A business may need to purchase or obtain new equipment to properly set up the program with the equipment.
- Business Ran Program– This option allows the business to run their own program and create their own internal systems to manage it. In this option, the product or service price is increased by the business. This increased rate is to cover the costs of paying for the credit card fees. Then the business posts signage for a discount on the price with a cash pay. If the customer chooses to pay with cash, the price is reduced. If they don’t have cash, the customer will pay the full rate.
Signage and Disclosure
One of the most important aspects of the program is to be compliant, and to post signage at the business notifying customers of the program. The signage notifies of the fees being passed over to the customer. A customer has the option to participate in paying the fee, or rejecting the fee. Upon signing up, the business will receive information on the program in order to properly train employees. Due to this being a new program, consumers are not accustomed to paying the fees and may have questions. Employees and staff should be properly trained to handle any questions, or objections of the program. The business staff, should be able to provide the support that both the business and the consumers are expecting to receive.
The pricing for the program is designed to save the business money. This savings can be up to 95% or more. Most businesses would agree that a savings this big is worth looking into. The rate for the program is usually between 3.25% and 4%. This may seem high for some businesses, but remember, the consumer will be paying the fee. The reason for the apparent high rate is because the processor needs to ensure that all interchange fees are covered in the flat rate price. They will not lose money through any single transaction. The business will pay a low monthly rate between $40-$70 to participate in the program. This fee exists to cover the basic costs the processor has to maintain an account, such as PCI fee (a fee to ensure that businesses are keeping all data secured), online reporting, accounts on file, statement fees and more.
Processing the Transaction
Before a transaction is processed, the customer is provided the opportunity to review the fees being assessed on the receipt, or on the equipment screen. The receipt will show the product(s) listed and their pricing, any applicable taxes, the non-cash adjustment and the total. The non-cash adjustment must be on its own line item on the receipt. One of the reasons the fee is required on the receipt, is because a business cannot process the fee and product amount in two separate transactions. They must be combined into one.
Who is the Cash Discount Program For?
The Cash Discount program is one of the hottest industry movements for merchant providers to set up businesses with. Some of the industry types that are jumping on the program are restaurants, coffee shops, nail salons, dry cleaners, food trucks, take out services, auto repair services, dentists, veterinarians, plumbers, electricians, daycare facilities, and others. The reason so many businesses are moving to the program, is because of the significant savings being seen. As business becomes competitive, prices for products and services are pushed down decreasing business bottom lines. Saving hundreds to thousands of dollars per month is attractive to any business.
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