You’re probably already familiar with cash processing, at least in a general way. That’s because most fuel stations use a form of it when they advertise their pricing. You’ll usually get a small percentage discount when you pay in cash. Otherwise, if you use a credit card, you pay the posted price. There are several ways that cash discounting can work, depending on how the merchant wants to set things up.
It’s important for business owners and consumers to understand the differences between cash discounting and a similar arrangement called surcharging. In fact, the average fees that companies charge to process their credit card purchases is between 1.3 percent and 3.4 percent of every transaction.
Besides knowing how those two systems differ, it’s also essential to know the advantages of cash discounting for both merchants and consumers. As with many other kinds of pricing setups, this one is best viewed in the form of a concrete example. Whether you’re a business owner or a consumer, cash discounting can save you money. There are a couple of ways to save depending what side of the register you’re on, but in general, cash discounting makes sense for the following reasons:
- It makes buyers happy: For consumers, cash discounts are a simple, no-hassle way to save between 2 and 4 percent, on average, on transactions. Sometimes they can save even more because it’s up to individual merchants to set discount amounts.
- It saves merchants money: Rather than pay between 2 and 4 percent fees on all credit transactions each month, merchants simply pay a service provider a flat amount, which usually is far less costly than paying the credit card percentage. Business owners opt for cash discounting for simplicity, but the primary motivation is typically to reduce the monthly cost of operations.
- Merchants have instant access to funds: Business owners don’t have to wait for credit card processors to approve charges. The entrepreneur has instant access to the funds paid on any transaction, whether it’s cash or credit. That’s because the service provider deals with the credit card companies and handles that end of the interaction. For the merchant, this arrangement means better cash flow and more predictable revenue streams.
- Fee structures are simple: When merchants opt to pay a monthly fee for a cash discounting service provider that takes care of all the paperwork and only charges a flat rate on a recurring basis, there are no complex math calculations to do at the end of each month. Merchants always know where they stand and can budget with accuracy.
Surcharges vs Discounts
When you see a listed price on a product, like gasoline, and the merchant offers a discount off that listed price if you pay cash, then the program is a bona fide cash discount arrangement. If you go to the register to pay for an item that is listed at, for instance, $10, and you are charged $10.35 if paying with plastic, then you are involved in a surcharge program.
The key difference between the two is that the cash discount setup reduces the listed price by some amount, usually a few percentage points, when the buyer pays cash. If using a credit card, the price is as listed. In a surcharge arrangement, the buyer who uses cash will pay the listed price, but the consumer who uses plastic will pay a higher price.
What To Look For In a Cash Discount Program
For merchants who want to sign up for a service that offers them a way to offer cash discounts to customers but also avoid having to pay high processing fees directly to credit card companies, it pays to do some research. Not all cash discount programs are the same. Some charge exorbitant monthly fees, offer weak or non-existent customer support, don’t provide terminal placement programs, try to lock merchants into long-term contracts, and don’t offer fast access to funds. Be sure to inquire with any service provider when you want to learn more about their cash discount program. Here are some details about the salient points to investigate:
- Month-to-Month Contracts: Even when monthly fees are reasonable, it’s a good idea to opt for a month-to-month contract at first. That way, you can test the service provider’s program features for a while and decide whether the program benefits your bottom line.
- Small Monthly Fees for Participating: In a cash discount program, you’ll no longer have to pay the credit card companies’ processing fees, but you don’t want to get stuck paying a similar, or higher, amount to your program service provider. Look for plans that come with small, reasonable monthly fees, preferably flat fees. That’s the best way to avoid losing out on a deal that you went into for the purpose of lowering your monthly operating expenses.
- Thorough Customer Support: Any business service is only as good as its customer service support. When you sign on with a provider who agrees to remove your credit card processing fees in exchange for a monthly fee, make sure there’s someone who can answer your questions when something comes up. That’s why a month-to-month contract (see above) is essential. It’s really the only way to test-drive the true level of customer service and support.
- Fast Funding: One of the big downsides of dealing with credit card companies, for merchants, is that it takes at least several days to get access to your funds. With a cash discount service provider, you get access to funds quickly, or at least you should. Ask about next-day funding, and if the provider doesn’t offer it, consider shopping for someone who does. The industry standard for this type of merchant service usually includes next-day funds availability, so it’s what you should expect.
Solutions for Sellers
If you run your own business, our team at Metro Payment technologies offers solutions in the form of cash discounting so that you’ll never have to pay a credit card fee again. In addition, our products include a wide variety of merchant services like payroll, PCI compliance, and many more. Our Fee Buster program lets you say goodbye to processing fees forever, all for a small monthly charge that is far less that what you’d remit to credit card companies. The best part is that Fee Buster is totally PCI compliant and ready to use in any state, no matter what type of business you operate.
Cash discounting is a good deal for consumers and merchants because it removes the complexity of having to figure added fees and charges. From a consumer point of view, it’s nice to have the option to save just by using cash, yet retain the option to use plastic for the sake of convenience. For merchants, cash discounting can mean a savings of thousands of dollars per month. If you’re interested in learning more about how cash discounting can save your company real money each and every month, give us a call at 1-800-771-3719, visit our website, or simply email us at firstname.lastname@example.org