What is Cash Back and How Does It Work for Businesses

April 23, 2021 / Posted in Financial Tips

You have opened a small business recently and you want to gain as many loyal customers as possible with a new method of payment where both you and your clients can benefit. Then you are probably wondering: what is cash back and why should I use it? According to the latest statistics, 80% of cardholders have cashback on preferred cards. This is a great reason to keep reading and get answers to the questions of how does it work and how can it benefit both you and your clients.

Last year was challenging. It made us all think hard about what to do next and how. However, while some drowned, others were lucky enough to rise up, so there are a number of successful small businesses in 2021. If you want your own business, this could be a great opportunity for you to learn more about your bank account and the possibilities you could enjoy. It doesn’t matter if you are planning a trip or you just want to have some extra coin simply by buying everyday things. Keep reading and find out what the terms are for having an account like this and how to choose the best merchant processing company.

Let’s Explain: What Is Cash Back (CB) and What Does Cash Back Mean Exactly?

You’ve probably heard this term before, but what does it mean to get cash back actually? Let’s start from the beginning. Cashback means exactly that, you get a little money back every time you purchase something. Think of it like some kind of encouragement for purchases. It is usually a feature for credit cards (CC), but it also applies to some checking accounts. For example, if a CC offers 1 percent CB per purchase, you’ll earn 1 cent in rewards for every spent dollar.

This doesn’t mean you’ll get a fortune in one week or month, but if you buy constantly, for example, your groceries in the same place or get gas at the same gas station, you will accumulate rewards over time. This method commonly stands for a specific type of purchase, like bills and fuel.

CB also refers to invoice payment. So, when a business pays for services or products, it has to submit the invoice to a vendor. The way of getting a CB is to make sure you do the early payment. How early these deadlines are, depends on the vendors, and you should check with them how everything will work.

Here’s a video that can help you understand better the advantage of collecting and redeeming the CB.

How Does Cash Back Work?

In short, the purchases you make have a rebate of the percentage. To explain better, imagine you earn some percentage of the amount you spent in the form of rewards. And it happens every time someone pays with plastic. So, if you get 1% CB, you will earn around $1 when spending $100 in a store.

The points you earned are usually paid annually, but in some cases also monthly depending on the card issuers. Once you have enough bonus points, you should be able to collect your rewards at any time.

How you will redeem the benefits depends mostly on the card issuers. The balance is usually used to reduce your bills, but you can also get a refund in your bank account. Here are some other ways you can redeem your rewards:

Is Cash Back Free Money?

It doesn’t cost anything to the final user, and they don’t pay any commission. But this is something that brings customers to stores to buy directly with these cards and get some extra penny, rather than take the money from the ATM and give money for the ATM commission.

People are motivated to use plastic from specific issuers because they share some of the merchant fees with the consumer in the form of a bonus or reward. The best way to be sure is to check if there is a flat rate, as well as the fee you’ll have to pay and when that would be necessary.

How Does Cashback Affect Your Business

In the last two decades, this topic has been very popular, and many local businesses are creating awesome cashback offers which can be universal or have particular awards for particular purchases. Why is that? Well, every serious business that is keen on keeping their loyal customers and gaining new ones wants to have the best merchant services, and optimized credit card processing services for small businesses are one of them. Let’s take a look at some of the reasons your business should offer this kind of service:

  • Increase and retain regular customers – Almost everyone has their favorite place where they buy groceries or their favorite cafe where they order the drinks they like. We return to those places again and again. Such customers, loyal ones, need to be incentivized to keep coming to your business and not to someone else’s. And imagine all the new customers. They need to be encouraged to come back again. The goal, of course, is not just to earn as much as possible, but also to gain loyal customers who will gladly come buy your items and that is why you need to give something in return. This is a great form of rewarding that will surely have results in the long term.
  • Save some coins with cashback – There are many ways to approach this method of giving and receiving. Be sure which method suits you best and approach it. For example, if instead of cashback you offer a reward in some free stuff from your store, you might end up losing money. But it also depends on your industry. Let’s say you have a cafeteria and as a reward, you decide to give free coffee with every purchase. And another method would be for example 1% cashback with every purchase. The second method would certainly be cheaper.
  • No need to discount the products – With the cashback method, you won’t have to do the discounting process anymore. The very thought that customers will get some, even a small part of the amount they spent, is more tempting than the discount item itself.

What Does Cashback Mean for Credit Cards (CCs)

If you are a buyer, there is something important you should bear in mind when planning on using cashback cards. You might need to pay an annual fee. This fee is usually a few dollars a month. So if you don’t spend regularly, this might not be the right choice for you.

If you are wondering how small businesses pay taxes, keep in mind that cashback credit cards can really bring free income. With the most common mistakes business owners make in mind, this could be a great opportunity to learn something new. You indeed can get free money from the CC issuer if they pay the CB bill in full each month and never refund any interest on purchases.

Either way, the important thing when you are choosing the right CC is to make sure you read all the terms and conditions. You can also feel free to call the bank and ask everything you want to know, for example, will this affect your bank account? Don’t forget to analyze what the rate, fee, and balance would be, as well.

A Card with Rewards or Cashback?

What are cash back rewards? Both of these promotions, cashback and rewards are good marketing strategies, but which one to choose? It is important that you know which option suits your business best.

With the reward method, customers will gain reward points with each purchase made. Usually, customers get one point for one dollar spent, and they can redeem those points for any benefit option their issuer offers. Those benefits could be, for example, a gift card or hotel accommodation.

On the other hand, cashback will improve your relationship with customers. They would rather come back to your store knowing that you’ll be willing to give something back for every purchase.

Two men shaking hands

Choose the Right Credit Card (CC)

When looking for the best cashback CCs, there are some things you have to take into consideration. There are dozens of different types and no wonder you need help to choose the right one. Here are some important factors that can assist you to pick what suits your business best:

What Does 5% Cash Back Mean?

Many banks offer a generous 5% cashback reward program, but you should check if there is a maximum annual limit. This reward is usually for specific categories of purchases, like gas, groceries, or restaurants. In this case, you need to examine thoroughly the terms of your CC and device if this is the service your business finds profitable.

What Are the Benefits of Using Cash Back for Customers

As a customer, you should take time and understand all the terms and details that are offered. There are some categories that will suit you more and some less, for example, one card will grant back a higher percentage for buying groceries and another for buying gas.

Another very important thing to know if you want to have the maximum benefit of this feature is to know your paying habits. If you don’t pay your CC bill in full, this might not be the right choice for you since you won’t have any benefit from using it.

Woman paying with a credit card

Cashback Is a Great Way to Increase Your Sales

Now that you know the answer to the questions what is cashback on credit cards and how does cashback work on credit cards, you should take time and choose the right one, because only the right service will give you what you need. That way, your business will grow and you’ll gain more loyal customers. People who come again and again are key to increasing your sales. However, you don’t have to do everything by yourself. Call reliable card processors and merchant service providers and let the professional merchant services for credit card processing make the difference for your current and future customers.


It never hurts to know how much you can save.

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