Credit cards offer many advantages to both customers and merchants. Credit cards provide convenience, security, the ability to earn rewards or cashback on purchases and the ability to make purchases one may not be able to afford by allowing them to pay over time. Unfortunately, merchants struggle with credit card payments because they must pay a processing fee for each transaction and this can be costly. Currently, the processing fees range from 1.5% to 3.5% per transaction. For a small business, this can be detrimental to the bottom line. In an effort to minimize the impact, some merchants need to get creative to encourage customers to pay with cash by offering a cash discount. Cash discounts can be a win for both the customer, who saves money and potentially high interest rates on their credit card, as well as the merchant who lowers processing costs. Merchants who implement this strategy are able to increase their profit margins and remain competitive in the market.
Essentially a cash discount program reduces the listed price of a product or service for customers who choose to pay with cash. It’s an incentive for customers to pay using cash which in turn reduces the merchants cost that is associated with accepting electronic payment methods. The discount is usually a small percentage, typically less than 5% of the purchase price. This is a great strategy for small businesses to reduce their credit card transaction fees. Although credit card processing fees, vary by provider, they are paid per transaction. For a small business this can impact profit margins, quickly. By implementing a cash discount program, you can not only offset the impact of processing fees, but you may also increase customer sales as a result of offering customers an additional discount. It may also motivate impulse purchases, resulting in increased sales.
However, the merchant must take the initiative to educate the customers about the program and encourage them to take advantage of it. The best way to communicate such offers is through a well-versed sales staff and prominently displayed signs or stickers near the point-of-sale system, indicating that a cash discount is available. Online advertising on their own website and social media platforms will expand their reach beyond in-store customers. In order for this type of program to be successful, customers need to be made aware of its existence. This type of program works well with other customer-focused programs such as Loyalty Rewards Programs which often offer exclusive deals to their best customers.
Cash discount programs are legal and have been across all 50 States since October 2011, when the Durbin amendment of the Dodd–Frank Act was passed. The FTC (Federal Trade Commission) stated that a person can offer their customers a discount or coupon if they pay with cash or debit card. Although merchants need to be sure that they are always operating under the Federal and State laws, as well as within the guidelines of the payment card networks.
Merchants need to disclose the terms of the discount program to customers upfront and use a reputable cash discount provider. This information should be included on any signs or social media platforms that are utilized. This will help prevent confusion about the terms of the program and allow customers to make informed decisions on whether or not to participate. Merchants must ensure that price listings are accurately displayed and while not required by law, it is always good practice to display the actual cash price as well. Cash discounts should also be listed on register receipts so that consumers can see what their cash savings were.
When making the decision to offer a cash discount program, merchants should look for a provider based upon their experience, reputation and honesty. An experienced provider should have a deep understanding of the payment processing industry and can help equip a merchant and work to meet their specific requirements. The merchant should be provided with a clear breakdown of all fees. If the provider is not able to present this information it could lead to unexpected charges and financial losses for the merchant. It is also important that merchants ensure that their cash discount programs are compliant with both Visa and Mastercard as this will help to protect them from any potential legal issues or financial penalties in the future. Starting a cash discount program is a simple step that can provide numerous advantages to businesses. It can help offset expenses, increase cash flow, and improve customer relationships. With the right tools and resources, businesses can continue to improve their products and services, while customers can enjoy better experiences and more value for their money. This is a win-win situation for both businesses and customers, and it has the potential to lead to long-term success and growth.
