What Is Cash Discounting? Small Business Guide

Unfortunately for business owners, the downfall of cash and the rise of contactless and digital payments has only increased the financial burden of payment processing costs. In addition, credit card processing has become increasingly expensive for merchants who are now looking for avenues to help them reduce this expense. Surcharge or convenience fees are different from cash discount program. A surcharge is when merchants increase the cost of purchases made by credit card.

Unlike many other surcharging/cash discounting specialists, however, Shift Processing accepts just about every type of high-risk industry, including CBD merchants and cannabis dispensaries. Your business has enough sales volume to offset cash discount program fees. At the end of the day, your business should be paying less for the monthly cash discount service compared to your average monthly credit card processing fees. Businesses will utilize cash discounts to get paid quicker or to ensure payment in the case of discounts for immediate cash payments.

Finally, we’d caution you against trying to implement your own home-grown cash discounting program to avoid your provider’s monthly fees. Manually calculating and applying a cash discount is risky and prone to errors, so don’t do it. Just be aware that no matter how carefully you do this, a disheartening number of your customers will never read them. Cash discounting is generally more common and accepted in the services industries than in traditional retail businesses. Many of the providers we’ve profiled above publish a list of industries that are particularly well-suited to cash discounting.

Few Benefits of Cash Discount

Switching to Tidal can save you up to 35 percent on transaction fees. Combine that with our cash discount program, and the savings are endless. The best part about implementing a cash discount with a merchant services provider like Tidal Commerce is that the entire process is built directly into your payment terminal. The software is designed to encourage your clientele to pay via cash or gift card.

• While cash discounting and credit surcharging are both strategies for passing on credit card processing fees to customers, there are a number of key points where they vary.
• This is a fairly high interest rate, and on discount terms that are not especially high.
• Swipe fees, or interchange fees, might become a financial burden on your business if you have decided to accept credit and debit cards.
• Every entrepreneur is pleased when they see that their customers have paid the invoices made out to them.
• He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.
• This discount is given in exchange for the buyer paying the invoice earlier than its normal payment date.

A cash discount program allows customers to save money and pay through their preferred method. Reach out to your current merchant services or payment services provider and ask about their cash discount program. Sign up and have your provider configure your point-of-sale (POS) and payment software and hardware. You should also improve and implement a cash management policy and then train your staff to handle both processes.

How do I start a cash discount program?

10 vehicles were purchased by Unreal Pvt Ltd with a 5% trade discount on the list price of 1,00,000 each. With a little background out of the way, let’s get to the meat and potatoes of this article. The time a customer is given to pay the invoice and receive the discount before the deadline.

While a trade discount is subtracted from the list price, calculating the cash discount shouldn’t happen until the final invoice sum has been determined. There are also graduated discount percentages, in which the discount percentage changes depending on the discount period. In brief, a cash discount is the price reduction that is granted when a customer pays their invoice within a limited time period. Cash discounting hurts your credit card-using customers — not because they have to pay their fair share of the processing costs, but because they have to pay significantly more.

What is the benefit for sellers to offer cash discounts?

For this reason, Harbortouch is now offering The Advantage Program to help merchants offset merchant service fees. Cash discounts and trade discounts are both discounts offered by businesses but differ in their use. Once you understand the basic concept of markup percentage calculations, you can add the factor of cash discount calculations quite easily. The cash discount affects the sales price, so it’s good to add this factor into all of your calculations. For example, if the company offers a 2% discount, this would amount to $2 of the $100 total sales price.

• California-based PaymentCloud is one of the best options we’ve found for high-risk businesses that might otherwise struggle to get approved for a merchant account.
• For example, adding card-processing surcharges is illegal in many states.
• There’s also a chance that not all customers will welcome the cash discount program.
• In order to provide an incentive for this, many service providers and distributors offer a price reduction in the amount of a certain percentage of the invoice total.

Offering customers a cash discount, even a minimal one, can be advantageous for your business and your customers. If you don’t offer credit terms to your customers, or your customers tend to pay on time, offering a cash discount won’t help your business much. If the invoice is paid within the first 10 days after the invoice has been received, the customer can deduct a 2% cash discount.

The best cash discount program

KIS Payments bills on a month-to-month basis and does not require a long-term contract of any kind. As with any Clover device, you’ll have to pay a monthly software subscription fee to use the product. The company currently charges $65 per month for a single tara wolkenhauer terminal or POS system, while additional terminals will cost an extra $39.95 per month each. California-based PaymentCloud is one of the best options we’ve found for high-risk businesses that might otherwise struggle to get approved for a merchant account.

The discount is good for the seller because it receives the cash from the transaction faster. If companies can do something to improve their cash flow, it is usually worth it. Cash discount and surcharge programs each face different guidelines from state legislation or card brand rules.

Advantages of cash discount

Rather than add processing costs onto the customer’s bill, however, cash discounting programs subtract these costs if a non-credit card payment method is used. Another new company that focuses primarily on offering cash discounting and surcharging programs is Shift Processing. The company doesn’t appear to offer a traditional processing rate plan for merchants who’ve found that charging their customers for credit card processing doesn’t work for their business.

This is what the business has set as the credit card price of the goods. The customer paying by cash has $.80 deducted from the transaction as a cash discount, rather than paying the extra 80 cents to cover the processing fee. It’s not hard to understand why, since most business owners are losing anywhere between 2-4% in credit card processing fees with every transaction.

The fact that the invoice is paid more quickly by the customer, means that the supplier can address their payment obligations more quickly, too. The supplier can also use cash discounts to offset possible cash shortages, by arranging a temporary increase of the cash discount. The losses caused by the temporary increase of the cash discount are negligible compared to the costs that could arise from cash shortages. The name, cash discount, may be somewhat confusing when it comes to the payment process. Though cash discounts are granted when the payments are made in cash, they are also granted when payments are made via credit transfer, as long as this happens within the discount period. This means that paying in cash is not required in order to receive a cash discount.

Cash payments aren’t subject to chargebacks, and if a cash-paying customer wants a refund, there won’t be chargeback penalties for your business. Fortunately, your merchant services or payment services provider can set up the cash discount program to automate the pricing computations and adjustments. There’s also a chance that not all customers will welcome the cash discount program. Instead of an incentive, some may see it as a penalty and decide to shop elsewhere—particularly those who prefer to use their credit cards. Merchants will also need to set up a strong cash management policy to avoid human error and theft. On the other hand, setting up cash discounting takes a lot of work—even with an automated program that adjusts product/service list prices to add and remove the cash discount rate when needed.