Cash discounting is really a tactic used by retailers to greatly help them cover the expense of credit card processing. This system incentivizes customers to use cash or check giving them a little discount if they do. It?s often preferred over other fee recovery methods because it can garner a far more positive perception, but what is 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 gas stations. Almost every gas station displays a ?cash price? and a ?card price,? nevertheless, 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 sign up for those paying in cash.
So, what is 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 price that factors in both percent to four percent processing fee and you deduct that amount at the sign up for customers paying in cash.
If you do the reverse, displaying a ?cash price? and add cash discount credit card processing for those paying with credit, this is referred to as a surcharge fee, not a cash discount. There are specific laws and rules regarding just how much you can charge, when you can charge and the way you must disclose a surcharge. So, make sure you follow the proper 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 advantages and disadvantages. Unlike a surcharge fee, which 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 change negative backlash into something more agreeable. The former can be an incentive and the latter appears 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’re less regulated than surcharge fees. Plus, it is possible to adjust the posted price of items to make the discount bigger or smaller predicated on your margins. For instance, if you have a $20 item and you also don?t desire to take less than for this, you simply need to put in a few cents to the posted price to completely offset the cash discount.
Ultimately, customers don?t like paying more regardless of what method you implement, but a cash discount is known as flexible, an easy task 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 solution to basic questions, like ?What’s 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 would be to recoup processing costs, so the first step in creating a cash discount program should be determining how much you truly pay in merchant service fees. Generally, this happens to between two percent and four percent per transaction.
Say that you pay an average of three percent for card purchases, that means you need to 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 largest downside of implementing a cash discount is that it means raising your posted prices. But, it is possible to help minimize the impact by adjusting price increases relative to your margins. For example, a small-ticket item gets the full three percent increase while an item with a larger profit percentage may only rise one percent or two percent, if at all.
For example, in case a toy shop?s best-selling item is really a $45 stuffed animal and they?ve found that this is the perfect price point, they don?t need to increase the card price but you’ll still have to honor the three percent cash discount at the register. This flexibility allows stores to adjust pricing at the item level to help them balance their margins while maximizing sales.
