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Is a Cash Discount Program the Right Fit For Your Business?

Last week, we told you about some recent court rulings on credit card surcharges. As a result of these decisions, we have seen more small businesses seek out cash discount programs as a way to offset the $300-$400 that credit card companies were collecting on every $10,000 of sales. Those expenses can be devastating to small businesses. Even so, that doesn’t mean that offering cash discounts are right for every merchant. Does a cash discount program make sense for you?

cash discount program pros and cons

Do you want to see more cash transactions at your business?

Once you begin a Cash Discount program, you will likely see more purchases made with cash as opposed to debit or credit card. Since you pay processing fees on card purchases, but not on cash transactions you will be lowering your monthly processing fee expenditures.

If you run a small café or coffee shop you may need a larger flow of cash to tip out your servers, bussers, and kitchen staff. This can be easier to do with cash on hand instead of factoring it into a weekly or bimonthly paycheck. And your employees will certainly be happy to go home with cash on hand every night.

But is more cash on the premises always a good thing? Factor in the time it will take you to count the cash and deposit it at the bank. This may not be an issue if you have a good automated money counter and a conveniently located bank drop.

Also consider the potential risks of having a lot of cash on hand. Businesses of all sizes are susceptible to employee theft. Burglary and theft is the most common small business insurance claim. Do you feel comfortable that the benefits of accepting more cash outweigh the risks?

Are your competitors and neighboring businesses offering cash discounts?

Cash discounts are quite common in certain cities or neighborhoods and unheard of in others. If your customers aren’t familiar with cash discounts they may feel uncomfortable being asked to pay more for using a credit card. We’ve seen that customers who are accustomed to seeing cash discounts at other businesses in the area are more likely to accept a cash discount from your business. They may even come to expect it. Frugal shoppers, in particular, commonly ask merchants if they offer a discount for paying with cash, even if no sign is posted offering that discount.

You should also consider the environment where your business is located and its clientele. Are your customers expecting to pay top dollar or are they bargain shoppers? Are you in an established neighborhood or an up-and-coming neighborhood? Are many of your customers students or seniors on a fixed income or are they dual-income families with plenty of disposable income.

Does your business attract repeat customers?

Many people aren’t accustomed to carrying cash, so it may take a few repeat visits before they remember to bring cash to take advantage of the discount you offer. Some shoppers might dislike being encouraged to use cash, and you might lose some customers to a nearby competitor that doesn’t have a service fee.

But we also know that being a cash-only business is a sure way to lose business, so if you don’t currently accept cards a cash discount program is the perfect way to increase your business, but also keep your cash customers happy.

If your business relies mostly on tourists, walk-ins, and non-repeat business then you don’t have to worry about the potential impact on future purchases.

Is your product or service discretionary or mandatory?

Are your customers required to buy your product or use your service? If so, they will appreciate having payment options, even if some incur a service fee. For example, people must pay their rent, taxes and utility bills and are often offered discounts to pay in cash. On the other hand, consumers decide if and when to purchase a new TV or designer handbag, and a service fee may cause certain customers to walk away from a discretionary purchase.

But the dollar amount of the discretionary purchase also matters. The Frugal community on reddit recommends asking for cash discounts on large purchases, even when the offer isn’t posted. Several customers reported saving hundreds of dollars on services such as Lasik, kitchen remodeling, group travel, and car repair by paying with cash instead of a credit card.

Carefully weigh the options before deciding on a cash discount program, or try it free for 90 days to see exactly how it can work for your business. By communicating more with your customers about payment options, you may see benefits you you never even considered.

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