Most business owners wish to reduce their overhead costs. One way to do this is to reduce the number of card payments which carry a processing fee and encourage customers to pay by cash.
To do this, you offer a cash discount.
But how do you explain this to your customers? We have made that process simple and easy to understand so that your customers are left in no doubt about the benefits of cash discount.
What Is A Cash Discount?
So what exactly is a cash discount, and how would it benefit your customers?
A cash discount is when a merchant offers their customers a reduced price on a product or service if they pay with cash or a check rather than a credit or debit card.
From the merchant’s point of view, it reduces the overheads associated with card payments. With cash or a check, there is no middle man such as an issuing bank or card processing company, so there are no fees to cover.
How Does It Work?
Quite simply, you offer your customers a reduced price on your goods or services if they pay in cash or with a check. The same product will cost them more if they choose to pay by credit or debit card.
It is an easy but effective way to reduce your costs, and maintain your profits, while also benefiting your customers by saving them money.
The cash discount is typically a percentage of the purchase price. It is important, however, that the posted or advertised price is the price that is charged if customers pay with a card.
The customer then pays slightly less if paying with cash or a check.
Extending the discount to gift cards is also a good marketing strategy. These prepaid cards will not cost your business a processing fee, so you can still offer your customers a discount to use them.
Benefits Of Cash Discount For Customers
So, how can a cash discount benefit your customers and attract new ones to your business? There are several incentives that you need to make your customers aware of when introducing a cash discount.
Incentivize customers to pay by cash or check by offering a lower cash price. This benefits customers by saving them money on the advertised price.
Even if they don’t need the discount, most people like to feel that they have saved on the cost of something they want.
Lower prices will also attract new customers to your business. Word of a cash discount at your store will bring new business your way, and existing customers will keep coming back.
Give Customers More Choice
While you are offering your customers the opportunity to pay by cash for a small discount, you do not limit other payment options. This means you are giving customers a choice, and they can choose which method to use, cash, card, or check.
Of course, most people prefer to receive even a small discount over paying full price, so lots of your customers will take advantage of a cash discount.
Even people who automatically reach for their credit card may think twice if a lower price is on offer.
Paying with cash or check is easy and there is no process to go through or external authorization needed.
There is also less likelihood of fraud associated with cash payments, unlike credit or debit cards, which are frequently subject to fraud.
Is It Legal?
Some customers may worry that a business that actively encourages cash payments is engaged in some kind of tax evasion, and may be reluctant to contribute to that perceived activity.
Explaining the cash discount system to your customers and that offering it is legal in all 50 states should set their minds at rest.
Advertise The Correct Price
The most important thing is that the regular price that is advertised or on the shelves is the card price. The cash discount is then applied to this price.
If the price advertised is the cash price and a fee is added for card payment, then this is not a cash discount but a surcharge for using a card.
Clear Signs To Inform Customers
To keep your customers informed, there should be signs at the entrance of the store and at the checkout counter informing customers that a cash discount is available.
The cash discount should also be printed on the receipt. Finally, the cash discount needs to be verbally explained to customers.
By following all of these steps, you as a business owner will have complied with the legal requirements of offering a cash discount.
There is no registration needed for merchants who wish to launch a cash discount program in their business.
Explaining The Difference Between Cash Discount And Surcharging
There has been some confusion about the difference between offering a cash discount and applying a surcharge to those paying by card.
As obvious as it may seem, it is worth noting that a discount should always refer to a reduction in price.
Let your customers know that what you are offering is a reduction on the advertised card price if they choose to pay by cash. If they opt to pay by debit or credit card, then they will pay the full advertised price.
If the price that you are displaying is the cash price, and you then add a fee to a card payment, this is a surcharge. Surcharges on card payments are also illegal in 10 states.
In order to benefit your customers and your business, it is important that the cash discount you are offering is clearly understood by your customers and your staff.
We hope this guide has offered some insight on what cash discounts are and how they can help your customers as well as your business. For more articles like this, go to our credit card processing learning library.
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.