Should Small Businesses go Cash-Only?

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Cash-only businesses are often thought of as a thing of the past. In reality, the number of cash-only small businesses has actually made a small comeback in recent years. The reason? By not accepting digital transactions such as credit card payments or debit card payments, merchants save money on processing fees. Of course, the vast majority of businesses do accept these forms of payment for a number of reasons as well.

With this in mind, today we will review the benefits and drawbacks of operating a cash-only business, review some concrete numbers, and attempt to answer the question: should small businesses consider operating as cash-only?

The Benefits of Owning a Cash-Only Business

The Benefits of Owning a Cash-Only Business

While there are many intricacies and nuances which go into deciding to be a cash-only business, there are three primary benefits of going this direction:

Cash-only businesses do not need to pay transaction fees or service charges. Accepting any form of electronic payment will lead to your business incurring fees. These fees are charged by the credit card unions, merchant service providers, and so forth. These charges are generally calculated as a small chunk per transaction.

Cash-only businesses are paid immediately. Credit card purchases typically take multiple days to settle. In this case, “settlement” means money transferring into the merchant bank account. This delay can sometimes cause consternation for small business owners.

Cash-only businesses carry virtually zero risk of fraud. Issues like chargebacks and account terminations go out the window for cash-only operations. This can be a load off your mind and can protect your business long term.

Potential Drawbacks of Cash-Only Operations

Potential Drawbacks of Cash-Only Operations

There are certainly advantages to operating as a cash-only business. So why do most businesses choose to accept credit, debit, and EBT payments? Here are a few reasons why:

Customers generally prefer to pay with credit or debit cards. If you subscribe to the idea that the customer is always right, cash-only may not be your best bet. About 90 percent of retail transactions today are electronic. 

First time customers may not notice your business is cash-only until it is too late. Many people simply don’t carry cash anymore. This is particularly true of younger generations who grew up with electronic transactions as the norm. This can lead to situations where your customers are literally unable to make payments when they go to check out.

Cash businesses are harder to bookkeep and are more susceptible to IRS audits. A fringe benefit of accepting electronic payments is that modern systems track the transactional information for you. These means cleaner books and lower chances of being audited.

Understanding Credit Card Processing Fees

Understanding Credit Card Processing Fees

We have referred to credit card processing fees as a potential reason to go cash-only, but how do they work exactly? There are actually four (4) primary pricing models for credit card processing services, each of which comes with its own advantages and disadvantages.

Most businesses will opt for some variation an interchange-plus or membership-based merchant services agreement. In either case, merchants are charged by the credit card companies per transaction. These fees are generally set by the credit unions, which is why certain businesses accept certain credit cards but not others.

Merchant service fees are more flexible. This is why small businesses should choose carefully when selecting a merchant service provider. Not only do merchant service providers facilitate credit card and other electronic purchases, but they can offer services like fraud protection, recurring payments, and even enterprise resource planning (ERP).

Small Businesses that Still Accept Cash Only

Not all business types are cut out to be cash-only. However, many common businesses make the cash-only business model work for them even in the digital age. Here are some common businesses which still accept cash only:

  • Nail salons: a large majority of nail salon purchases are still made in cash, with about 1 in 10 salons operating as cash-only businesses.

  • Mom and pop restaurants: less common but still applicable, smaller restaurants and food trucks have also successfully adopted cash-only.

  • Laundromats: perhaps the most traditional cash-only businesses which still operate in large numbers, most laundromats or communal laundry units are coin-operated.

  • Nurseries/Christmas tree businesses: Christmas trees are a billion-dollar industry in the United States. Since these businesses are often temporary or in a non-traditional location, customers may expect to pay with cash.

True Merchants Helps Small Businesses Accept Payments of All Kinds!

True Merchant is proud to offer payment processing solutions which are simple, secure, and supported by a qualified team of industry professionals. Our products range from online payment solutions, credit card machines, mobile credit card machines, and of course payment processing.

At True Merchant, we understand that choosing a payment processing service is not what most business owners look forward to. It can be daunting, confusing, and it isn’t the most thrilling part of operating a business. However, working with a well-established payment processor will allow your business to meet customer expectations for convenience, stay protected from fraudulent activity, and avoid costly fees.

This is a very important decision for any business. Contact True Merchant today to learn about how our payment processing services can help your business reach the next level!