Why do tourist businesses in Mexico give a big discount when paying in cash?
I'm staying in Cabo San Lucas and have noticed that businesses here tend to either be cash-only or provide big discounts when paying in cash. For example a whale-watching company mentions that:
We accept VISA, MC, USD, Mexican Pesos and Euros cash only. We offer a 15% discount when paying for your entire tour in cash.
Same with a diving company:
Payment Methods: VISA, Mastercard, PayPal & AMEX 10% Discount for Cash (USD, MXN, CAD).
Same with a sightseeing company:
You may pay directly on the day of your trip by MasterCard, VISA, travelers' checks or cash (10% discount for cash payments).
Is this because banks charge so much for card transactions in Mexico? Or does this happen because of tax issues? In the US I wouldn't be surprised if a business offered a 1-5% discount for cash, but 10% or 15% would be highly unusual.
Best Answer
Please note: when you pay for some service/goods a certain amount X, the profit (so the money that actually stay in the pocket of service/goods provider) is on the order of 8-10% at best. This X includes VAT that the shop must transfer to the Government. After taxes, let's assume the net profit will be ~5%.
The credit card fees are calculated on X (even on VAT!), not on the profit. If credit cards ask fees on the order of 1-3%, it means that they are taking something between 20% to 50% of the net profit.
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Why do businesses give discounts for cash?
Why Might a Seller Give a Cash Discount? A seller might offer a buyer a cash discount to 1) use the cash earlier, if the seller is experiencing a cash flow shortfall; 2) avoid the cost and effort of billing the customer; or 3) reinvest the cash into the business to help it grow faster.Do you get discount if you pay cash?
It's true that if you pay with cash, rather than using a credit card or financing you get an automatic \u201cdiscount\u201d, since you aren't paying interest charges.Is it better to pay cash or card in Mexico?
A credit card will make the most sense for larger purchases and you'll likely need one for hotels. You'll always need cash to make everyday purchases. Withdrawing a substantial amount of cash for when you arrive can be an ideal option to ensure a smooth transition into your destination country.What is the ease of doing business in Mexico?
Mexico ranks 60 out of 190 economies for overall ease of doing business. The country holds an even lower rank for ease of starting a new business, ranking 107.Mexico Tipping: Never Use US Dollars - Here's Why!
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