Are Cash Discount programs right for you?

We all know the old saying, “There are two sides to every story.” In the world of card processing, cash discount programs fall into this category – there are both advantages and disadvantages to this increasingly popular trend.

Most business owners face a common conundrum. Accepting credit cards is known to increase sales, and many customers prefer to use them over cash, checks, or debit cards.

However, merchants must pay various fees to accept credit card payments, including interchange fees, assessment fees, and processing fees.

These fees go to the card’s issuing bank, the card’s payment network, and the payment processor. The interchange fees charged by the major card brands have been steadily increasing for years, making it more expensive than ever for merchants to accept payment by credit card.

What is a Cash Discount Program?

A cash discount program is a pricing strategy that offsets the cost of credit card processing fees paid by the merchant by encouraging customers to pay in cash. The system applies a small discount (up to 4%) to cash transactions. Merchants have been using cash discounts for years to cover the cost of their card processing, even though it effectively penalizes customers who pay with a credit card.

It’s important to note that a cash discount is not the same as a credit card surcharge. With surcharging, an extra cost is added to the advertised price for credit card transactions. In contrast, with a cash discount, a small percentage is deducted from the advertised price when a customer pays with cash. For merchants, the most important distinction between these two methods is that cash discounting is legal everywhere in the US, whereas surcharging credit cards is prohibited in a few states and territories.

Benefits of a Cash Discount Program

1. Reduced Processing Fees: The most significant benefit of a cash discount program is that you don’t have to pay payment processing fees on cash transactions. The payment you receive in cash goes directly into your pocket, never incurring any added costs. Debit and credit processing fees can range from 1.15% to 3.15%, not including potential flat fees charged for each transaction. These charges can seriously add up over time.

2. Increased Customer Spending: A cash discount program may also work as an incentive for customers to spend more since they’re receiving a perceived discount for paying with cash. This can lead to higher average transaction values and overall revenue.

3. Improved Cash Flow: By encouraging cash payments, merchants can improve their cash flow and reduce their dependence on credit card transactions. Having more cash on hand can help businesses better manage their expenses and invest in growth opportunities.

Interested in learning more?  We have several payment programs. Two of the most popular are Dual Pricing and True Cash Discount.

True Cash Discount: Our proprietary, patent-pending program enables merchants to offer a discount to customers who pay in cash from an itemized price list, avoiding any add-on fees that apply to card transactions. The TCD user interface, software application, reports and receipts do not mention any fees, only available, saved, or unrealized discounts. TCD rewards customers with discounts when they pay with cash.

Dual Pricing: A flexible tool to adjust cash or card prices based on market conditions, consumer demands, or competitive pressure. Dual Pricing allows merchants to treat debit cards the same as cash. Gain a competitive edge, reduce processing fees, lower overhead, and increase cash flow. No matter what logic you want to apply to your dual pricing strategy, we can help you create the calculations in your iPOS instance.

Is a Cash Discount Program Right for Your Business?

Ultimately, whether a cash discount program is right for your business depends on various factors, such as your industry, average transaction value, customer preferences, and processing fees. Merchants tell us they get very little feedback from customers once a discount for cash is implemented. 

In our 5 years helping business owners with this option, not a single merchant has gone back to paying fees. And no one has reported any loss in sales, but have noticed increased profits. 

If you do decide to implement a cash discount program, be sure to clearly communicate the policy to your customers and train your staff to explain it effectively. Providing transparency and excellent service can help mitigate potential customer confusion and maintain positive relationships.

As with any business decision, it’s crucial to monitor the impact of a cash discount program on your sales, customer satisfaction, and bottom line. Regularly assessing your payment processing strategies can help you optimize your approach and ensure the long-term success of your business.

Contact Ken today to learn more about profit increase payment programs including Dual Pricing and True Cash Discount.