benefits of cash discounts

If you’re a merchant, you already know that credit and debit cards are the most common payment method today, but did you know that, as of 2018, 70% of consumers say they use cash for some or all of their purchases? That’s a lot of customers that are potentially willing to pay in cash. However, that doesn’t mean you should become a cash-only business — though that might be tempting to avoid the fees that come with credit card processing.

With a cash discount program, you can allow customers to pay however they want, without it costing you extra. This guide will discuss what a cash discount program is and how you can leverage it to help both you and your customers.

Understanding Cash Discounts

When you see part of your profit margins go to credit card processing fees, you may be tempted to pass those fees onto the customer by charging extra when a customer uses a card. Unfortunately, this practice — known as surcharging — is banned in certain states. In states that allow surcharging, you’ll have to be transparent about any fees you’re charging your customers, and you can expect customers to be upset by seeing an extra charge on their receipt.

A better solution is cash discount processing. In this scenario, you build the cost of credit card processing into the list price for all your items. This way, when someone pays with a card, it won’t hurt your profit margins. This is a permissible way of passing the cost of credit card processing onto customers because, unlike surcharging, you’re not charging more than the list price.

If a customer is willing to pay in cash, you can offer them a discount since you don’t have to cover a processing fee for this transaction. The two main types of cash discounts are percentages and fixed dollar amounts. For example, you could offer anyone who pays in cash three percent off their total bill or $0.50 off. However, in the case of fixed dollar amounts, you’ll want to have a minimum purchase amount, so customers don’t buy a pack of gum and get 50% off.

what are advantages of cash discounts

Advantages of Cash Discounts

Why do companies offer cash discounts? Cash discounts are important for any business that wants to save on payment processing fees. There are five great benefits you can enjoy when you implement a cash discount program at your business. Cash discounts can help your business:

1. Reduce or Eliminate Fees

The main attraction to a cash discount program is that they save your business from having to shoulder the costs associated with credit card processing. Companies who handle credit card processing, known as merchant service providers, or MSPs, charge fees to cover the services they provide and to pay banks and credit card associations who take the majority of the fees you pay. These parties have to get paid, but you don’t need those fees to eat into your profit margins. With a cash discount program, it will be just as if that fee were nonexistent since you’ve accounted for it with your prices.

2. Keep Profit Margins Consistent

It’s also important for a business to be able to maintain consistent margins so they can accurately budget and make financial decisions for the future. If you don’t have a cash discount program in place, processing fees can become wild cards. Cash transactions won’t involve a fee, but card transactions will involve different fees depending on the type of card used. With a cash discount program, you eliminate this unknown. Instead, your margins remain consistent across all transactions.

3. Attract Bargain Hunters

Who doesn’t love to get a discount? When bargain hunters see they can pay less by using cash, they’ll leave your store feeling like they got a great deal and will likely come back next time with cash in hand, ready to take advantage of the discount again. If you have customers who were around before you raised your prices to accommodate the cash discount program, they can pay in cash to continue enjoying the lower prices they were used to.

4. Increase Cash on Hand

When customers pay in cash, it can mean more access to cash on hand for your business. Whether you need cash for purchasing equipment or giving change to customers, it’s always helpful to have cash on hand. However, if you work with a good MSP, you should expect to receive funds from your credit card transactions fairly quickly.

5. Reduce Chargeback Risks

In addition to the fees that automatically come with credit card transactions, these transactions can sometimes lead to additional fees. If a customer looks back over their receipt or credit card statement and thinks something is wrong, you’ll have to pay to go through the various parties involved to investigate the issue and settle it with the customer. Chargebacks only occur with credit card payments, so when you encourage customers to pay in cash, you reduce the risk of a chargeback.

How We Use Cash Discounts

At Velocity Merchant Services, also known as VMS, we help you take full advantage of the benefits a cash discount can offer. With our cash discount program, you never have to worry about what fee you’ll be charged for various transactions.

Instead, we raise all your prices by 4%, covering the cost of any potential fees if someone were to pay with a credit card. If someone pays in cash, check or debit card, they’ll get 4% off. In other words, the price increase will be waived since there won’t be a processing fee to account for. We’ll also provide you with the signage to inform your customers of the program, so there is no confusion, and they can take advantage of a cash discount.

Process Payments With VMS

With more than two decades of experience, VMS is a trusted source of merchant solutions that can help your business thrive. Our processing solutions equip you to accept a variety of payment types, so you never miss out on potential business. You can also take advantage of one of our Clover devices to help you facilitate your sales.

process payments with vms cta

When you partner with VMS for credit card processing, we can help you implement a cash discount program, so you never lose money to processing fees. Plus, your customers will feel like they’re getting a bargain when they pay with cash. It’s a win-win situation for both you and your customers. Contact us today to learn more.

 

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