Lately, a lot of businesses have gone cashless, no longer accepting cash as a mode of payment. For those businesses, that might seem like the logical, more secure option. Accepting only credit cards as a method of payment is great, but businesses need to weigh the pros and cons of both modes of payment, cash and card, before settling on one.
Advantages of Accepting Cash
One of the biggest advantages of accepting and using cash is that you always have immediate access to funds. Once a purchase is made, the money is right there to be used for business expenses or to be kept safe for future expenses. Card transactions usually require some time to reflect in your account, and in that time, you might miss a crucial payment, be unable to purchase inventory or pay your employees.
When you use and accept cash, you control your money without having to deal with third-party entities. Accepting credit cards usually involves waiting for a third party to clear payments before the money reaches your account.
There is no cost associated with accepting cash. Every credit card swipe comes with a transaction fee that can be as high as 3% of the transaction. This is usually on both ends, so you lose money due to processing fees, and your customers are likely to incur some fees on their end. Although these transaction fees can seem minute for every charge, they can quickly add up, especially if your business does a lot of transactions over a short period of time.
Cash also has the advantage of not leaving you with debts, which can incur interest rates. Cash forces you to spend just what you have to pay suppliers and payroll, meaning that you will never pay with money you do not have at hand.
Cons of Accepting Cash
Cash is a huge security risk. Accepting cash means that your business can be targeted, especially if you usually have a lot of cash on site. A large sum of money in the register puts you, your employees, and your business at serious risk of theft.
Although accepting cash means your accountant has to deal with only one payment method, keeping track of all payments can be a huge headache. Cash gets lost or stolen, both of which can leave you with gaps in your revenue and expense reports. Then, there is the problem of sorting out which cash is for what. For example, if you sell both products and services, it can be hard to keep track of which cash came from selling inventory and which came from offering your services.
Cash also has the problem of leaving no paper trail to follow. Although you might have a meticulous accountant, this happens more often than you might think. When it happens, you might have a hard time paying taxes.
Using cash also makes it harder to deal with emergencies. If your business finances are tied up, you might not have any money to handle a £500 emergency. With a credit card, you can pay for the emergency and deal with repaying the amount at the end of the month.
Advantages of Using a Card
A credit card makes things a lot easier for fast-paced businesses. Customers get impatient when you stand over a counter counting money so that you can give customers their balance. With a credit card, you accept the right amount, which makes things faster and provides a better customer experience.
Accepting credit cards through the right card payment machine also increases the convenience for your customers. There are card payment machines, such as those from UTP Group Merchant Services, that let customers tap and pay in a few seconds. This is not only convenient for your customers, but it also allows you to do many more transactions in a day. UTP Merchant Services works with established institutions to make it easier to accept payments. With their Faster Processing solution, transactions are completed in less than 24 hours, and within an hour in most cases, as opposed to the 2-4 days you get with other merchants. You can learn more about the features here.
Credit cards are also much more secure than cash. There is fraud protection baked into every credit card, bank, and merchant, which ensures your credit card will not be used for nefarious purposes.
Many credit companies also offer protection for authorised transactions, meaning that you might make a purchase, but the supplier does not deliver the goods or services. In this case, you can file a dispute to get that situation resolved. This is not possible if you pay with cash or cheque.
When you accept credit cards, your business is unlikely to suffer theft as you do not have any cash lying around.
Credit cards make accounting easier. Accepting cards means you have meticulous records of every transaction and every penny you have received. In contrast to using cash, it is very unlikely that you will have missing money when doing your accounting. Plus, the risk of human errors and time wastage during the accounting process is minimised.
Using a credit card means you can transact online or through the phone for suppliers and other businesses that accept it.
Using a credit card for your business transactions also helps you build a line of credit. Almost every business needs financing at one time or another and showing banks and other lenders that you repay debts on time makes you a low-risk lender. This can increase the amount of money you can borrow. A credit card is essentially a short-term loan that needs to be repaid at the end of the month. Doing so and not defaulting gives you all the aforementioned benefits.
Disadvantages of Using Credit Cards
Accepting just credit cards risks alienating customers. Some customers expect to use cash everywhere they shop, and if you only accept cards, they are unlikely to buy from you. By not accepting cash, you will also push away a percentage of people who do not have a bank account, and therefore no credit or debit card.
Although accepting cards minimises the risk of on-site theft and robberies, it does not protect you from security breaches and fraud. Using a credit card means your business and customers’ information will be on a server somewhere. Although the chances of this happening are minuscule, this information can be accessed by determined malicious third-parties.
Another risk to businesses is customers who file fraudulent chargebacks. This leaves you fighting for your money, which can be a waste of both time and even more money.
Although the cost of card readers has been falling for some time, it is still an expense you have to think about before you start accepting credit cards.
Finally, using a credit card for business expenses requires discipline. If you fail to pay on time, you might be listed as a defaulter, which reduces the chances of getting financing in the future.
There are plenty of pros and cons of accepting both cash and cards. Choosing one might be convenient for you, but not for your customers. It is, therefore, important that you have a thorough look at your business and customers to find what would work best for both of you. In an ideal world, every business should accept both cash and card.