If you’re accepting credit or digital payments, you’re likely paying processing fees that can eat into your profits. These fees can reach up to 4 percent per transaction. While card payments are convenient for customers, they come at a cost to your business.
While going cash-only isn’t realistic for everyone, alternative pricing strategies like cash discounting offer a middle ground – allowing you to offset processing costs while still accommodating customer payment preferences.
A deeper look at cash discounting
What is cash discounting?
Cash discounting is a pricing strategy where businesses offer customers a discount on the posted price of an item if they pay with cash instead of a credit or debit card. The mechanics are straightforward. Businesses pre-adjust their pricing to include credit card processing fees (typically 2-4% of the transaction value).
The psychology behind cash discounting is particularly compelling for consumers. The discount is perceived by customers as a benefit – essentially, a reward for paying with cash. And, studies show that getting a discount raises a person’s oxytocin levels, literally making them happier.
Real-world savings examples with cash discounting
Here’s what different businesses can save by implementing cash discounting programs.
| Business Type | Monthly Processing | Processing Rate | Monthly Fees | Cash Conversion Rate | Monthly Savings | Annual Savings |
| Restaurant | $50,000 | 2.8% | $1,400 | 40% | ~$560 | $6,720 |
| Retail Store | $100,000 | 2.5% | $2,500 | 30% | ~$750 | $9,000 |
| Plumbing Company | $25,000 | 3.2% | $800 | 50% | ~$400 | $4,800 |
| Gas Station | $200,000 | 2.2% | $4,400 | 60% | ~$2,640 | $31,680 |
Cash Discounting vs. Other Pricing Strategies
What is the difference between cash discounting and surcharging?
A surcharge is when you post cash prices and charge an additional fee on top of that price for customers who pay with a card. Essentially, customers pay less than the listed price with cash discounting, and more than the listed price with surcharging.
What is the difference between cash discounting and convenience fees?
A convenience fee is a form of surcharging where you charge a fee when your customers choose to pay in a non-standard payment channel or method, like online or over the phone. Convenience fees can be a flat fee or a percentage of the total amount, while cash discounts are usually percentage-based.
What is the difference between cash discounting and dual pricing?
Dual pricing and cash discounting are often used interchangeably, but they differ in a key way. With dual pricing, both cash and credit prices are posted simultaneously, while cash discounting involves posting only the credit price with a discount applied at checkout for cash payments.
Payment Strategy Comparison Chart
| Factor | Cash Discounting | Surcharging | Convenience Fees | Dual Pricing |
| Legal status | Legal in all 50 states | Prohibited in CT, MA; restricted in others | Legal in all 50 states | Legal in all 50 states |
| Price display | Credit price posted, discount at checkout | Cash price posted, fee added for cards | Base price posted/fee for alternative channels | Both prices displayed simultaneously |
| Customer perception | Positive | Negative | Neutral | Transparent |
| Business fit | Local businesses | Established brands | All | Those with robust systems |
| Transaction volume | $10,000-$100,000/mo | $50,000+/mo | Any | $50,000+/mo |
| Average ticket | $15-$100 | $50+ | Any | $25+ |
| Industry fit | Restaurants, retail, services, healthcare | Professional services, B2B, luxury goods | Utilities, government, online services | Gas stations, automotive, large retail |
Regulatory considerations for cash discounting
State-level regulations
With few exceptions, states have largely remained uninvolved in regulating the practice of cash discounting. In California and Texas, merchants who offer a cash discount must apply for and hold a special license in order to remain compliant. In Wyoming, there is a 5% discount limit imposed on businesses. For all remaining states, it’s fair game.
Industry-level regulations
There are few industry-specific regulatory considerations for cash discounting. One example is within retail and e-commerce. Online implementation requires website disclosures and checkout flow modifications to clearly communicate pricing differences.
In highly regulated industries such as healthcare, additional compliance considerations may apply, particularly regarding billing practices and insurance processing.
Weighing the decision to implement cash discounting
There are a few factors to consider when it comes to whether or not a business should implement cash discounting.
Do the math on ROI
It’s important to analyze your current processing fees and transaction patterns. Cash programs are most effective for businesses with average transaction sizes above $25, as smaller transactions (under $10) make it difficult to justify program costs while still offering meaningful customer incentives.
Assess customers
Cash discounting is only successful if your customers adopt it at scale. Older customers and those in cash-heavy industries may be more receptive to cash discounting programs. If your customers strongly prefer paying by card, it may be too hard to gain traction.
Budget implementation costs
It will be easier for some types of businesses to implement cash discounting programs vs. others. For example, it’s a pretty heavy lift for restaurants and food service companies to update menus, menu boards, and POS systems to reflect changes to the pricing structure. Factoring these implementation costs into your ROI will keep your expectations realistic.
Consider additional upsides
Consider the practical side of how cash incentives would shake up your normal operations. One positive example of this is in healthcare. Because the accounting administrative burden is so high, healthcare providers often offer cash discounts to avoid the expenses of billing, mailing statements for unpaid amounts, processing partial payments, not collecting amounts owed, etc.
Implementation best practices
In-store implementation
There are three key things you need to get right when setting up cash discounts in your store.First, you’re required to have specific signage at the store entrance and point of sale, mandated by federal and card network regulations. These signs must clearly state the cash discount percentage, conditions for the discount, and that posted prices are card prices.
Second, your POS system must include automatic cash discount features that apply discounts for cash payments, display both prices to customers, and generate compliant receipts showing the discount as a separate line item. Consider using a payment platform like ARISE that can accommodate cash discounting. The ARISE payment terminals can automatically handle the discount calculation at the point of sale.
Third, all customer-facing materials including menus, price tags, digital displays, and marketing materials need to reflect new card prices. You’ll also need to plan for 2-4 hours of staff training, ensuring they mention the discount option early in customer interactions and frame it as a savings opportunity rather than a card penalty.
Online implementation
For those of you who sell online, you will need to implement clear pricing disclosures on product pages and update your terms of service. Most e-commerce platforms require custom development – anywhere from $2,000–$10,000 – or specialized plugins to handle dual pricing effectively.
Checkout flows will also need to be modified to show payment method options with real-time price calculations while maintaining conversion rates. Enabling your system to process the transactions is only the beginning – you’ll also need to update FAQs, train live chat staff, and standardize responses for the increased volume of pricing questions during the first 30-60 days after implementation.
When implemented correctly, cash discounting can be a powerful strategy to reduce payment processing costs – potentially saving thousands of dollars each year.
