Small Business Cents

[#1]

The Small Business Cents blog recently published an article on accept debit and credit cards: Credit and Debit Cards - To Accept or Not to Accept? The article highlights the comparison between credit and debit cards and which is the better payment option for a business.  The article makes clear that if you're going to accept one, its easy to accept other - but what if you don't want to accept either?  "Cash only" businesses still exist in today's society but are they missing out?

Accepting Cash Only

Accepting cash is the most commonly accepted and reliable form of payment for a business.  Many small businesses today still operate as "cash only" merchants.  Years ago this wouldn't have been uncommon but with today's advances in technology, business owners must ask themselves if they're hurting their bottom line by limiting payment options.  If you're thinking about starting a "cash only" business or if you're considering expanding your current payment options, be sure to go over the pros and cons of only accepting cash before you make your decision...

Pro Cash payments ensure merchants that they receive funds immediately.  Upon each transaction, the merchant immediately has the appropriate amount of cash in hand without the worry of waiting periods or not getting paid at all.

Pro  Cash is the simplest form of payment and therefore involves less bookkeeping.  For a business, not only means less stress and hassle, but it also may save money in the time and labor it would take for a bookkeeper to maintain additional payments.

Pro There is limited risk of fraud when accepting cash only.  Although there have been cases of counterfeit money, it's much less common than other types of fraudulent payment.

Pro "Cash only" merchants don't have to worry about third-party factors or fees that come with other payment options.

Con Because customers are carrying less cash with them than they used to, it is no longer the most popular payment option.  If you sell higher priced items, there is a good chance that a consumer would not have enough cash on them to make the necessary payment.

Con Your business may lose customers by accepting cash only.  As card payments become more and more popular, many consumers expect this to be an option when making purchases.  If they find that a particular store only accepts cash, they may feel inconvenienced and seek out a competitor where plastic is accepted.

Accepting Card Payments

Card payments have become significantly more popular over the last decade. They are convenient, flexible, and have become increasingly important in business commerce. If you're business is considering what forms of payment to accept or if you'd like to expand the payment options of your "cash only" business, be sure to go over the pros and cons of accepting card payments.

• Credit cards allow customers to make payments or purchases by drawing from a reserved line of approved credit
• Debit cards let customers make payments to a business by withdrawing funds directly from their personal checking account - this would be the card more similar to a cash payment

Pro Card payments are evolving into the most common method of customer payment. It gives customers another payment option and enables them to not have to carry a great deal of cash.

Pro Credit cards are easy to use and make paying bills or making store purchases hassle-free for customers.

Pro The convenience of using credit cards generally increases the likelihood of consumer "impulse purchases," which ultimately contributes to an increase in a business' average sale.  Customers are more likely to make these purchases if they have access to all the available funds in their bank account, or access to "credit" funds..

Con Card payments come with an increased risk of fraud.  Although there are laws and security measures that help protect and secure customer information, card payments are inherently more susceptible to foul play than cash.

Con Businesses that accept card payments encounter small processing fees for purchase transactions.  These fees seem insignificant but they can certainly add up.  If your business accepts a lot of small purchases on credit cards, the fees will likely end up eating into your profits.  Setting up the necessary equipment to accept cards also carries additional costs.

Con Card transactions add another layer of detail to your business's bookkeeping practices.  Your business will have to take into account the additional time and resources it takes to maintain these books.

Not ready to make the jump to plastic? 

You can still expand your customers' payment options by accepting personal checks.  By choosing to accept personal checks, you'll be giving your customers a choice when making purchases but you'll avoid the cost and time of accepting card payments.  Be sure to do your due diligence on accepting checks in your state - bounced checks can really hurt a small businesses profits so it's important to avoid this worse case scenario.

The bottom line...?

Accepting card payments will, at least initially, cost your business money and add extra processes in your daily operations.  Many small business owners look at this as a necessary evil.  As card payments become more popular, customers will likely begin to expect a plastic option as a rule, rather than a courtesy.  On the other hand, the nature of some small businesses may make it smarter to stay "cash only".  Flea markets, street vendors, and lawn services are all examples of small businesses that may opt to operate as "cash only".  At the end of the day, your business has to make the decision as to what payment options will create the most success for you.

Additional Resources

• Determining the Best Customer Payment Options for Your Small Business - and Managing the Bad Ones
• Accepting Cash and Checks
• Managing Finances
• Consumer Credit Law: An Introduction to the Fair Credit Billing Act

Message Edited by JamieD on 11-03-2009 01:20 PM

[#2]

I think it depends on the type of customer you serve, if your business is a local shop where transactions are on average $5 or less, I think its fine to stay cash-only; customer are used to paying for small transactions in cash, also it costs more to carryout small transaction.

There's also the issue of trust, some customers might not be comfortable leaving their card details with a merchant in the local market, in these cases the customer is happy to pay by cash. 

[#3]

Thanks for your input jaymar2!  You're right - many businesses that have a great deal of very small transactions find cash a smarter option.

Does anyone else have personal experience or thoughts on the cash vs. credit debate?