Accepting credit card payments can be a double-edged sword for many small business owners – while it’s great to give your customers the option to pay with their preferred payment methods, the credit card processing fees can really add up.
What if there was a way to incentivize customers to pay with cash instead, so you can avoid the fees?
Well, there is! It’s called dual pricing.
In this article, we cover what dual pricing is, common mistakes to avoid, and how you can implement it in your small business. Let’s dive in!
What is Dual Pricing?
Dual pricing, otherwise known as cash discounting, is the practice of charging a customer less when they pay with cash instead of a credit card. It’s an increasingly popular program for businesses of all types, but you’re probably most familiar with seeing it at gas stations (where margins for the sale of gasoline are notoriously tight).
It often looks a little something like this:
Cash discounting is a less-regulated alternative to the (heavily regulated) practice of surcharging, which presents itself as a line item on a receipt for up to 3% of the transaction total. This practice is subject to federal and state laws, and while federal law allows surcharging on credit card transactions, certain states have laws that prohibit or limit it.
In a nutshell: surcharging is a markup for credit card payments, while dual pricing/cash discounting is a discount for cash payments.
As the cost of almost everything for merchants continues to increase, we’ve noticed a proliferation of “dual pricing” among small businesses. While it’s true that dual pricing (or cash discounting) is much easier to implement than surcharging, there are some rules your business should follow to avoid hefty fines and even a suspension from accepting credit card payments.
Surcharging Illegally: Common Mistakes with Dual Pricing
When we’re out and about, we’re seeing that the two most common mistakes merchants make are:
- Changing their pricing to the cash price and then marking up the prices at the register when a customer presents a credit card.
- Not properly informing customers of the available discount when paying in cash.
These practices look a lot like illegal surcharging.
Outside of potentially losing consumer trust, you’re putting your business at risk of penalties from your local authorities, legal action by credit card companies like Visa and Mastercard, and getting banned from accepting credit cards.
Lastly, it’s important to note that most of these mistakes originate from misinformation by merchant services providers. Whatever you’re told, make sure to do your research before implementing any cash discounting / dual pricing / surcharging programs.
Cash Discounting (AKA Dual Pricing Done Right)
Ok. Enough with the doom-and-gloom. Here’s how to offset the cost of processing fees with cash discounting or dual pricing while being compliant with the rules:
- Your posted or displayed price must represent the cost of the goods if the customer pays via credit card. Alternatively, you can list both the credit card price and the cash price (dual pricing).
- You must only reduce the price at the register when your customer pays in cash, not the other way around.
- You can inform your customers of the discount opportunity with postage signage.
- Use a POS system that supports dual pricing and has a separate card price and cash price for each of your products.
- Use a reputable and licensed payment processor, like Gravity Payments.
Pro Tip: To take full advantage of cash discounting, you can raise your prices by your average credit card processing fee (say 3%) across the board, then discount the same at the register when your customer pays in cash.
Implement Dual Pricing with Gravity Payments
…And that’s it! If done right, dual pricing is a really useful (and legal) strategy to help with your bottom line.
Gravity Payments allows you to implement dual pricing in your business as part of our merchant services.
We offer a white glove setup and work with a range of payment devices that have built-in capabilities to distinguish between credit card payments and cash payments – and the ability to adjust the price for dual pricing purposes.
If you want to get started with dual pricing/cash discounting, Gravity Payments can help – give us a call at 866-701-4700, or book a free consultation here.
Frequently Asked Questions About Dual Pricing
Still have questions about dual pricing? Here’s the questions we’re most commonly asked by small business owners.
How much does it cost to implement dual pricing in my business?
At Gravity, we do not charge additional fees to implement dual pricing and we will gladly assist you with the implementation process.
Does my credit card terminal support dual pricing?
Most modern credit card terminals and point of sale (POS) systems do. If you have an older model, it may not have this capability. We can advise you on this.
How do I determine the card and cash prices for each product?
If you work with Gravity, this is calculated automatically by your point of sale system. All you need to do is select the payment method, and the correct price will be charged.
Are there any legal requirements I need to comply with for dual pricing?
The most important thing is being fully transparent about your dual pricing and advertising the credit card price. Advertising the cash price is optional. Communicate clearly that customers can get a discount on the credit card price if they pay with cash – for example, with signage – and include it on their receipts too.