Are you still operating a cash-only business, or do you indicate in subtle or not-so-subtle ways to customers that you prefer cash? Perhaps you charge a fee for using payment cards or require a certain purchase amount before they can be used. If your company does all or most of its transactions in cash, you’re actually costing yourself money—as well as putting your business at risk in other ways.
Here are some of the hidden costs of accepting cash:
1. Cash wastes everyone’s time. Cash takes you and your employees time to count and sort. When the till gets full or you run out of change, customers have to wait while your staff counts the cash or gets small bills. Unlike checks, payment cards or electronic payments, which can either be deposited into your business bank account in seconds using smartphone apps or immediately go into your account via electronic transfer, depositing cash requires physically going to the bank. That’s the biggest time-waster of all.
2. Cash makes business purchases a hassle. Of course, you could use your business’s cash to make business purchases, but that causes problems, too. You can’t send cash through the mail or use it to order products or services online. Instead, you’ve got to physically visit a store or business and wait in line to make your purchase or pay your bill.
3. Cash can get you in trouble with the IRS. Many small business owners whose businesses take in lots of cash end up using the cash for personal expenditures. This quickly becomes complicated, because commingling funds from your business and personal accounts can cause trouble at tax time.
4. Cash complicates small business accounting. It’s easier for employees to make mistakes when handling cash. (How many times has a retail clerk struggled to give you the correct change?) This can lead to errors in your accounting. If you use cash to make business purchases, you’re making it harder to track your business expenses, since you’ll need to enter the expenditures into your system manually. By using a payment card or electronic payments, accounting is greatly simplified. Most business credit cards sort your purchases into categories on your monthly statement so you can see at a glance where money goes. You can also import that information into your accounting system and use it when developing financial statements and preparing taxes.
5. Cash does nothing for your small business credit score. Even if you scrupulously separate business and personal cash and track your cash accurately in your accounting system, using cash for business purchases has another big downside: Purchases made with cash do not help build your business credit score, which can ultimately keep your business from getting the financing it may need to grow later on. Making business purchases electronically and then making prompt payments on the account, however, will greatly benefit your business credit score, as the payments will be reported to credit reporting agencies.
6. Cash can be lost, stolen or destroyed. Having cash lying around your business in a cash register or safe is nerve wracking. So is going to the bank with a cash bag in hand. And if a flood or fire damages your business, it could destroy the cash, too. Cash in a business presents temptation to employees—after all, taking a $20 from the cash register is a lot easier than developing a plot to embezzle money from a business bank account. Cash also tempts criminals: a study by Loyala University of Chicago showed that businesses that do most of their transactions in cash are more likely to be victimized by theft.
7. Cash can cost you sales. Perhaps the biggest cost of cash, however, is the cost of lost sales. If you accept cash only or encourage the use of cash, you are discouraging purchases by people who don’t have cash on hand or simply prefer to pay with payment cards. This includes most of the Millennial generation, who have grown up using debit cards for just about everything!
While small business owners often fear that accepting payment cards will eat up too much of their profits in fees and setup costs, a study by Economists Incorporated last year reports that businesses can expect a “significant increase” in sales when they start accepting payment cards, rather than just taking cash. In fact, the report says, these increases far outweigh any fees, installation costs or other costs associated with accepting payment cards.