If you are a merchant, there is no doubt that you understand the cost of accepting credit cards in your business. Doing business in a world of electronic payments means that you must accept credit cards and to accept credit cards, you must pay fees to card brands such as Visa and Mastercard along with the banks that issued those credit cards. In some cases, merchants are paying as much as 4% of a transaction in fees. While 4% might not seem like much, for a small business doing $75,000 a month in sales, it represents $3,000! That money could have been pure profit. Cash Discounting allows merchants to legally shift the cost of credit card processing to the customer and gain that $3,000 as profit.
Understanding Cash Discounting
Cash discounting helps businesses cover the cost of processing credit card payments. This is done by advertising a displayed price that factors in the 4% processing fee that can be deducted at the point-of-sale for those customers who elect to pay cash. This incentivizes customers to use cash or check by giving them a small discount. You have likely seen many signs declaring an additional fee for using your credit card. That's a turn off to most customers. Getting a discount is something that people love to receive.
Using Technology
Cash Discounting has been used by gas stations for decades. Almost every gas station displays a “cash price” and a “card price”. It isn't necessary to display both prices. Instead, your posted prices are assumed to be the card price. Using technology, a card reader offers the customer the opportunity to continue with the sale at the posted price or pay the cash amount displayed on the terminal. A discount is then applied at the register for those paying cash.
Surcharge Turn-Off
If you do the reverse and display a price and then add a fee for those paying with a card, the practice is known as surcharging. There are very specific laws and rules regarding how much you can charge, when you can charge and how you must disclose surcharges to your customers. Surcharging is a turn-off for most customers.
Other Benefits of Cash Discounting
Unlike surcharging, a cash discount represents a chance for your customers to save money off the posted price. Even though the financial outcome is the same for your business, the difference between a discount for cash or applying a surcharge can turn a negative situation into a more pleasant buying experience. Cash discounts provide more flexibility because they are less regulated than surcharges. A Cash Discounting program keeps your business in compliance with your Merchant Agreement. Most customers who present a card for payment will continue with the transaction because using a card is their preferred method of payment.
A Practical Example
Let's take an item that sells for $10. The new posted price becomes $10.40. When your customer goes to pay, they will be presented with an opportunity to pay $10 or to continue with the transaction and pay $10.40. The terminal gives them this option.
Signage Required
Cash Discounting requires signage to be posted at the entryway and at the point-of-sale advising customers they can save a percentage of their total if they pay cash. Some merchants choose to also post a credit and cash price on items. Signage should also clarify that the cash discount does not apply to debit card purchases. Include your non-card payment methods such as cash, check or money orders.
Implementing a Cash Discount program can ultimately help your business keep more money as profit. Aurora Payments can help you implement a Cash Discount Program. Call us at 833-AURORA2 (833-287-6722) or send an email to: Hello@aurorapayments.com
