It seems that every business around the world accepts credit cards. These days, many people prefer to carry plastic in their wallets instead of paper. While there are some businesses who still operate by a cash and check only model, this turns away a large percentage of the population who just doesn’t carry that form of payment. As a small business, you have no choice but to accept credit cards if you want to continue to see steady traffic come through your door.
Steady Traffic Means Higher Fees
This steady traffic of credit card carrying customers is great, but it carries one problem for business owners: processing fees.
Credit card companies such as Visa and MasterCard charge your business a fee for each credit transaction that you process. Though rates can vary by credit card company, if you’re a brick-and-mortar shop where a customer can swipe (or insert) their card, your fee can range from 2 to 5 percent on each translation. If you’re an online shop, that percentage increases. By the end of your sale day, you can pay hundreds of dollars in processing fees just for offering your customers a convenient way to pay.
Why It Pays To Offer A Cash Discount
As you probably already know, a cash discount program can be a boon to your business. A cash discount program helps your business in two very distinct ways:
1) It makes your cash paying customers feel like they’re getting special treatment.
2) It lets your credit card paying customers continue to enjoy the convenience of swiping and going.
In order to make a profit in your business, you’ll need to set your products costs accordingly. For example, an item that costs $200 might be marked up to $210 to cover the processing fee of 5 percent so that you don’t lose money in the sale. But this hardly seems fair for the customers who are paying with cash; why should they pay the credit card processing fee? This is where the cash discount comes in.
A Win-Win Situation
If you advertise a cash discount program, your cash paying customers will pay the discounted amount of $200. After all, when customers pay with cash, you don’t pay a processing fee to the credit card company. This makes the cash paying customers happy, but it covers your fees if a customer pays with credit card. By this point in time, people who pay by credit card understand the fees that are associated with the convenience. It’s a win-win situation for all.