How Does the Merchant Account Cash Discount Program Work?
The merchant account cash discount program is an innovative way for business owners to save on their credit card processing fees. Because the program is a cash advance program, the typical approval process is simple.
All you have to do is:
Fill out the application form, and send it to the credit card processor. Wait 3-5 business days for approval and verification. If everything is approved, they’ll add a line of credit to your merchant account and deposit up to $50,000 into your checking account within 2-3 business days.
Simply put, a cash discount program is an agreement between your business and your merchant account provider – in this case, Intuit – that gives you a percentage back on transactions that are settled in full. Let’s say you have an average transaction size of $500 on your credit card reader and an average full settlement rate of 100%.
What is a Cash Discount Program?
A cash discount program is an arrangement where customers get a discounted amount for their purchase if they pay in cash rather than by credit or debit card. This discount can also be applied to a second purchase if the first was made with cash.
Cash discounts can vary based on the type of business and range from 10% to 50%. In general, businesses should run their cash-discount programs because doing so allows them to avoid additional costs, including sales tax and transaction fees. However, one has to consider that what the customer pays in total will depend on how much they buy, when this discount is applied, and how it’s calculated.
Difference between cash discount and surcharge
A surcharge is a charge for an extra service or an excursion away from the company’s standard. The difference between a cash discount and a surcharge is that one requires payment of extra money while the other does not. Cash discounts are always free, and there are certain types of costs that you may incur if you don’t pay the surcharge, such as long-distance charges, premium rates, etc. The word “surcharge” may derive from “to weigh [one’s] purse” since paying it could result in a heavier weight in coins.
Cash discount and surcharge can be described as follows:
A cash discount is an amount, sometimes a percentage and sometimes a fixed amount, deducted from the invoice (billed amount) of any source of money. The customer usually pays the invoice price at standard rates. Any discount given is deducted from that invoice price and paid to the customer, who then remits the net cash value to the supplier.
Surcharges are extra charges added to the company’s products or services to recover additional costs or income. For example, you might get a fuel surcharge if oil prices go up. Surcharges vary depending upon factors including supply and demand, popularity and level of service.
How does a cash discount program benefit Merchants?
A discount percentage is fundamental for improving the sales margin through discounts. The cash discount program is a kind of incentive the customers receive on their purchases. The merchant offers them a discount for their loyalty, encouraging the customer to shop with them.
The purpose of such a program is to not only increase the sales volume but also retain existing customers by making them feel like they are being rewarded. The discount percentage is the discount that the store gives the customer. A cash discount program can be effective when it is implemented properly. Most customers are satisfied with generous sales discounts, but it will not be beneficial if it is not managed properly. The following are
how to manage cash discounts effectively:
- For example, if a store offers a 20% cash discount and gets a 40% return on sales, the customer will lose money even though the total price paid for items is lower than if he did not avail of any such offer.
- The discount percentage should be reasonable so that incremental revenue does not decrease, nor does retention from existing customers.
- The program should give the customers a realistic discount percentage, which will help them not buy high-priced items or take advantage of the cash discount program.
- Customers who have spent lots of money with a merchant know they can always get a better deal and do not need such limited discounts.
Will cash discounts encourage your business growth?
Do you want to ensure your business is at the forefront of the customer’s mind? Then offer a cash discount! It’s a great way to incentivize and reward your customers for their patronage. But there are some downsides to offering discounts in this way. Whether or not this tactic will help your business grow, it’s worth considering whether it would be effective for you. Let’s explore how cash discounts might benefit your company’s growth.
If you’re a small business, cash discounts may not effectively encourage a customer loyalty Program. Effective customer service can only be had when you communicate with your customers often and effectively. This means that if you want to make certain your customers understand why they should choose your business over another’s, you need to have frequent face-to-face contact with them; this will ensure that when they offer a discount, they can explain its benefits.
Cash discounting can be a great way to retain customers and keep them returning for more. But there are downsides to cash discounts; if your business is already doing well, offering cash discounts may not be the greatest choice. For example: if you’re a high-end product retailer, offering cash discounts might devalue the brand and cause customers to question your company. However, in some cases, if you know your customers well enough, this tactic can work effectively.
Another negative aspect of this strategy is that once word gets out about your differentiating strategy (in this case, cash discounts), competitors will increase their efforts to woo those same customers.
The Bottom line
We hope you have a better understanding of what cash discounts are and what they might imply for your business. By weighing each of these factors, you can decide what type of cash discount program is right for you. However, if you believe it is the right solution for your company and want to proceed, select a payment processing provider who will assist you in properly implementing it and will not conceal surcharge options as cash discounts.