Cash Discount Programs - What You Should Know.
More businesses are turning to cash discounting programs to save money on credit card processing fees. But what is a cash discount program, and how can it benefit your business?
In this article, we'll discuss what a cash discount program is, what to look for in a program, and how merchants can benefit from them. We will also answer some common questions about cash discounting, including whether or not it's legal and if there are any downsides to consider.
So if you're looking for ways to reduce your business's credit card processing fees, you’re at the right place!
What is a Cash Discount Program?
Cash discounting is a type of pricing structure where businesses offer a small discount to customers who pay using cash, gift cards, and in some cases, debit cards. The discount amount varies and can be either a percentage of the sale amount or a fixed flat rate depending upon the business type and average sale amount(s).
For example, if a business has a credit card processing fee of three percent, they will offer a three percent discount to customers who pay with cash. For customers paying via credit card, the business's products and services will already include the credit card processing fees, thus creating both a CASH price and a CREDIT price for the customer to choose at the time pf payment.
What Problem Does Cash Discounting Solve for Businesses?
The biggest problem that cash discounting solves for your business is the heavy burden of paying card payment processing fees. Depending on the credit card network, processing fees can range anywhere from 1.5 to 3.5%, even 4% in some cases.
For any business with high volumes of credit card transactions, these fees can quickly add up and eat into their profits. This can be especially challenging for small to medium businesses and startups that are already working with tight margins.
Which Businesses Have the Most to Gain from Cash Discounting?
For a cash discount program to be effective, your business needs to be in a position where you're able to accept cash, or a cash equivilent, as a form of payment. This means that online retailers are eligable to offer Cash Discounting as long as they utilize ACH as a form of payment acceptance.
The businesses that are most able to take advantage of cash discounting are those that have a physical storefront or operate a service-based business. This includes boutique retail stores, automotive shops, restaurants, landscaping companies, spas, electricians, salons, and more.
What is the Difference Between Cash Discounts and Surcharging?
It's important to note that cash discounting is different from surcharging.
Surcharging is when businesses add an additional fee to the price of their goods or services at the point of purchase for customers paying with a credit card. This takes the credit card processing fee that is applied to the merchant and shifts the burden onto the consumer.
Cash discounting, on the other hand, incorporates the credit card processing fee into the business's pricing structure and only offers a discount to those who pay with cash. This method is often preferred among customers as there are no hidden fees or price changes at the point of purchase.
Surcharging is illegal in some states, whereas cash-discounting is legal and compliant with Visa, MasterCard, American Express, and Discover's rules and regulations.
How Do Merchants Benefit from Cash Discount Programs?
Increased Profits and Reduced Processing Fees
The most obvious benefit of cash discounting for merchants is the drastic reduction in your credit card processing fees.
Reduce Risk of Chargebacks
By incentivizing customers to use cash, you can lower the risk of chargebacks. Chargebacks happen when customers dispute a credit card transaction with their bank or credit card company. If the chargeback is successful, you will not only lose the sale but you may also be hit with an additional fee.
Increased Number of New and Returning Customers
Another often overlooked benefit of cash discounting is the increased number of customers and sales. Discounts can incentivize new customers to try your business and can also lead to repeat business from customers who appreciate the cost savings.
Are There Any Downsides to Cash Discounting?
While cash discounting has many benefits, there are also some potential downsides.
Upsetting Customers With a Preference for Cards
The most common concern is that cash discounting may alienate some customers who don't have cash on hand or prefer to pay with credit. Certain cashback cards also offer rewards or points that can be used for future purchases, meaning customers may be reluctant to forego these perks in exchange for a cash discount.
Implementing the Cash Discount Program
Another potential downside is that you will need to invest time and resources into setting up and promoting your cash discount program. Implementation requires making changes to your pricing structure, updating your POS system, and training employees on the new process.
To comply with the rules established by credit card brands, your business will also need to post clear signage informing customers of the cash discount. This signage may vary from state to state.
What to Look for in a Cash Discounting Program
When looking for a cash discounting program, there are a few key features to keep in mind.
Compatibility With Your POS System
First, you'll want to ensure that the program is compatible with your existing credit card processor and POS system. Their software should also be in compliance with the rules and regulations set by the credit card brands and state statutes
Easy to Use and Implement
Additionally, you should find a partner with an intuitive solution that is simple to use and implement. This will make it much easier to train your employees and introduce the program to your customers. There should not be many moving parts in a cash discount program. Keep it simple!
Reliable Customer Service and Support
Finally, be sure to choose a reputable provider with a good track record of customer service and support. This will ensure that you have someone to help you with any issues that may arise. This is a great rule in general when selecting a platform. A company is only as powerful as its support staff.
Is a Cash Discounting Program Difficult to Implement?
With the right cash discounting program in place, implementing this new pricing structure is relatively effortless. Fluid Pay, LLC. has partnered with DTI for that very reason, so we can offer you an intuitive cash discounting program that is simple to use and easy to implement in your business.
Using DTI's exclusive patented technology, your existing products and services will already be priced to include your credit card processing fees. When a customer pays with cash, the software automatically detects the payment type and applies the designated cash discount.
Set-up is simple, and our Fluid Pay team will guide you every step of the way to ensure that your cash discount program runs smoothly and is compliant with the major credit card brands and state statutes.
To learn more about how Fluidpay's Cash Discount Program can benefit your business, contact the Fluidpay team today.