Cash discounting is a tactic utilized 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 small discount if they do. It?s often preferred over other fee recovery methods because it can garner a far more positive perception, but what’s cash discounting exactly, and how can you implement it?
What Is Cash Discounting?
Cash discounting can be an old tactic, perhaps most widely known for use in gasoline stations. Nearly 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 function as card price and a discount is applied at the sign up 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 credit 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 add a fee for all those paying with credit, this is referred to as a surcharge fee, not a cash discount. There are particular laws and rules regarding just how much you can charge, when you can charge and the method that you must disclose a surcharge. So, be sure you follow the right 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 expense 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 ?two percent fee for cards? can change negative backlash into something more agreeable. The former is an incentive and the latter seems like a penalty, and that?s precisely why so many retailers choose a cash discount.
Cash discounts provide more flexibility because they are less regulated than surcharge fees. Plus, you can adjust the posted price of items to make the discount bigger or smaller predicated on your margins. For example, when you have a $20 item and you also don?t desire to take less than for this, you simply have to put in a few cents to the posted price to totally offset the cash 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 cash discount program reviews for implementing a cash discount.
How To Implement Cash Discounting
Once you know the solution to basic questions, like ?What’s cash discounting?? the next thing is to understand how such a program is implemented effectively.
1. Determine Your Processing Costs
The idea behind a cash discount would be to recoup processing costs, so the first step in developing a cash discount program ought to be determining how much you truly 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 could have that three percent deducted from their total since the transaction does 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 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, you can help minimize the impact by adjusting price increases in accordance with your margins. For example, a small-ticket item gets the full three percent increase while an item with a larger profit margin may only rise one percent or two percent, if.
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, 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 adjust pricing at the item level to greatly help them balance their margins while maximizing sales.