Cash is great. I think all stores should accept it. In fact, there’s been plenty of backlash when stores don’t accept it because it limits consumer choice and can be seen as a form of discrimination against those who don’t have a bank or credit card.
But accepting cash isn’t free. For stores that accept cash-only, or those who pass the 3% charge on to the customer, I think they’re missing something critical: there is absolutely an associated cost with each transaction, and in some cases it might be more than the standard 3% credit card processing fee. It’s just not as obvious.
(I think, in reality, a good portion of these businesses prefer cash because it’s less traceable and they can do things like pay employees under the table and fudge taxable income, but for the sake of argument here we’ll assume people are doing things 100% legal).
I never considered this until recently when I was chatting with a friend who is opening a small business. We were discussing the pros/cons of accepting cash, and for the first time I really thought through the associated costs of cash. You need to:
- Have a register.
- Have almost all denominations of cash and coins on hand to provide change for each transaction.
- Have a system for calculating the change properly.
- Hand back the correct amount of change.
- Provide receipts.
- Manually enter the transaction into your books.
- Count the drawer at the end of the day.
- Go to the bank to deposit the cash.
- Not lose any of the cash or get robbed.
Those are all capital and labor costs that credit cards don’t have. Some of those things can be done with an app like Square, but in most cases these costs are completely unique to cash.
If I was starting a retail location I would accept cash, but I would also attempt to calculate those costs. Some quick research turned up some attempts at industry-wide analysis, but I think the reality is that the costs swing wildly depending upon the business, which is why this is a number that all brick and mortar stores should be paying close attention to.