As credit card processing is becoming expensive for merchants, many are looking for avenues that will allow them to decrease the expense efficiently. One of these avenues is a cash discount program that incentivizes customers to pay by cash or check.
So, what comes to your mind when you think about a cash discount program?
A cash discount program is a way for businesses to incentivize customers to pay with cash instead of a card. By offering a discount to customers who choose cash, businesses can reduce the processing fees associated with card transactions. This can be an effective way to increase cash payments and reduce costs for the business. However, it is important to consider the potential impact on card payments and to carefully evaluate whether a cash discount program is right for your business.
What’s the Difference Between a Cash Discount and a Surcharge?
A cash discount is a discount offered exclusively to customers who pay with cash, while a surcharge is an additional fee added to the posted price exclusively for customers who pay with a card. In other words, a cash discount means that customers who pay with cash will pay less than the listed price, while a surcharge means that customers who pay with a card will pay more than the listed price. It is important to understand the difference between a cash discount and a surcharge in order to comply with laws and card brand rules. Additionally, combining the two can result in the closure of a merchant account.
How does a cash discount Benefit the Merchant?
One of the most important benefits for merchants will be choosing a cash discount program is reduced or eliminated card-processing fees.
Increase in Cash Payments There are a lot of customers that love to use their cards, and providing a discount will undoubtedly incentivize more cash payments.
This apparently means faster access to the funds for the merchant as processing times are obliterated.
On the other hand, a rapid decrease in card payments will be beneficial in drastically eliminating the likelihood of fraudulent activity.
Contraction in Chargebacks
With the same principle, the card payments drastically reduce, and so will chargebacks. If you have dealt with numerous chargebacks, then choosing a cash discount program will eradicate the stake of them continuing at their existing price.
Get people through the door
Offering a cash discount can be an effective way to attract customers and drive traffic to your business. The psychology of consumers is such that they are always looking for ways to save money, and a cash discount can be a tempting incentive. While the discount may be small, it can be effective in getting people through the door and increasing the chances of additional purchases. Marketing strategies like seasonal sales and discounts on already marked prices can also be helpful in driving foot traffic to your business.
Why are not All Businesses Embracing a Cash Discount Program?
While a cash discount program can be a useful tool for some businesses, it may not be the best solution for every business. It is important to carefully evaluate the potential impact on your business before deciding whether to implement a cash discount. One potential issue with cash discount programs is that they may discourage customers who prefer to pay with a card. This could result in a decrease in card payments and potentially harm the business if card payments make up a significant portion of overall sales. Additionally, implementing a cash discount program can be complex and may require additional time and resources to manage. Businesses that may not benefit from a cash discount program include those that rely heavily on card payments, those with a low-profit margin, and those with a complex pricing structure. It is also important to consider local laws and card brand rules when determining whether a cash discount program is appropriate for your business.
Disadvantages of Cash Discounts
Preference for Cards
There are many customers that don’t like to keep cash on them. On the other hand, others might think the benefits that they reap from flexing their credit or debit card are much more than they would ever get by paying with cash in their hands.
In fact, there was a survey, where 80 percent of consumers of credit or debit cards stated it as their preferred payment method.
If you will only provide discounts on your products and customers can only benefit when paying in cash, then the chances are that many card customers will be upset because they prefer paying by card.
Cash Discount Signage
If you are offering a cash discount, it is important to make this clear in your business’s signage so that all customers are aware of the benefits of choosing cash over a card. Credit card brands often require businesses to display signage indicating the cash discount in a prominent location. This helps to reduce the costs of implementing the signs and ensures that customers are aware of the discount. An effective sign should clearly indicate the percentage that is deducted from the listed price when customers pay with cash. By following these guidelines, you can ensure that your cash discount program is successful and beneficial for your business.
Implementing a Cash Discount program
To ensure compliance with rules and laws regarding cash discount programs, it is important to include service charges for card payments on receipts and to remove these charges for cash payments. Working with a reputable and reliable merchant service provider can help you properly implement the program and ensure compliance.
Now that we have discussed the advantages and drawbacks of cash discount programs, let’s consider which types of businesses are most suited to offer such programs.
Is Allowing a Cash Discount Processing Right for your Business?
So, While cash discounts have many benefits they aren’t the best solution for every merchant, there are a few things to consider before jumping into the decision:
Do you actually prefer cash payments?
Offering a cash discount can encourage more customers to pay with cash, which can reduce processing fees and potentially increase profits. However, it is important to consider how your business currently handles cash and whether a shift to more cash payments would be practical. Both cash discount processing and credit card processing have their own advantages and disadvantages, and it is important to weigh these carefully before making a decision.
There is also the observation that customers who pay with cash tend to spend less money than those who pay with a card. If a significant portion of your customer base prefers to pay with a card, ignoring their needs and preferences could have a negative impact on your business’s revenue. It is important to consider the value of all customers, regardless of their preferred payment method.