Pros and Cons of Offering Discounts for Paying in Cash

Discounts for paying cash

By now you probably know that, as a merchant, both the law and credit processing agreements allow you to offer discounts to customers who pay in cash.  So why wouldn’t you offer such a discount?  Who doesn’t love cash?

While cash has its advantages, there is a downside to consider.  We’ll show you both sides of the coin.

The Pros

The upside to cash is pretty straight forward:

  • Keep all of your money.  It’s clear:  with cash, you avoid credit card interchange fees.  The cash you take in is the cash you keep.
  • Everybody loves a discount.  Customers appreciate a discount and some may be more likely to return to your business to take advantage of the savings.  Plus, you’re providing consistently card-wielding customers an incentive to start paying in cash.
  • A discount is sometimes the difference between a sale and no sale.  Especially for big-ticket items, the savings could be enough to make a customer run to their ATM.
  • Differentiate yourself from big box stores.  If you’re a small business, offering  discounts for paying in cash is one way to compete with bigger, well-known competitors.

The Cons

Here a few reasons why you may not want to encourage cash payments:

  • Cash is riskier.  More cash on site means a greater security risk. It’s also a lot easier for cash to go quietly missing from your drawer.  Ask any business owner who’s had a sticky-fingered employee counting their register each night.
  • People spend more when they pay with a credit card.  There are a number of studies out there that all point in the same direction:  we spend more when we are handing over a credit card instead of cash.  If a customer is not limited to what’s in their wallet, adding a few extra purchases to their tab is much more likely.
  • Cash can be costlier to your business. The costs of dealing in cash are hard to quantify.  Credit card fees have a definite number attached to them, so you know what it’s costing you to handle credit card payments.  With cash, those costs are less concrete. But make no mistake, transporting, counting and preventing cash theft all come at a cost.
  • You could anger or lose card-carrying customers. Offering discounts for paying in cash can just as easily be viewed as a surcharge for paying with credit.  That perspective can lead to unpleasant surprises at the register for card-carrying customers.  Customers caught without cash and unaware of your cash discount offer could become annoyed that they have to pay more, just because they need to pay with plastic.  Which is also related to the next point:
  • Credit cards are more convenient for customers. More and more people are paying with plastic and generally expect the option to do so without penalty.  Considering the point made above, is it good customer service to “add a surcharge” for credit card payments?  Your card-carrying customers are not likely to think so.

Consider all sides of this important issue, and remember to view it from the perspective of the customer.   You know your customer:  what would she or he prefer?

For those of you looking for more information on accepting credit and debit cards, check out Community Merchants USA. This online resource includes a plethora of information to help you add more value to your business through credit and debit card acceptance.


Shutterstock: Paying at register


Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

16 Reactions
  1. Hi,

    Truly bringing cash is riskier than cards. Yes its more convenient to pay with credit cards etc. its just that we tend to over spend when we use credit cards and that’s the main reason why I prefer cash that cards… every money that goes out is budgeted.

  2. I too see both sides of the argument, but my general feeling is that consumers are leaning more and more toward cash-less. Mobile payment options are only going to grow.

    • Robert: I see that we will do more mobile payments in the future. iZettle is a good example of that. The thing is that we have to understand the real meaning of money and go back to an objective standard like gold or silver. Otherwise we will end up with the Fed’s printing press, running amok with worthless fiat paper money…

      Have you learned from the history how much purchasing power silver has against paper currency? For example, how much would you gas would you get for 1 troy ounce silver dollar compared with 1 dollar bill, ten years ago and today?

  3. Cash is King and silver is argentum, i.e, real money. I look forward to the day when I can pay with my favorite coin, the American Silver Eagle $1. Have you done that in Nevada?

    Anita: Thanks for the link to Community Merchants USA. I will check out this site.

    • Thanks, Martin. I have to say that’s a new one for the comments section – “argentum”. I can’t remember in 10 years anyone using that word in a comment. 🙂

      – Anita

  4. Carrying cash is way riskier than carrying your cards. Most of the people love to pay using cards and it’s true that more money is spent when a card is used. But more people are heading towards mobile payment and I believe soon it’s going to be the first choice of customers.

  5. Hmm. I wonder why the law/credit processing agreements allow for discounts to be offered for cash purchases? What’s the motive? Is it a way of keeping real money circulating within the economy?

    • I think, but can’t seem to find a link right now, that the financial industry has lobbied and rec’d legal protection from merchants charging a surcharge for using credit/debit cards. On the flip-side, merchants are allowed to offer discounts for cash. The qualification is that there has to be public notice of the discount on the premesis.

      The trend is people wanting to use plastic, whether credit or debit. It’s more convenient. But the cost to providing a plastic alternative to cash costs the merchant (speaking for myself) thousands of dollars a month. Which is why I dropped the card payment hook years ago.

      For convenience though, I”ll soon start accepting cards again, but have adjusted my prices to absorb the added cost. And, will offer a discount for those paying cash. The “discounted” price “for cash” will be the price they are currently paying. So my cash customers, and those wanting to save some money, are not offended by having to pay the freight for those who want to use their card. Everyone has the same choice.

      • Ross, have you given it a try? How’s it going with the slightly higher prices and the cash paying customers getting discounts? Do you offer discounts for the debit purchases being that they cost less than credit as well?

        The detail I see all are missing about paying with credit over cash is the roughly 2% leaving the community on every transaction. The 2% is going to Visa, MasterCard, or AMEX headquarters (or whether they hold their money and pay their employees. Those communities are benefiting) rather than staying in the local economy where it can be spent. Someone from Visa isn’t going to walk into your business again (unless they have an office in your town) to use that 2% savings, but a real customer / community member that just saved 2% on a cash purchase now has 2% more in their pocket, meaning the community has 2% more. The community is better for it by 2% and your business may even be better for it long term as less money is sucked out of your community through these small fees by the credit companies. I’m not a merchant, so I’m curious as to whether there is an opportunity to coin your business as more community friendly than the next business because of this small savings. In reality, you really would be keeping thousands of dollars in your community each year over the guy next door not offering this discount. Every dollar matters to your community. I look forward to your experience and reply.

  6. Ross. like Jeff B I am curious to know the outcome of your “experiment”. Jeff B ~ I LOVE your idea of keeping your customers cash savings local. I am an artist who will begin selling my work at art/craft shows and festivals. I am wondering if you have any views on whether, in the festival/fair type of sales environment, a cash discount advisable or beneficial? Or in keeping with the previous thoughts of plastic sales have less of a spending restriction, vs. only using the cash you had on hand?

    Thank you all for your posts/opinions on this subject.

  7. I’m a customer who never carries cash (or checks after purse was stolen and checking account drained even after bank was informed of theft). I pay for everything with credit card (I have great rewards and pay off the card every month.

    I have a story about a dance studio I attended for several years (spending more than $3600/year). They required payment in person and always gave me a hard time about paying with cc. They would “up-charge” to allow me to pay with my card and I would have to come to class 30-min early on “pay day” just to make sure I’d be able to start class on time. I felt like they were in the dark ages with technology and it reflected on my view of their dance program. I’d had several conversations about this with the owner.

    When a new studio opened that offered the same classes and everything from schedule & registration to payment online (they even have auto-pay), it was a no brainer to switch my business. I love being able to switch my schedule without stress of calling & not having to remember to pay every month. Credit card and online payments are the way of the world now. Don’t ostracize your customers. Make it easy and allow them to use cc’s without hassle.

    • We are a small business that accepts credit cards and it cost us over $15,000 last year to do so. It doesn’t seem fair to us to pay that amount for a convenience. I am a customer that uses my credit card for just about everything but would surely pay cash if there were a discount offered or I had to pay additional to use the card. I am on both ends of it but as a business manager looking at ways to cut costs so we don’t have to raise rates and parts mark-up just to make a profit, I think customers would agree to pay with cash or check vs paying more for their service call and parts replaced. It is a tough decision and one that we have been talking about for over a month. We haven’t decided how we are going to handle it yet, still trying to get pros and cons on the subject.

  8. I have a one operator beauty shop. I am paying over $500 a year in credit card fees just to provide my customers the convenience of using a card. It takes me about 24 hours of standing behind the chair to earn that $500. 3 days of working for nothing just to provide the clients a convenience. Yes I am going to start giving a cash discount (checks are OK). I will post results in about 6 months.

  9. I have been in local businesses that are now charging an additional 4% for people that use CC or you can make a PIN debit transaction with no additional fee. One was a bar/restaurant and the other was a dry cleaner. The program that is being marketed to the merchants is called a “cash discount” program but there isn’t any discount. Nothing but a play on words. If it is a discount, then the cash paying customer would pay less than the displayed price. Instead, the cash paying customer is paying the same price and the CC user is paying 4% more. I sold merchant accounts in the past in this doesn’t sit well with me. Business Owners…you are not required to have a “merchant account”. You could have a cash only business but it is documented that you will increase sales by at least 20% by accepting cards. Your fees are a tax deductible. I don’t understand why merchants focus on the negative when it comes to their merchant account and now they want to punish a person who doesn’t carry cash but is likely to spend more money because they don’t.