As a general rule, a contractor is prohibited from charging more simply because a customer wants to finance the job. However, this is technically not the same as offering a discount for customers who are willing to pay in cash.

At first blush, this may seem to be more of a form-over-substance argument, but it isn’t, and so long as the cash discount is legitimate — and that can be established — a cash discount marketing program can be safely implemented.

Semantics Matter

We recommend that our clients follow at least four basic protocols when using a cash discount program, to help avoid the program being classified as an improper finance charge.

  • Any marketing program using a cash discount concept should be justified in writing and kept in the company records. For example, a brief memo might reflect that the company has determined that the costs of processing a job are noticeably less for clients who pay in cash, require less administrative work, are fulfilled and installed faster, etc. As a result, the company has decided to implement a “cash discount” program for those customers who may be interested in an incentive if they pay in cash.
  • Make sure that any marketing materials used in such a program reflect the correct phrasing of a cash discount, such as “5% discount for cash transactions.”
  • The cash discount should be clearly disclosed on the work order as exactly that: “$250 cash discount promotion” or “5% discount for cash-only sale.”
  • Sales scripts used in the home should make clear that the offer is a discount for cash. The job price then needs to be presented accordingly. For example: “Mrs. Jones, the job is $6,500, but I can apply a $500 cash discount if you are interested in paying in cash.” Avoided comments such as, “Mrs. Jones, the job is $6,000 if you pay in cash, but if you wanted to finance the job it would be $6,500.”

Semantics can be important here, so being able to show an actual approved script can help legal representatives if the salesperson missteps.

—D.S. Berenson is the Washington, D.C., managing partner of Johanson Berenson LLP (www.homeimprovementlaw.com), a national law firm specializing in the representation of contractors and the home improvement industry. Reach him at info@johansonberenson.com.

This article is for informational purposes only and should not be construed as legal advice.