Cash discounting is really a tactic utilized by retailers to greatly help them cover the cost of credit card processing. This technique incentivizes customers to utilize cash or check by giving them a little discount when they do. It?s often preferred over other fee recovery methods because it can garner a more positive perception, but what’s cash discounting exactly, and how can you implement it?
What Is Cash Discounting?
Cash discounting is an old tactic, perhaps most widely known for use in gas stations. Nearly every gas station displays a ?cash price? and a ?card price,? but you don?t need to display both. Instead, all of your posted prices are assumed to function as card price and then a discount is applied at the register for those paying in cash.
So, what is cash discounting? Cash discounting helps businesses cover merchant service fees, which are the cost of processing charge card payments. The main element is that you advertise a cost that factors in both percent to four percent processing fee and you deduct that amount at the register for customers paying in cash.
If you do the reverse, displaying a ?cash price? and then add a fee for those paying with credit, that is referred to as a surcharge fee, not a cash discount. There are particular laws and rules regarding how much you can charge, when you can charge and the way you must disclose a surcharge. So, be sure to follow the right steps when implementing a cash discount program.
Is a Cash Discount a Good Thing to Implement?
Given that we?ve answered, ?What is cash discounting?? it?s vital that you dig into the benefits and drawbacks. Unlike a surcharge fee, that is added to the price of goods, a cash discount represents a chance to cut costs off the posted price.
Even though the outcome is the same for your business, the perceived difference between a ?two percent discount for cash? and a ?two percent fee for cards? can turn negative backlash into something more agreeable. The former can be an incentive and the latter seems like a penalty, and that?s the key reason why so many retailers select a cash discount.
Cash discounts also provide more flexibility because they’re less regulated than surcharge fees. Plus, it is possible to adjust the posted price of what to make the discount bigger or smaller predicated on your margins. For example, when you have a $20 item and you don? cash discount program reviews to take less than for this, you simply have to add a few cents to the posted price to totally offset the money discount.
Ultimately, customers don?t like paying more regardless of what method you implement, but a cash discount is known as flexible, easy to create and has a far more positive perception than almost every other fee recovery methods, so let?s explore the steps for implementing a cash discount.
HOW EXACTLY TO Implement Cash Discounting
Once you know the solution to basic questions, like ?What’s cash discounting?? the next step is to understand how such a program is implemented effectively.
1. Determine Your Processing Costs
The theory behind a cash discount is to recoup processing costs, so the first step in creating a cash discount program ought to be determining how much you actually pay in merchant service fees. Generally, this happens to between two percent and four percent per transaction.
Say that you pay typically three percent for card purchases, that means you should add three percent to your posted prices. Those paying in cash could have that three percent deducted from their total since the transaction will not incur any processing fees. So, a $9 item becomes $9.27 once you raise the price by three percent, and the money price at the register reverses back to $9.
2. Get Smart About Price Increases
By far, the largest downside of implementing a cash discount is that this means raising your posted prices. But, you can help minimize the impact by adjusting price increases in accordance with your margins. For instance, a small-ticket item may get the entire three percent increase while something with a larger profit percentage may only rise one percent or two percent, if at all.
For example, if a toy shop?s best-selling item is really a $45 stuffed animal plus they?ve found that this is actually the perfect price point, they don?t have to increase the card price but you will still need to honor the three percent cash discount at the register. This flexibility allows stores to regulate pricing at that level to greatly help them balance their margins while maximizing sales.
