Cash discount programs are geared to save money for everyone. They save money for those who pay cash at a business, and they save money for the business who offers the discount program. Though it doesn’t seem logical that a business can save money by offering a discount to its consumers, read on to discover just how a cash discount program works.
The High Cost Of Accepting Credit And Debit Cards
As a business owner who accepts credit and debit cards for payment, you’re subject to monthly fees to process them. On average, these per-transaction fees are about 4 percent. This might not seem like a lot, until you take a closer look at how it affects business profits.
If you’re a hair stylist that provides a range of services, from cuts to colors, you might average 50 dollars per client. If you service 10 clients each day, your profit should be about 500 dollars. That is, unless all of your customers pay with a credit or debit card.
When you’re charged 4 percent to process each sale, that 50 dollar transaction is reduced to 48 dollars. Your daily profit goes from 500 dollars to only 480 dollars. The credit card fees come out of your pocket; and that just doesn’t seem fair.
Eliminating Fees Yields A Higher Profit Margin
So, what does a cash discount have to do with credit card processing fees? A lot. When you offer a discount to those who pay with cash, you can add a small service fee to all credit and debit card transactions. The 4 percent that you used to pay for each credit card transaction will now be paid by your card-paying customers. That 50 dollar sale turns into a 52 dollar sale, and the extra 2 dollars goes toward the credit card processing fee. You retain the original 50 dollars toward your profits.
The Difference Between A Surcharge And A Discount
A cash discount program is not a surcharge. Surcharges are illegal in many states. Cash discounts, however, are legal in all 50 states. You’re simply offering a discount to your cash-paying customers, while providing your credit card paying customers the convenience of using plastic. They incur a small service fee, which they’re probably already used to paying elsewhere.
Offering a cash discount to those who don’t pay with a credit card can gain you customers. Everyone loves a discount, and the thought of a reduced rate can bring them through your doors. Besides, not everyone uses credit cards. With rates that are sky-high, many people are looking for ways to cut corners and reduce monthly interest fees. Patronizing a place that offers them a discount to keep their costs low is a win-win situation for everyone.