As a business owner, you’re continuously look for ways to lower costs, optimize profits and improve services for your customers. One recent idea that many businesses are thinking about is whether or not it makes sense for their business to go cashless.
What does it mean to go “cashless”?
In the simplest sense, going “cashless” is just as it sounds: Customers are prohibited from using cash as a method of payment. Proponents of the cashless movement cite advantages like efficiency, convenience, and even greater safety for employees. Others have noted that cashless businesses could be discriminatory, considering not all consumers have bank accounts or the technology to purchase from cashless businesses.
Some businesses are inherently set up to be cashless, such as those that are ecommerce-only. Other types of businesses, like fast-food restaurants and retail, have traditionally accepted all different forms of payment, including cash.
Before you decide to take the leap to make your business cashless, there are a few critical things to consider. We highlight three major factors to think about before making your decision:
Three critical considerations before your business goes cashless
1. You could gain increased business efficiencies that boost volume and reduce losses
When determining if going cashless may be right for your business, it’s important to look at the types of transactions you have and how your bottom line is impacted, particularly regarding two of the leading arguments made in favor of cashless operations:
- Going cashless will set your business up for improved cash management: All transactions are recorded electronically, so there’s no manual counting of cash going in or out (and, thus, reduced miscalculated expenses) and there are fewer opportunities for employee or outside theft.
- Going cashless can improve customer convenience: Several businesses say that the differences in how long it takes to process cash exchanges versus electronic transactions can also make the difference between quick lines with more people served, or customers leaving due to delays.
Though these are advantageous aspects to going cashless, be careful to measure them against what you could lose in taking away the cash payment option from your business.
2. You could lose many of your current and potential customers
Depending on where your business is located, what you do and who you serve, customers who use cash may still represent a significant piece of your current or potential business.
While it may seem like the majority of transactions today are already cashless, a 2018 report by the U.S. Federal Reserve, called the Diary of Consumer Payment Choice (DCPC), shows that people used cash for approximately 30% of payments and up to 55% of transactions under $10. It’s also estimated that approximately 21 million U.S. consumers don’t have bank accounts and, therefore, don’t have debit or credit cards.
Even if most of your customers pay by alternate means, you may alienate or prohibit access to a large portion of your target audience if you go cashless. Populations that are already vulnerable become even more so in a cashless society: Low-income people, immigrant populations and seniors often fall within this group.
For these reasons, cashless businesses are sometimes considered discriminatory. Some cities and states have already prohibited businesses from going entirely cashless, including Philadelphia, PA, San Francisco, CA, and the states of Massachusetts and New Jersey. Even if your city and state don’t have prohibitions against going cashless, you should determine if this is the right move given the repercussions it may have on your business and community.
3. Cashless transactions may reduce – or increase – your per-transaction costs
While many businesses that go cashless say that it saves them significant costs on staffing registers, counting cash and making bank deposits, going cashless isn’t without its own costs, too:
- When considering going cashless, you need to figure out the costs related to processing every transaction, including associated bank or other fees. These fees can range from about 2-5% of each sale and may quickly diminish any savings. How does this compare to the cost of processing a cash transaction for your business?
- If your technology (or power) goes down, how will you continue to serve customers? According to the information technology (IT) company CloudRadar, businesses can lose up to $10,000 for each hour of downtime. Based on your business data, you can figure out how much you stand to lose given that figure. If you decide to go cashless, you need an alternate plan for those occurrences, or you may even need to temporarily close.
To determine what’s best for your business, talk to your customers and advisors
To make the best choice for your business, we recommend that you review any current or proposed local or state regulations and communicate with your accountant and your customers. Also, consider whether it makes sense for your business to continue accepting cash, which could become a distinct competitive advantage in your industry or neighborhood.
We’re here to help, too, and we work with small businesses every day, helping you make wise decisions for your business and providing the education, resources and funding needed to grow. If you want to discuss this topic or any others pertaining to your business, give us a call.