Today, even small businesses and solo entrepreneurs are relying on digital payment methods instead of cash transactions. The prevalence of wireless credit card scanners and mobile card readers has made it possible for almost anyone to accept cashless payments for virtually any type of transaction.
The option is now so ubiquitous, the concept of a cashless society seems like it may be only years away from becoming a reality rather than a futurist idea.
But, defying the cashless payment trend are cash-only businesses. A cash-only or cash-based business is one that only accepts cash and coin. No credit or debit cards, trades, or any form of payment that requires digital or third-party processing is accepted in exchange for its offerings.
Cash-only businesses are common for small businesses and those that mainly rely on small-dollar transactions, such as cafes, delis, and flea market vendors. Cash-only transactions were also the standard for businesses that couldn’t reasonably maintain a point-of-sale system where they accept payment, such as landscapers, dog walkers, and food trucks.
However, this has changed with more practical and affordable payment processing technologies, such as card readers and scanning terminals that attach to or are built into smartphones.
Why Cash Businesses Are Favored By Some Small Business Owners
Regardless of point-of-sale technology, there are many reasons why a cash business will choose to accept only cash and coin. Accepting cash is quick and straightforward, and it bypasses much of the cost and complication of credit, debit, and check processing. Keeping a business cash-only allows for the free flow of capital without tying up revenue or adding to overhead with processing fees.
The potential for fraud from credit card theft and bad checks, and the resulting chargeback, can also motivate business owners to limit transactions to cash-only.
Some of these benefits explain why many small businesses, while not strictly cash-only, will notify customers that cash is preferred. This is also why some may offer discounts to encourage cash transactions or apply additional fees for non-cash payments.
Important Considerations When Running A Cash Business
Starting a cash business now, despite all the options for cashless payments, is perfectly feasible and can offer other advantages apart from those mentioned, but there are important considerations.
From a business operations viewpoint, cash-only businesses are completely legal but they are more likely to be scrutinized by the IRS and various regulatory agencies. The lack of a digital footprint can lead to tax audits and investigations related to employee records, workers’ compensation, unemployment insurance, and other business requirements.
This extra scrutiny is a response to businesses that attempt to avoid taxes or subvert regulatory requirements through cash-only operations.
Rigorous record keeping and finding an accountant who’s willing to work with a cash-only business owner can reduce liabilities.
While credit card and check fraud can pose potential for loss, keeping large amounts of cash on hand can create its own security risk. A cash-only model is best suited to businesses that aren’t likely to receive a lot of large bills and that have the option to make daily or multiple daily deposits when receiving many cash transactions.
As more customers choose not to carry cash and become accustomed to using credit cards for small purchases, cash-only businesses can be limiting their sales potential, particularly in certain markets. Younger consumers and shoppers who are more likely to spend more if they’re able to pay by credit card will often forgo purchases rather than go out of their way to get cash. Catering to these demographics can encourage more sales, which may justify the added expense of card transaction fees.