Finance

Why Large Businesses Do Not Like Cash Discounting Programs

2 Mins read

Cash discounting has become a theme in the investment market in the recent years. Cash discounting generally refers to an incentive which is offered by the seller to a buyer, when a certain bill is paid before the scheduled due date. In case of a cash discount the amount of money that the buyer owes is reduced by the seller by a small percentage.

Understanding cash discounting in-depth:

As mentioned before, cash discounting is a form of deductions allowed by sellers or service providers in order to motivate customers for paying their bills before time so that the sellers can use the cash and use it in building their business quicker. Hence, cash discount merchant processing is done to receive the payment in cash and not via credit cards with added service charges. This also encourages the buyers to pay in cash as they get some form of discount for a certain goods or service.

Cash Discounting and businesses:

There are a lot of growing merchants and businesses at this point in the industry who know how to sell cash discount doing their job really well. This is an amazing strategy, as it generates leads faster, and it is a very streamlined process.

Selling cash discounting can be a bit problematic is some cases as the customers who don’t carry cash or tourists who don’t have that currency get offended for the cash discount policy.

But this has one major problem for the merchants, which is the margin of profit for the merchant accounts get lowered. Although the discount rate for the customers are not that high but if one big merchant company provides cash discount to all of its customers then that summed up discount amount can cause some damage in the profit margin of them. There are some major reasons which is keeping big merchants out form the league of cash discounting.

  1. Compliance issues: Big merchants have their respective book keepers and attorneys. If cash discounting is implemented in most of the cases. There will be a problem of keeping records of all the daily transactions as the business is big. This can lead to accounting problems or auditing problems. Hence attorneys generally advice big merchants to stay away from cash discounting.
  2. Technological problems: Implementing cash discounting in big businesses is lump some and tedious process. Designing a software or buying a software just to accomplish cash discounting does not sound profitable for big businesses. Also, big merchants are already established with a selective clientele. Hence the requirement of cash discounting is not required in maximum scenarios by them.
  3. Keeping a stiff pricing restraint: In order to keep cash discounts, the businesses need to have a very rigid pricing for their products. In case of maximum big businesses there is a controlling financial body which looks upon all the pricing details. If cash discounts are implemented, the controllers won’t agree to the discount patterns.

So, these were some of the major reasons, why the big merchants don’t opt for cash discounting. Sometimes, a better pitch of the cash discounting technique is also required for implementing the program as it has some benefit to it. Although market condition is also a major limiting factor in the implementation of cash discounting. So, when implemented without proper knowledge it can harm the business as well.