Merchant Cash Discount Program and How it Works
If you are an active merchant who is offering merchant services, then you must have heard about a merchant cash discount program. This program is very prominent amongst sales agents as well as merchants. A merchant cash discount program is a program in which a merchant offsets a fixed proportion or all of its merchant fees. According to this program, a discount is offered to those customers who make payment in cash. In this way, the consumers who pay in cash avoid merchant fees.
1) No processing fees
With the help of a cash advance program, business proprietors can completely remove the processing fees. Business merchant will not be required to show a notice to intimate the consumers about the service fee, which is charged on every service.
For example, if the service fee is 4%, and price of the product is 100 dollars, then every product that is available in the store is worth 4 percent more than the price that is actually mentioned on the product and a discount equivalent to the fees of customer service will be given to a consumer who pays in cash. If a person pays through any mode other than cash, then he will be required to pay the actual amount that is 104 dollars.
2) It is different from convenience fee and surcharge
A merchant cash discount program is not the same as convenience fee and surcharge. Convenience fee and surcharge are those amounts that are added to the price of the product. People don’t appreciate surcharge because they consider it as a way to punish the consumer who makes payment through credit card.
Convenience fee and surcharge are accepted in various states but not in all of the states. In a merchant cash discount program a consumer will not be overcharged if they pay through the credit card, but if they pay through cash, then he or she will get a discount. Therefore, don’t relate cash discount program with a convenience fee or surcharge.
3) Tool for marketing
A merchant cash discount program is considered as a tool for attracting more customers. Consumers get allured by the discount offers; this is why many of the shops display the sign of SALE on their main gate. Both business as well customers get benefited from a cash discount program. Business merchants like merchant cash discount programs as it helps them in eliminating all of the processing fees. Salespeople like these programs as they can get more earnings.
4) Things to be considered for evaluation in a merchant cash discount program
- Equipment: Please ensure that the technology or equipment used can accept every type of card, EMV chip cards, and mobile wallets. The technology of cash discount does not work for every type of equipment brand.
- Legality: Every program of cash discount is not the same. Therefore, you are required to ensure that the provider you select properly adheres to the federal laws and laws of the state. For proper adherence to the federal requirements, a cash discount program must disclose the amount of discount and service fee to the customer.
- Fee options: A good provider will offer more than one option of pricing service fee that is the proportion of the sales amount or flat fee. Business organizations that are not compatible with the big ticket must adopt the percentage model. Flat fee option is great for the firms, which cannot adopt the percentage model.
- Support: Merchants will require the supporting materials of cash discount like video, training guide, in-store signage, and reference handouts. A good cash discount provider will provide these things free of cost.
5) Increases cash flow
A merchant cash discount program motivates the consumers to make their payment as early as possible. It brings an inflow of funds in your company so that its bills can get paid. If you accept payments through invoices, then there can be a delay in receiving the money, but if you offer cash discount services to your consumers, then there will be no delays in receiving the cash.
6) Reduces the cost of inventory
If your company provides cash discount to your consumers, then the suppliers who supply the products to your company may also give you a cash discount. You should always accept the invoices that come with a cash discount.
7) Bad debts can be avoided
If a merchant offers merchant cash discount program to its customers, then he or she will be able to retain more profit in the business. There are certain businesspersons who vet out their consumer before extending their credit lines. It is compulsory for every business to pay off their bad debts. If a company offers a cash discount, then it means that the firm receives 99% of the selling price.
8) Can also lead to loss of profit
If a company offers an unnecessary cash discount to the customers who are responsible and reliable, then the company will not be able to earn the profits. If a company introduces a policy of cash discount, then the consumer will make the payment at least a week or two weeks before, but this will not be beneficial for the companies that have inadequate profits.
So, this was all about a merchant cash discount program. Zero or no processing fee is the biggest benefit offered by these cash discount programs. This program of cash discount is distinct from a convenience fee and a surcharge. If a customer makes payment through a credit card or any source other than cash, then he will not pay an amount more than the selling price. Additionally, a cash discount program is a great tool for marketing.
There are certain things to be considered for evaluating a cash discount program like fee options, support, legality, and equipment. Moreover, if a company offers a cash discount program, then it will get benefits like increased cash flow and reduction in the cost of inventory.
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