Cash Discount Processing vs. Traditional Processing: Who’s the Champ?
Using credit cards has become an extremely convenient and beneficial way for customers to purchase products.
But with the absence of cash discount processing, benefits are often paid for at the merchant’s expense.
Acquiring cash back and airline miles are just two of the many benefits customers can assume when paying with a credit card.
Every time a credit card is swiped, fees pile up in payment for processing the transaction.
In order to avoid these fees, you must understand the difference between cash discount processing and traditional processing.
Cash Discount Processing and Traditional Processing
There are two major ways to process credit cards that we will discuss in this article.
The first is traditional processing: the way by which most merchants process credit cards.
The second is cash discount processing: the smart and easy way businesses process credit card transactions without having to pay any processing fees.
Both processes are legal ways to process credit cards, but only one will eliminate all fees.
Satisfying the Middlemen
When a customer makes a purchase with a credit card, there are a few players involved in processing the transaction.
- Credit Card Processors: the processor carries information and authorization requests between the merchant and the credit card association.
- Credit Card Associations: these are companies like Visa or Master Card that make the credit cards.
- Credit Card Issuing Banks: These are the banks that issue the credit card.
These are the middlemen. They collect part of the profit of the transaction in payment for processing the credit card.
Both traditional processing and cash discount processing will satisfy the payment of these middlemen.
However, only a cash discount program saves you from having to pay them.
Traditional processing will take the payment right out of your pocket.
Processing Credit Cards with Traditional Processing
What does it look like when you process a credit card transaction with traditional processing?
Processing many credit card transactions with a traditional processing program will cause your fees to pile up and lower your profit margin.
Let’s take a look at an example of how traditional processing is draining your profits:
Say you own a small business. You worked hard to build this business from the ground up, and now you’re looking to make a nice profit.
If the average price of a product at your store costs $10 and you make 50 sales in a day, you should be making $500 a day, right?
Not with traditional processing.
Even though you made the sale as the merchant, payment for the middlemen comes out of your pocket.
A 4.0% processing fee is incurred for every credit card transaction made.
Now you’re $10 profit on a sale becomes $9.60, and your $500 profit for the day is now only $480.
You’re losing money that you could save with a cash discount.
Processing Credit Cards with Cash Discount Processing
If traditional processing adds a fee to the merchant’s statement, then how does a cash discount program work?
Like we said before, cash discount processing still satisfies the middlemen involved in a credit card transaction. However, you as a merchant are no longer the one that has to pay them.
In a cash discount program, all processing fees are transferred to the customer.
That $0.40 you used to lose on every $10 sale is now paid by the customer, and you keep the full profit!
Cash discounts work by giving your customers an incentive to pay with cash rather than a credit card.
You transfer the fee by adding a small service fee to every customer transaction that is paid for with a credit card. If the customer pays with cash, the fee is lifted.
What’s the Catch?
Does it sound too good to be true?
Don’t worry, the use of cash discount processing has been approved in all 50 states. All you have to do is provide a customer notice at all entrances and points of sale informing them of the service fee and the cash discount.
A common misconception regarding cash discounts is that it will cause merchants to lose sales if customers don’t carry cash.
However, customers know the benefits and convenience of paying with a credit card, and the service fee is ignored 98.7% of the time.
All that’s left for you to do is save!
Learn everything you need to know about cash discount processing by visiting our Cash Discount Page.
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