Cash discounting is a tactic used by retailers to greatly help them cover the cost of credit card processing. This system incentivizes customers to use cash or check giving them a little discount when they do. It?s often preferred over other fee recovery methods since it can garner a far more positive perception, but what’s cash discounting exactly, and how will you implement it?
What Is Cash Discounting?
Cash discounting is an old tactic, perhaps best known for use in gasoline stations. Almost every gas station displays a ?cash price? and a ?card price,? but you don?t have to display both. Instead, your entire posted prices are assumed to be the card price and a discount is applied at the register for those paying in cash.
So, what’s cash discounting? Cash discounting helps businesses cover merchant service fees, which will be 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.
Should you choose the reverse, displaying a ?cash price? and then add a fee for all those paying with credit, this is known as a surcharge fee, not a cash discount. There are particular laws and rules regarding just how much you can charge, when you’re able to charge and how you must disclose a surcharge. So, be sure to follow the proper steps when implementing a cash discount program.
Is a Cash Discount a Good Thing to Implement?
Now that we?ve answered, ?What is cash discounting?? it?s important to dig into the benefits and drawbacks. Unlike a surcharge fee, that is added to the price of goods, a cash discount represents an opportunity 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 ? cash discount program reviews for cards? can change 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 choose a cash discount.
Cash discounts also provide more flexibility because they are less regulated than surcharge fees. Plus, it is possible to adjust the posted price of items to make the discount bigger or smaller based on your margins. For instance, in case you have a $20 item and you also don?t desire to take less than for it, you simply have to add a few cents to the posted price to completely offset the money discount.
Ultimately, customers don?t like paying more regardless of what method you implement, but a cash discount is considered flexible, easy to create and has a far more positive perception than most 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 answer to basic questions, like ?What is cash discounting?? the next step is to understand how this type of program is implemented effectively.
1. Determine Your Processing Costs
The idea behind a cash discount is to recoup processing costs, therefore the first step in developing a cash discount program should be determining how much you actually pay in merchant service fees. Generally, this comes out 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 will have that three percent deducted from their total because the transaction will not incur any processing fees. So, a $9 item becomes $9.27 after you raise the price by three percent, and the cash price at the register reverses back again to $9.
2. Get Smart About Price Increases
By far, the biggest downside of implementing a cash discount is that this means raising your posted prices. But, it is possible to help minimize the impact by adjusting price increases in accordance with your margins. For example, a small-ticket item gets the entire three percent increase while an item with a larger profit margin may only go up one percent or two percent, if at all.
For example, if a toy shop?s best-selling item is a $45 stuffed animal and they?ve found that this is actually the perfect price, they don?t need to raise 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.
