Daily Vs. Monthly Discount Cost
Monthly and daily discount refer to when a credit card processor deducts fees from your business checking account. There's a big difference between the two, so give careful thought to which method is best for your business.
- Difference Between Monthly and Daily Discount
- Monthly Discount
- Daily Discount
- How to Tell Which Discount Method You Have
Difference Between Monthly and Daily Discount
The names give it away. With monthly discount, processing fees are deducted from your account in one lump sum once a month. With daily discount, processing fees are charged daily throughout the month as well as at the end of the month.
Which discount method is best? Well, that's for you to decide. However, we can tell you that most businesses prefer monthly discount because it's easier to reconcile and it creates a more positive cash flow.
We allow processors to use either discount method here at CardFellow, but all processors offer monthly discount as the first option and only switch their quote to daily discount if a business specifically requests that they do so.
It's important to note that discount method is independent of pricing model. Any pricing model can utilize either monthly or daily discount.
Read more about credit card processing pricing models.
With monthly discount, a processor tallies all charges for a month and deducts fees in one lump sum at the beginning of the following month.
Under such an arrangement, the processor pays interchange fees throughout the month on behalf of the business in what amounts to a micro loan of sorts. This is because interchange fees are paid by a business's processing bank (acquirer) to a cardholder's issuing bank when a transaction is settled.
By fronting the money to pay interchange fees, the processor makes it possible for your business to receive gross deposits from sales throughout the month.
Easier to Reconcile, Better Cash Flow
Monthly discount makes reconciling processing charges easier since fees are deducted all at once, and it creates a more positive cash flow by allowing for the receipt of gross deposits from sales. Many businesses prefer monthly discounting for these two reasons.
With daily discount, a processor deducts the qualified rate or interchange plus markup throughout the month and then deducts all other fees at the end of the month.
Businesses being billed via daily discount receive net deposits from sales because their processor's rate is deducted from batch totals at settlement. The result is that the business receives deposits from sales less the processor's rate.
For example, a business with a qualified rate of 1.69% that settles a batch for $100 will receive a deposit of $98.31 ($100 – $1.69).
Only the qualified rate or interchange markup is charged prior to deposit. Any other fees such as mid-qualified rates, non-qualified rates, transaction fees, and monthly fees are deducted in one lump sum at the being of the following month.
Harder to Reconcile, Hurts Cash Flow
Having fees deducted throughout the month and at the end of the month makes daily discount difficult to reconcile. Receiving deposits in net rather than gross hurts cash flow.
Disguises Total Cost of Processing
Daily discount also disguises the total cost of processing by breaking total charges into "discount paid" and "discount due" subtotals. In order to realize how much a business paid in credit card processing fees, charges assessed throughout the month must be added to charges assessed at the end of the month.
In the statement above, the line "less discount paid" next to the red arrow shows fees already paid; however, this amount is not included "total card fees" summary line or the "total charges" line, making it look like the business ultimately paid less in fees. In order to see the actual costs for processing, this business would need to add the "total charges" amount and the "less discount paid" amount. The business didn't only pay $511.72 in fees. It paid $1,167.11.
Statements often misleadingly make it appear that total charges are only those that were deducted at the end of the month, which can lead some businesses to think they're paying less than they actually are.
How to Tell Which Discount Method You Have
If you're reviewing credit card processing quotes here at CardFellow, simply click the "view rates and fees" button in any quote and scroll down to the "miscellaneous" section as shown.
We require processors to fully disclose all quotes, including the discount method.
If you're already processing, it's pretty easy to tell which discount method your current processor is utilizing because you will be receiving net deposits from sales or gross. From that, you can easily determine the discount method. You can also check your monthly processing statement.
If you see phrases on your statement such as "Less Discount Paid" or "Discount Paid" you are being assessed charges via daily discount.
Another statement indicator of daily discount is batches being shown as gross and net. Statements will have a column indicating total sales (gross), and then they'll have another column showing what was actually deposited (net).
There's no right answer when choosing between daily and monthly discounting, but if you'd like to improve cash flow and make things easier for financial reconciliation, monthly discounting is the way to go.