When it comes to taking payments from your customers, would you prefer cash or credit cards?
We recently came across a sign for a business that only accepted cash because they wanted to avoid paying the bank a percentage to process the transactions. But does this actually work? We appreciate that everyone wants to make savings where possible but what would you do if you saw a sign that said cash only in the window of a shop or hospitality business?
A cash only business would more than likely lose a customer because many people NEVER carry cash. This will put customer attrition at risk, as they will be more inclined to shop elsewhere.
This is especially more prominent since Covid-19, when many people went cashless to reduce the risk of spreading the virus. Covid 19 may not be at the forefront of everyone's mind, but the change has stuck. According to UK Finance, Debit Cards were the most used payment method at 48% of all payments made in 2021. This was followed by contactless, including paying with a watch or mobile, at 36%. Cash fell to 15% of all payments.
Many people even believe we are moving towards a cashless society.
So does cash only actually save the business money?
The short answer is NO. It costs the same, if not more for the bank to handle cash payments over card. Cash is also less secure, as it’s difficult to track, can be counterfeit, and is more time-consuming to process.
As an accounting firm, we also find that ‘cash only’ is a bit of a nightmare. When it comes to processing revenue, you need to keep track of all of your cash, both physical and digital. Digital being easier to keep track of, as this is an automatic process. You need to manually input data for cash transactions. Cash can also go missing or miscounted, so the risk of being a cash only, far outweighs the pros.
In 2022, according to the Bank of England, 1 in 30,000 banknotes were counterfeit. This may seem low, but at any one time, there are around 4.7 billion genuine banknotes with a face value of £82 billion in circulation. Credit card fraud is becoming more commonplace, which is expensive, as this leads to chargebacks, and the risk of the payment not going through.
In addition, those businesses that carry a large amount of cash are more at risk of being robbed. As unlikely as this sounds physical cash is easier to take than digital and is virtually interchangeable. You will need to take physical cash to the bank and would need to go frequently to ensure you don’t have stacks of money in-house.
Unlike credit cards, cash grants you access to the money immediately, compared to a business who sets up extended credit. You won’t need to chase payments, saving time and improving cash flow.
We appreciate that finding an accountant who can help with these things, can be difficult.
Acumenica help out cash pressured businesses day-in, day-out. Do you think Acumenica could help your business? The next step is to book a call with an Acumenica accountant so we can find out a little more about your business and how we can help you. Definitely no hard sell and no obligation.
Visit our Contact Page to get in touch. Or you can email info@acumenica.co.uk or call 03330 166559.
FAQs
So does cash only actually save the business money? The short answer is NO. It costs the same, if not more for the bank to handle cash payments over card. Cash is also less secure, as it's difficult to track, can be counterfeit, and is more time-consuming to process.
Why is it important for a business to have enough cash? ›
Without generating adequate cash to meet its needs, a business will find it difficult to conduct routine activities such as paying suppliers, buying raw materials, and paying its employees, let alone making investments. And it should have sufficient cash to pay dividends and keep its investors happy.
Why would a business take cash only? ›
Deciding to accept cash only will save you money in business expenses. There is no need to invest in credit and debit card processing machines and no need to pay the fees associated with credit card transactions. Not to mention, money will not need to be refunded due to chargebacks.
Why is cash important to a company? ›
It's the stream of money coming in and going out that keeps operations running, pays bills, and helps a company to grow. For small business owners and entrepreneurs, managing cash flow isn't just about bookkeeping; it's a critical part of ensuring the financial health and longevity of your enterprise.
What happens if a business doesn't have enough cash? ›
Ultimately, if you're unable to pay your suppliers, your staff or your debts – you could end up losing your contracts. If the loss to your reputation doesn't do it, then your poor credit score might.
What is the advantage of cash for a business? ›
Cover day to day operations. Having good cash flow means you don't need to worry about covering day to day short term expenses. You can pay your staff salaries, suppliers and other overheads meaning you can run your business confidently without disruption.
Why cash is better for small business? ›
"Paying in cash typically saves the small business owner between 2% and 3% of the transaction price in interchange fees. Interchange fees are the fees charged by the bank, the processing company and card network to process a credit or debit card transaction," Johnston said.
What is one reason why cash is important to a small business? ›
The management of cash is very important as cash allows a business to pay its bills. The main cash payments a business makes include: payments to suppliers. payments to employees.
What happens if a business doesn't have cash? ›
At the end of the day, a lack of cash will kill a business. Since the GFC, banks have been paying increased attention to the cash flow position of their business customers – more particularly 'free cash flow'. So what is free cash flow? Regardless of size, the principles of running a business are the same.
What are the risks of accepting cash? ›
Cash-only businesses may also face greater security risks from gangs and criminals. Security Concerns: Handling large amounts of cash can pose security risks, including theft and the potential for employee fraud.
An effective cash management control system is important for the long-term success of a business. It reduces the amount of idle cash in a business and ensures that the cash is being put to productive use.
Why is cash collection important in business? ›
Cash collection in financial management plays a vital role in ensuring a company's financial health and stability. Accurate and efficient cash collection practices are essential for managing cash flow, making informed financial decisions, and maintaining a sound financial position.
What is the role of money in a business? ›
Money is a liquid asset used to facilitate transactions of value. It is used as a medium of exchange between individuals and entities. It's also a store of value and a unit of account that can measure the value of other goods.
Why would a business be cash only? ›
Pros. Accepting credit card payments for small business can be overwhelming. And for some small companies, accepting multiple payment options isn't a priority. You might choose to only accept cash because of factors like the price of your products, number of employees, and credit card fees.
Why businesses must have enough cash? ›
If a company cannot purchase new inventory, it will slowly become unable to generate new sales. If a company cannot afford its operating expenses, it will eventually go out of commission. Either way, “Cash is King” in keeping a business alive.
Why is too much cash bad for a business? ›
More often than not, a cash-rich company runs the risk of being careless. The company may fall prey to sloppy habits, including inadequate control of spending and an unwillingness to continually prune growing expenses. Large cash holdings also remove some of the pressure on management to perform.
Why is it important for business firms to hold cash? ›
Researchers have offered multiple explanations, including flexibility and taxes, which we review below. But our work adds another explanation that we call “precautionary cash holdings.” In short, companies hold cash because it helps them avoid premature failures that decimate shareholder value.
Why is a cash budget important in business? ›
It ensures the timely settlement of payments, contributing to smooth financial operations. The cash budget provides opportunities for the profitable investment of surplus funds. It allows for the structured planning of both short-term and long-term loan repayments, promoting financial discipline.
Why is it good for a company to have a large amount of cash? ›
Good Reasons for Extra Cash
For starters, a persistent and growing reserve typically signals strong company performance. Indeed, it shows that cash is accumulating so quickly that management doesn't have time to figure out how to make use of it.
What are the needs of cash in business? ›
In terms of the amount of cash needed, there's no real consistent rule of thumb. Consider having at least three to five months of operating cash on hand, that way you can cover any costs that pop up without an issue. There is a balance. You want to deploy cash and have it working for you.
