With the hustle and bustle of the holiday shopping season behind us, it’s a good time to look at what happens to our businesses during peak shopping seasons. These times are both exciting and draining for small business owners every year. There is a lot that goes into the preparation and execution of a successful holiday or peak season shopping experience. In recent years, shopping locally has increased dramatically, bringing a welcomed influx of shoppers during certain times. Last November and December, for instance, saw more than half of U.S. consumers shop at small and local businesses, and a report by Intuit says there was a 42% increase in small business spending in 2023.
However, with each swipe of a credit card for a purchase, the business owner incurs a processing fee of up to 4%. So, when the monthly bill arrives with a larger than usual total payment processing fee, small business owners are left feeling deflated and wondering how they can make this situation better for their bottom line.
To reduce or completely offset the high influx of processing fees during peak shopping seasons, there is a simple solution: incorporate the processing percentage into the sale price and offer the original price to those who pay in cash. This is easier said than done, of course. Raising prices is never easy to do, especially when customers have an expectation of how much something will cost. For those who don’t want to pay for the updated price that adjusts for the processing fee, business owners can accommodate by offering the original price when they pay with cash. This is called a cash discount program.
By revising the list price, the monthly processing bill is no longer unpredictable, especially during high peak times like November and December. Additionally, customers will not be thrown off at the counter when a higher price appears on the POS terminal because the list price will be exactly what they pay.
When there is a processing fee of up to 4% per transaction, cash discount programs can save small businesses a major portion of their revenue. In fact, more than half of SMBs utilize these programs. Besides increasing revenue as a major benefit of cash discount programs, owners also see an increase in cash payments and flow. The customer incentive to pay with cash for a slightly cheaper cost also reduces the amount of chargebacks.
Additionally, the overhead costs of owning a small business can add up quickly. As a general rule, they should not be more than 35% of profit. This can be a tricky margin to stick to, especially for small businesses and especially during an elevated holiday season. Reducing payment processing fees has a domino effect of bringing overhead costs down, too.
Knowing that consumers are 40% more likely to use a credit card to make their purchase and 70% of sales in the U.S. come from credit card transactions lets us know that processing fees are going to remain a predominant part of the retail experience for small business owners. Eliminating or reducing the fees by utilizing cash discount programs results in many benefits year-round but can certainly make the holiday shopping months a more profitable and less stressful time.
Austin Mac Nab is CEO and founder of VizyPay, a Waukee-based provider of payment technology solutions for rural small businesses across the U.S. In 2017, Mac Nab launched VizyPay with the goal of disrupting the status quo of the payments space to help rural small businesses level up their operations and save money on processing fees.