How exactly to Implement Cash Discounting

Cash discounting is a tactic used by retailers to help them cover the price of credit card processing. This technique incentivizes customers to use cash or check giving them a small discount if they do. It?s often preferred over other fee recovery methods because it can garner a far more positive perception, but what’s cash discounting exactly, and how can you implement it?

WHAT’S Cash Discounting?
Cash discounting can be an old tactic, perhaps best known for use in gas stations. Nearly every gas station displays a ?cash price? and a ?card price,? nevertheless, you don?t have to display both. Instead, all of your posted prices are assumed to be the card price and then a discount is applied at the register for those paying in cash.

So, what is cash discounting? Cash discounting helps businesses cover merchant service fees, which will be the cost of processing credit card payments. The key is that you advertise a price that factors in the two percent to four percent processing fee and you deduct that amount at the sign up for customers paying in cash.

Should you choose the reverse, displaying a ?cash price? and then add a fee for those paying with credit, that is known as a surcharge fee, not a cash discount. There are particular laws and rules regarding just how much you can charge, when you can charge and the way you must disclose a surcharge. So, ensure you follow the proper steps when implementing a cash discount program.

Is a Cash Discount a Good Thing to Implement?
Given that we?ve answered, ?What’s cash discounting?? it?s vital that you dig into the pros and cons. Unlike a surcharge fee, which is added to the cost of goods, a cash discount represents an opportunity to spend less off the posted price.

Even though the outcome is the same for the business, the perceived difference between a ?two percent discount for cash? and a ?two percent fee for cards? can turn negative backlash into something more agreeable. The former is an incentive and the latter appears like a penalty, and that?s the key reason why so many retailers choose a cash discount.

Cash discounts also provide more flexibility because they are less regulated than surcharge fees. Plus, it is possible to adjust the posted price of what to make the discount bigger or smaller based on your margins. For example, in case you have a $20 item and you also don?t desire to take less than for this, you simply have to add a few cents to the posted price to totally offset the cash discount.

Ultimately, customers don?t like paying more dual pricing merchant services what method you implement, but a cash discount is considered flexible, easy to create and has a more positive perception than almost every other fee recovery methods, so let?s explore the steps for implementing a cash discount.

HOW EXACTLY TO Implement Cash Discounting
Once you know the answer to basic questions, like ?What is cash discounting?? the next step is to understand how such a program is implemented effectively.

1. Determine Your Processing Costs
The theory behind a cash discount would be to recoup processing costs, so the first step in creating a cash discount program should be determining how much you truly pay in merchant service fees. Generally, this happens to between two percent and four percent per transaction.

Say that you pay typically three percent for card purchases, which means you need to add three percent to your posted prices. Those paying in cash will have that three percent deducted from their total because the transaction does not incur any processing fees. So, a $9 item becomes $9.27 after you raise the price by three percent, and the money price at the register reverses back again to $9.

2. Get Smart About Price Increases
By far, the largest downside of implementing a cash discount is that it means raising your posted prices. But, it is possible to help minimize the impact by adjusting price increases relative to your margins. For example, a small-ticket item gets the full three percent increase while something with a larger profit percentage may only rise one percent or two percent, if.

For example, in case a toy shop?s best-selling item is a $45 stuffed animal plus they?ve found that this is actually the perfect price point, they don?t have to increase the card price but you’ll still have to honor the three percent cash discount at the register. This flexibility allows stores to adjust pricing at that level to greatly help them balance their margins while maximizing sales.

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