Cash is the most commonly accepted and reliable form of payment for a business. Many small businesses operate as “cash only” merchants. Years ago this wouldn’t have been uncommon, but with 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 aware of the pros and cons of only accepting cash.
Pros of accepting only cash:
Cash payments ensure that businesses receive funds immediately. With each transaction, your business immediately receives the appropriate payment amount without the worry of waiting periods or not getting paid at all.
Cash is the simplest form of payment and therefore involves less bookkeeping. For a business, that 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 record other payments methods.
There is a limited risk of fraud when accepting cash only. There are cases of counterfeit cash payments, but compared to other payment methods, fraud is much less common in cash transactions.
Cash only businesses don’t have to worry about third parties or fees associated with other payment options.
Cons of accepting only cash:
Customers who do not have enough cash on them will have to walk away from a purchase they would otherwise make.
Your business may lose customers by only accepting cash. 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 business only accepts cash, they may feel inconvenienced and shop elsewhere.
Keeping large sums of cash on your business’s premises increases the amount of time you’ll spend managing finances and also creates an added security risk.
The IRS requires that you file a Form 8300 if your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions. The same rule applies to cash equivalents such as traveler’s checks, bank drafts, cashier’s checks, and money orders. The form requires the name, address, and Social Security number of the buyer.
The nature of some small businesses may make it smarter to stay cash only. Flea markets, street vendors, and lawn service providers are just a few examples of common cash only small businesses. At the end of the day, you will have to decide which payment options will create the most success for your business.
Want to know more about taking payments for your small business? Sign up to talk to one of our SBDC Counselors today