Cash discounts are incentives offered by companies to customers who pay outstanding invoices early or with cash instead of credit cards. Discounts can appear as credits on bills or be applied to future purchases. Some vendors offer instant discounts for cash payments to avoid credit card processing fees.
A cash discount is a customer relations and marketing strategy often employed to provide consumers with an added incentive to do business with a particular company. In some cases, the cash discount has to do with a percentage or flat fee discount that is extended when a customer pays an outstanding invoice within a specified period of time. In other situations, the cash discount applies when a consumer chooses to pay for goods and services using cash instead of some alternative form of payment, such as credit cards.
Traditionally, the discount is an offer that is included in a contractual agreement between a supplier and a customer. The terms of the offer generally have to do with early payment of an outstanding invoice. As an example, the supplier may issue invoices with a standard payment cycle of thirty days. If the customer chooses to remit payment to the supplier within ten days of the invoice issuance date, a discount of some kind is applied to the customer’s account.
The cash discount may appear as a credit or line item on next month’s bill, or be applied to the next purchase. On rare occasions, a provider may include the terms of the discount on the invoice, with instructions for the customer to pay a slightly less amount if payment is submitted within the specified time frame.
A new application of the cash discount has emerged in recent years. Some vendors now offer instant discounts on products if the consumer pays with cash, instead of using a credit card. An example of this approach is with gasoline. Many consumers are unaware that a vendor pays a fee to process a credit card payment. To entice customers to pay cash and thus avoid the fee, a provider will offer discounts off the standard price. The consumer saves a small amount off the regular price, while the seller avoids paying a processing fee on the transaction.
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