A Cash discount program is a method by which businesses encourage their customers to pay their due amounts in a fast and cost-efficient way. Businesses incur a lot of payment processing fees for each debit/credit card transaction. In order to avoid these fees, many businesses redirect the cost of payment processing towards the customer by making them pay if they choose to make payments via their cards. However, they also allow them to evade this cost and save some bucks by allowing them to pay via cash. This offer is called a cash discount program.
Cash discount programs have become popular over the past few years. This is because they offer both, the business and the final consumer, relaxation of not paying the additional transactional fee. Some of the benefits of cash discount programs for merchants have been listed below.
1. Reduced Payment Processing Cost
As a merchant who has thousands of customers, the card processing fee which might look minimal for a single customer, would look like a huge sum of money for thousands or millions of customers. When you, as a merchant, opt-in for a cash discount program, you save yourself from the hassle of paying huge fees on card transactions. This is because a portion of customers’ payment would go for the cash payment option and thus save you the fees of card transactions.
2. Improved Cash Inflow
The second benefit that you, as a merchant, would experience is that when customers are offered to pay via cash, they would be encouraged to make subsequent purchases via cash payment method only. Why? Because by offering the cash payment method to your customers, you are incentivizing them to pay less for the same product/service which they would have to pay more if they bought from their cards.
Customers love paying less or getting discounts. Thus by offering a cash payment method, you are in a way offering them lower rates for the same product/service which they will happily avail more than once. This would result in improved cash inflows for your business since frequent purchases by customers would mean frequent cash inflows.
3. Reduced Risk of Scams & Bad Debts
The third and most important benefit of offering cash discount programs is the reduced risk of scams. The more the people are encouraged to pay with cash, the less are chances of credit card fraud. Moreover, paying with cash ensures payment on time and reduces the risk of incurring bad debt if the customer goes bankrupt.
4. Increased Profit Margins
The last benefit of offering cash discount programs is they help in increasing profit margins for a business. When businesses try to shove the card processing payment onto their customers, this might cause a decline in their purchasing power because of the recurring card fee. However, when a business offers a cash discount program to its customers, not only it manages to escape the wild payment processing costs but is also are able to maintain good profit margins. They achieve this simply by keeping their customers happy and encouraging them to make frequent purchases.
Cash discount programs are a great method of cost erosion and building loyal relationships with one’s customers. Every merchant must consider introducing these programs into their business at least once a year and see the positive impact on it.