The cash discount program gives customers a discount for paying in cash and passes the credit card processing fee to customers who use cards. Depending on the rate in your cash discounting program, customers are paying all or most of the credit card processing rate. This reduces the cost to the merchants by 80-90%.
Cash discounting, also referred to as CD, can be an effective way to cover a business’ cost of accepting credit and debit cards, but may not be ideal for every business. Cash discounting can be unattractive to customers. For example, if your customers do not carry cash, they will not want to be penalized for using cards. If this upcharge will lead to your customer being dissatisfied, this could risk customer loyalty. Other factors to consider when deciding if cash discounting is right for your business include:
Your Customer’s Preferred Payment Method
Do your customers prefer to pay with cash or card? Knowing your target demographic will help you determine if you should offer the discount or not. Generations differ on their cash usage and how much they carry. For example, millennials typically carry little to no cash, while older generations are more likely to. CD will be easily accepted if your customers are already inclined to pay with cash.
Average Ticket Prices
Consumers are carrying less cash, so this is important to consider when deciding. If you have low ticket items combined with the cash discounting, customers are incentivized to pay with cash. If you have high ticket prices, the impact of the percentage added for using a credit card will have a large impact on the customer’s total.
Your Competition
Are cash discounts common in your industry and area? Comparing yourself to your competition is important. If your competition is offering a cash discount maybe you should too. If they aren’t why not? You’ll want to seriously consider whether or not this could drive customers to a competitor.
By considering your target audience, average ticket price, and your competition, this should be helpful insight to determining if cash discounting is right for your business.
