As the owner of a single-branch restaurant or bar, it is important to find a balance between the profit margins and the prices. Digitalization has had a widespread impact globally. Correspondingly, it has expanded the options for payment methods. Therefore, people can now pay via cash, check, mobile banking, debit cards, or credit cards.
Undeniably, accepting credit card and debit card transactions positively impacts sales as they are the preferred payment methods for many people. Not to mention accumulating all of their points and miles.
On the contrary, they are unsuitable for small business owners because they have high credit card processing fees that the merchant has to bear in addition to charges for a merchant account.
An increase in the ratio of cyber crimes and fraud has also led to a steep rise in interchange fees. In particular, fees for eCommerce have considerably risen, making it less attractive to accept payments through a credit or debit card.
The contradictory situation has put restaurant owners in a dilemma; raise the prices of their food, or deal with the high debit card and credit card fees that keep rising.
That said, they are searching for ways to reduce the high credit card processing fees.
Some business owners try the simple method of charging the customers who pay using a credit or debit card for the cost of processing. Offering cash discounts is a relatively subtle and considerably more effective method of encouraging customers to pay in cash.
This article discusses the intricacies of cash discounting programs for restaurants and their widespread usage. It will also cover the basics of setting up the program for your business.
Cash Discounting Program: What Is It?
As of late, cash discounting programs have become increasingly popular because of the rising costs of credit card processing. Previously, these programs were primarily available at gas stations to encourage people to pay with cash, allowing the owners to keep more money in their pockets.
Various restaurants are now offering cash discounts because of the recent price surge. Statistically, businesses can earn 2.5%-3.5% more on the same transactions by implementing cash discounting programs.
Primarily, a cash discounting program offers discounts if a customer pays in cash instead of by card. This way, they don’t have to pay the credit card fee.
However, it allows customers to use their cards if they want those precious points and miles. It is a win for the restaurant owner, as they can cut out the processing fees as merchants pass the fee onto the customer.
Benefits of Cash Discount Programs
Here are some of the pros of introducing a cash discount program at your restaurant:
Increase Profit by Eliminating Credit Card Processing Fees
Fundamentally, the purpose of introducing cash discounts is to promote payments by cash and reduce or eliminate the use of cards for payments. This allows your business to make more money since no credit card fees are involved.
No Need to Worry About Visa, Mastercard, and Amex Raising Fees on Business Owners
You won’t have to worry about suddenly increasing fees for Visa, Mastercard, or Amex, as that risk is now passed on to the bank providing you with the merchant account.
Consequently, you have greater control over your transactions and the money you earn. Instead of freaking out when customers come in with an Amex black card or deciding not to take it all together, now this is not an issue.
Great Marketing Technique
Sales and discounts are the best way to entice more customers. In most cases, customers wish to save money by taking advantage of discounts. Therefore, offering a cash discount is a great way to attract more customers to your eatery.
Lower Ratio of Chargebacks
Another benefit of cash discounts is their positive impact on decreasing the frequency of chargebacks. As fewer customers use cards to pay, there will be a lower ratio of chargebacks.
Greater Cash Flow
Lately, most people prefer to pay using debit or credit cards. However, offering incentives on cash payments encourages customers to pay in cash. As a result, business owners can access their funds more efficiently.
They don’t have to wait until the next day or two days later to get access to their funds. Sometimes, if you add a weekend in there, it can be several days.
Not to mention, cash payments are a considerably safer method and help avoid fraud. Since the card processing costs are passed on to the customer, there is also an increase in revenue, which is often not tiny over time. Recessions and pandemics showed everyone how to save for a rainy day now.
Easy Set-Up
It doesn’t take much to get started. Just a strong and trustworthy connection to a merchant processing bank that offers the program in their portfolio. Then, you need proper signage and programming for your POS and credit card terminals, and you are all set to save money through the cash discount program.
The POS technology is simple and easy to use. Your merchant processing representative should handle everything for you from start to finish. Your staff may also need training to handle the cash and the resulting cash discounts. Cash payments will help you avoid fraud and scams.
Challenges of the Restaurant Industry
Many challenges are plundering small business owners in the restaurant industry. While the causes of these problems differ, they all tie back to inflation, less consumer spending, shrinking profit margins, and overall decreasing profits.
Some of these challenges are as follows:
Marketing
In the age of social media, marketing your business is essential to its success. However, you need to invest your time in marketing or hire a professional to gather publicity for your restaurant. Moreover, promotional rewards and discounts also cut the business’s profits. Not to mention the dreaded bad reviews and the invisible effect they have over time.
Employee Management and Finding Good Help
Another essential aspect that restaurant owners should pay attention to is hiring skilled staff. Cooperative staff that ensures an excellent customer experience plays a significant role in building customer loyalty. You may need to invest in training your employees to benefit your business.
The tricky thing now is that people seem less likely to want to work unless they immediately get paid a lot of money. Some shifts happened post-pandemic that seemed to accelerate this type of mindset.
Rising Cost of Services in Restaurants
Small businesses have digitized their restaurants to keep up with the market competition. However, providing digital services takes a toll on their profits. Software-as-a-service (SaaS) fees, POS services, and card processing fees are some of the digital services that dent these business owners’ earnings.
There is one thing for sure, they all will keep going up. So the way to combat this is to figure out how to fight through it when it is a smaller blaze versus a raging forest fire.
Inflation Facing Restaurants
The rise in inflation has led to a 7.9% increase in consumer prices. This varies depending on the source and what they include in the “inflation numbers.” However, you can see this invisible tax everywhere, from grocery stores to companies using “shrinkflation” to charge the same prices but with less volume of product. Take a hypothetical example like liquid soap; what used to be a 25oz bottle may now be a 19 oz bottle, however, at the same price.
Consequently, restaurants have had to make various changes to adapt to the rising prices. These include an increase in menu items or downsizing their meals. This has resulted in a consistent decline in customer turnover. When food item costs, i.e., chicken wings, rise so fast for the restaurant that they can’t raise the price to the consumer that fast, the result is being forced to take that item off the menu.
Introducing a cash discount program at your restaurant can help counter some major challenges. As a small business owner, offering incentives for cash payments will help you eliminate card processing fees.
Is a Cash Discount Program What Your Business Needs?
Before implementing a cash discount program, you should consider some factors to determine whether it is the best decision for your business. So, aside from eliminating the credit card fees, it is essential to be mindful of the potential disadvantages. Therefore, before you make a decision, ask yourself the following questions:
Are Cash Payments Your Priority?
While the reduction or elimination of payment processing costs is very enticing, you must consider if your business prefers cash payments. On the one hand, it is more time-consuming at the cash counter to count the cash and handle the change. Meanwhile, it is also riskier to take the amount to the bank. Regardless, a greater cash flow will help your business.
Do You Have Regular Customers?
Restaurants tend to have many repeat customers. Therefore, it is wise to assess what percentage of repeat customers pay by cash versus those who conduct credit card transactions. Even if you have customers that love you and love getting their points, there are ways to set up the program so they will be satisfied.
With this program, merchants can set up a dual pricing model if it becomes a massive issue with repeat customers. If the customer wants to “choose” to pay the fee in these one-off cases, they can do so.
With this very small percentage of clients, a dual pricing model fixes this issue, so in a way, this concern is irrelevant if you have a good merchant processing representative to structure the program correctly. You can also add this feature later, so there is no initial pressure to guess what your customers will want.
However, it is better to ease your returning customers’ minds by letting them know that if they pay cash, they pay less, which helps us not to raise prices on our food.
Cash Discount Programs – How to Get Started?
Embracing cash discount programs is relatively simple. That said, it integrates into the checkout process and improves the customer experience.
So it looks something like this:
- Get in touch with a merchant processor that is an expert in this program
- Meet with the merchant processor representative and get walked through the ins and outs of the program
- Apply with that merchant processor to get your cash discount program
- Choose all the necessary POS equipment that meets your business needs
- Receive the equipment at your restaurant
- Have your representative come in and install it and test it for you
- Start saving money
Cash discounts are beneficial for both customers and the restaurant. It is up to the customer to choose the payment method of their choice. In the case of card-paying customers, they will have to pay for the complete total of the listed prices. However, cash-paying customers can save money and benefit from discounted prices.
Every customer has an equal opportunity to benefit from cash discount processing and save money. Meanwhile, more cash payments help restaurants avoid the expensive payment processing costs for credit cards while increasing their bottom line.
What Do Restaurants Need for Cash Discount Programs?
To set up a valid cash discount program, restaurants must comply with federal and state laws. Additionally, owners should not undermine the policies set by credit companies for cash discount programs.
On the one hand, there are few legal limitations on cash discounting. On the other hand, the conditions of credit card associations could be more lenient. Nevertheless, setting up a cash discount program requires no additional gear or special hardware.
Instead, it is as simple as programming the credit card terminal or point of sale (POS) to automatically apply the set cash discount on the bill of cash-paying customers. Also, it is best to avoid manual calculations of the cash discounts, as they are considered riskier and more mistake-prone. The existing system may also miss recording such transactions.
Posting signs and banners to advertise the introduction of cash discounts before implementation is necessary. As reputable credit card companies require business signage, proper banners that inform customers of the cash discount program are a mandatory part of setting up the program.
Another important feature essential to the smooth running of the cash discount program is trained professionals. Although the POS and online credit terminals automatically apply the cash discount, having employees that are aware of the rules is also important to be able to settle disputes that may occur at the time of checkout.
Alternatives to Cash Discount Programs
Cash discount programs are automated and undeniably effective in generating greater cash flow and cutting down processing costs. Nonetheless, it is not the only method to produce these results. Some alternatives to cash discount programs include the following:
Use a Service Provider With Lower Processing Costs: If you are unsure about the effects of implementing a cash discount program, the most straightforward alternative is to switch to a provider with lower rates to cut down on the cost you have to pay. In addition, a slight hitch in the prices of your menu items will help you cover the credit card processing fees by turning them back toward your customers.
Set a Minimum Purchase Amount for Card Payments: Another way to lower card transactions is by only allowing customers to use a debit or credit card for purchases over, say, $10. You see this a lot at gas stations.
Cover the Processing Cost by Increasing Prices: A straightforward way of making up for the cost of the processing fees is by increasing the prices on your menu. However, this method puts cash-paying customers at a disadvantage. Therefore, there are equal chances that this may backfire and lead to a drop in sales.
Customer Reviews About Cash Discount Programs
The success of any new business policy depends on how well customers perceive it. One of the most significant concerns of business owners in implementing cash discounting is customer perception. However, studies show that 99.2% of customers do not have an issue with cash discounts.
Transparency is the key to the effectiveness of a cash discount program. Moreover, customers recognize that cash discount programs are equally beneficial for them as they are for the business. They can save money by paying cash, and the restaurant does not have to raise the prices of the food they enjoy while continuing to be able to stay in business.
The familiarity with cash discounts and the awareness of the economic changes make it easier to accept these programs. Most customers also understand the increase in charges for credit card processing. Not to mention, the rising prices of labor and goods are also evident.
Therefore, loyal customers welcome cash discount programs to support their favorite restaurants. Also, the implementation of cash discount programs in high-end restaurant chains has a positive impact on increasing customer acceptance.
Most restaurants participate in this program if you are ever traveling in New York City and are in Chinatown or Little Italy.
Final Thoughts: Is a Cash Discount Program Worth It?
Cash discount programs are rising because of increasing credit card processing fees. However, it is essential to be aware of the pros and cons of its implementation to make an informed decision. This is where a solid merchant processor representative will guide you through the process.
As a restaurant owner, you should evaluate all the factors to determine if a cash discount program is truly what your business needs. You should weigh whether you can reduce credit card processing fees by switching to a better-paying provider.
However, conclude that a cash discount program is a suitable solution. The first step should be to get a proper merchant processing representative that is an expert in the program. Then apply through that merchant representative of the bank. Lastly, get your equipment and put up the business signage given to you by the bank. Ensure that all your customers are aware of the cash discount.
Lastly, train your staff on the POS system and the cash discount program in general. Take increasing your restaurant profit into your own hands, and GOOD LUCK! Don’t forget, we have an extensive payment processing hub to learn from.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.