Merchants – and their point of sale (POS) and payment solutions providers – are finding ways to mitigate credit card processing fees. On average, businesses pay credit card processing fees between 1.5 percent and 3.5 percent of transactions, which can add up and hurt the bottom line, especially for small and medium-sized businesses (SMBs) rebuilding after the pandemic. Some businesses have turned to cash discount programs to cover their costs; however, many overlook how Automated Clearing House (ACH) payments can also reduce credit card processing fees.
You can offer your clients alternatives to paying a large payment processing invoice at the end of the month if you understand how cash discount programs and ACH work and which is best for your clients.
What Merchants Need to Know About Offering a Cash Discount
One option is to cover payment processing fees through a cash discount program. The basics of a cash discount program are:
- A merchant adds a service charge to all sales, typically equal to the merchant’s payment processing rate.
- When a customer pays with cash, this charge is removed.
- To administer the program legally, the business must maintain clear signage on-premises, show the discount on all receipts regardless of payment type and clearly communicate the discount to all customers before transactions.
- Bookkeeping is vital to track compliance and charge taxes appropriately.
It should be noted that offering a cash discount is not the same as offering a surcharge, which is illegal in some states and by some card brand rules.
The biggest benefit of the program is that merchants basically recover their payment processing fees. The downside, however, is that the program can be hard to administer and manage, and the business could face additional scrutiny, especially in states where surcharging is illegal.
ACH Payments: The Easy Alternative
ACH payments, sometimes referred to as “direct payments,” can be an attractive alternative to both credit card processing fees as well as the regulatory landscape of cash discounts. ACH payments draw directly from a customer’s bank account. They’re sometimes confused with wire transfers, which instantaneously deliver funds into the recipient account; however, ACH payments can take a few days to process because banks group these types of payments in batches.
Benefits of ACH processing:
- Banks often offer this service at no charge to the business. When banks charge a fee, it typically is less than $1 per transaction.
- Fewer declined transactions and more “payment complete” messages mean less hassle for the back office.
- The customer’s bank details are safeguarded in the process, unlike printed checks that display banking information.
Adding ACH support also removes the merchant from any PCI compliance rules that govern credit transactions, as the federally managed ACH system has its own system of top-of-the-line security and data protection mandates.
Providing ACH Support to Merchants
ACH processing may not be top of mind for your merchants. However, you can bring the benefits of this option to their attention if you add ACH transaction capabilities to the omnichannel payment solution you provide. ACH payments may be all that some merchants need, or they may be able to use a combination of cash discounting and ACH to reduce or eliminate payment processing fees.
Evaluate your market, and then contact Datacap to learn more about enabling ACH payments for your clients.
