Have you thought about offering cash discounts at your business? These discounts can be ideal for many purposes. But they aren’t without faults, as you will see in this brief guide.
The General Concept
Cash discounts aren’t surcharges, they are deals where customers get a small discount on their purchases if they pay for things with cash or check. The prices you’ll list at your business in a cash discount plan are the ones people will spend when they pay with credit cards. The discount only works for cash and check payments and not for cards.
Cash discounts won’t discourage people from using credit cards. Since the prices you display are for credit purchases, your customers won’t be subject to surprise surcharges.
What Makes a Cash Discount Ideal?
There are many great reasons why a cash discount is great for your business:
- You can reduce your credit card processing fees.
Most businesses that use cash discounts use them because they are tired of paying credit card processing fees. Credit card networks and interchanges have been charging increasingly exorbitant processing fees in the past few years. These charges cut away at a business’ profit margins.
A cash discount helps you reduce or eliminate those fees. By adjusting the prices to cover the value of your interchange or network fees, it will keep you from spending as much on those charges. The fact that people will feel encouraged to pay for your products or services with cash or check also helps you reduce the overall fees.
- The risk of chargebacks and other payment issues will be minimal.
You’ll collect more cash payments if you offer a cash discount system. Cash payments are easier to process, as you won’t be subject to chargebacks, possible price disputes, or data breach risks.
- Your cash flow will improve.
The problem with collecting payments through credit is that it takes days for them to process. Credit card payments have to be approved and confirmed by an issuing bank. It could take a while for your payments to be finalized to where you’ll get the funds you deserve in your bank account. But with added cash payments through a cash discount, you’ll collect more cash that you can use now.
- Customers will appreciate that you’re offering a bargain.
Customers will be more likely to return to your store if they know there’s a discount available for their use. They will be happier because they’re paying less money by using cash. They could also be more likely to return more often.
- It works well if you accept a variety of payments.
You can use these discounts if you accept plenty of cash and credit payments alike. You will highlight that you accept various payment options, plus you’re still giving customers the option to pay in credit if you wish. The cash discount doesn’t discourage credit payments like a surcharge would. It is fair to tell people they can use different payment choices.
What Problems Are There?
There are a few worries to spot when looking at a cash discount program. These points suggest that such a discount isn’t always going to work as well as you would wish:
- Not all cash discount programs will cover your interchange fees.
There’s always a chance you might be subject to higher interchange fees after a while. Some card processors may also levy set monthly charges to access a network. Your cash discount program won’t cover those expenses.
- You’ll need to prepare your efforts well.
A cash discount program requires plenty of preparation to make your work worthwhile. You’ll have to calculate the average charges you’re spending on card payments and then increase the prices of your products and services by that total. You must also plan your cash discount around that increase. You’ll also need signs at your business explaining to customers what they’ll save.
- Customers might not always want to spend cash.
You might lose customers because some of them would prefer to pay with credit cards. They like the convenience of credit cards, and they may be sensitive over how they handle physical money. Some customers may also want to collect whatever rewards they will get from their credit card companies when they buy things.
- Customers could misunderstand the concept.
Some customers might become upset because they think they’re paying surcharges for using their credit cards. But they aren’t spending extra on their payments. They may still assume this and feel that they’re being punished because they’re paying for things with credit cards.
What Other Discounts Could You Offer?
Cash discounts aren’t the only ones you can provide to your customers. You could offer one of these discounts if you prefer, with some of these deals working for specific purchase types:
- Early payment discounts work if you sell high-value products that require installment payments. You could give a customer a discount for paying for something ahead of time.
- Volume discounts are popular among stores that serve the same customers. You can provide a lower price where someone will save on a purchase after making a qualifying number of orders.
- A price-break discount provides savings if a customer spends a certain amount of money on one’s purchases. The customer can get a discount if the number of units one orders or the total cost of the purchase exceeds a threshold. You can use as many thresholds as you wish, but the discounts you’ll provide for these should be determined based on what you’re offering in this situation.
Is This the Right Choice?
Cash discounts are ideal for your business if you are struggling to manage your credit card payments. The effort to get the discount ready for your customers to use can be tough to manage. Take note of how you handle card payments and you know what you’re getting from whatever you charge. The work should be about ensuring you’re giving your customers a choice in how they will pay for things.