Can your business afford to go cash-only?

Can your business afford to go cash-only?

Taking plastic can be convenient for consumers -- yet, because of swipe fees and other merchant account-related costs, it can be expensive for merchants. So some small businesses say "no" to plastic and "yes" to good old-fashioned cash.  But could going cash-only end up costing your business?

The cost of taking plastic
Swipe fees -- the portion of each transaction a bank takes when a consumer swipes his credit or debit card -- cost merchants and their customers almost $50 billion annually, according to the National Retail Federation (NRF).

Since October 2011, when the Dodd-Frank Wall Street Reform Act's Durbin Amendment went into effect, most debit card swipe fees were capped at 21 cents (prior to the amendment, merchants paid a percentage of the transaction amount). For merchants selling expensive items, that's good news. Yet the card networks are making up for their losses by eliminating the discounts they previously provided on transactions under $15. And that's bad news for smaller merchants whose livelihood is earned one $5 purchase at a time -- coffee shops, doughnut shops, delis and more.

The pros and cons of cash-only
Because card transactions can be so pricey to process, accepting only cash might seem like an attractive option to merchants feeling the pinch. Yet operating as a cash-only business has both benefits and drawbacks, says the U.S. Small Business Administration (SBA).

Pros: Cash costs a merchant nothing in transaction costs, is easy to accept and eliminates merchant account costs and fees.

Cash-only transactions also eliminate the possibility of credit or debit card-related fraud and security breaches -- which can be expensive to prevent and to deal with after they occur.

One of the biggest benefits for cash-only merchants is the immediacy and dependability of cash payments. Cash-flow problems are often significant for small businesses, and cash-only merchants receive their payments the moment the transaction is conducted.

"With each transaction, your business immediately receives the appropriate payment amount without the worry of waiting periods or not getting paid at all," notes the SBA.

Cons: In an article entitled, "Doing Business with Cash Only," Dean L. Swanson, a counselor with nonprofit business counseling/mentoring organization SCORE, acknowledges that many businesses operated on a cash-only basis years ago. However, he writes, "These days, it may not be that simple because a cash-only business would limit its potential customers."

Merchants who accept only cash risk alienating plastic-paying customers -- and losing potential new customers. While cash-only is often easier for the merchant, it can be less than convenient for the customer.

"Customers who do not have enough cash on them will have to walk away from a purchase they would otherwise make," notes theSBA. And, in an increasingly cashless society, more and more customers may have to walk away.

According to a recent Intuit GoPayment survey, 55 percent of the United States' 27 million small businesses currently do not accept credit cards. Intuit estimates that those almost 15 million merchants potentially lose $100 billion in sales every year -- or about $7,000 per small business -- because they are likely to lose customers to other merchants that do accept plastic.

In addition, while a cash-only business removes the possibility of credit card fraud, it does not eliminate all risks to the merchant. Keeping large amounts of cash in your store adds the risk of both internal and external theft to the picture.

Beyond the numbers
The decision to go cash-only (or not) should not be based solely on numbers, however. Consider the type of business you have and your customers. What would be in your -- and their -- best interests?

"The nature of some small businesses may make it smarter to stay cash-only," according to the SBA. Some common cash-only small businesses include street vendors, flea markets, lawn service providers, neighborhood delis and coffee shops.

Merchants should also take into account whether the bulk of current customers pay with cash or plastic, and what the average transaction price is. If the normal purchase is under $20, for example, cash-only is a more realistic option than if your business's average transaction is $100, which is probably more cash than the average shopper has in his or her wallet.

Or, offer incentives
If your business wants to encourage customers to use cash but still wants to offer them the convenience of using cards, consider offering them incentives. In the past, card networks' contracts with merchants could prohibit merchants from offering incentives for using other forms of payment -- like another network's cards or cash.

Now, merchants can offer incentives (like discounts) to customers who pay with cash. By doing so, your business can urge customers to pay with cash -- but not lose their business if they can't.

Published: August 17,2023