Timely resources for sellers

Accepting Cash vs Credit Cards for Your Small Business

What is the true cost of cash when it comes to accepting payment methods for your business? From average transaction times to the cost of an average transaction, here are some of the differences between cash and credit transactions.
Deborah Findling, Editor, Finance
Square

This article is only for educational purposes and does not constitute legal or financial advice. Make sure you consult a professional regarding your unique business needs.

The cost of cash can be high — according to Worldpay in 2015, an estimated £23,145 per SME business is lost annually for cash-only businesses. There are a few things to consider when choosing payment options and different types of payment systems for eCommerce for your small business, from average transaction times to the cost to your business of cash vs credit cards.

Cashless payments in the U.K. were eclipsed by cards payments in 2019, according to a recent report by UK Finance. Card payments accounted for more than half (51 percent) of all payments in the UK in 2019. Debit cards were the most used payment method in the UK with 17 billion payments, of which 7 billion were contactless. Consumer use of credit cards also rose during 2019, up by 7 percent to 3.3 billion payments. All important factors when deciding the types of payment methods your business should accept.
.

The cost of an average cash vs credit card transaction

Many retailers focus on cash-only transactions due to concerns around high fees and costly contracts. The average cost of cash in a cash-only transaction can range from 4-15 percent over retail segments, but some of the top contributing factors include the opening and rebuilding of cash drawers, as well as back-office and banking charges.

Cost of An Average Transaction

  Cash Cashless
Average Cost 9.1% of cash received 1.75 percent in-person payment

Learn more about Square’s Processing Fees.

Transaction time: cash vs. credit

On average, processing EMV transactions take about 2 seconds, speeding up the time it takes for customers to not only make purchases but to move through the line, and is one of the greatest advantages of cashless transactions. As regions slowly reopen during COVID-19, business owners are taking measures to mitigate any sanitation risks that come with cash and credit transactions by employing touch-free and card-not-present transaction methods and to add more versatility to payment systems.

In 2017, payments made using cards overtook cash globally. One of the largest slowdowns in cash vs credit card transactions is counting cash and reconciling books afterwards. On average, according to SME estimates, digital payments acceptance costs 57 percent less than other payment types including cash and cheques.

Learn more about how to use cashless payments.

The physical costs of cash

According to a recent article by the BBC, some business owners have found that going to a cashless model has been cheaper. Mike Keen, owner of The Boot pub in Freston claims he has saved 15 hours a week and thousands of pounds by ditching cash altogether.

In 2018, nearly £30 billion were spent on closing out drawers. Here’s how this breaks down:

Cost of Cash Percentage by Function

Physical Cost Percentage Details
Close Drawer 40.1% Time for cashiers/managers to count and reconcile the drawer with POS or cash register tools
Start/Rebuild Drawer 16.3% Opening drawer from initial deposit to rebuild for next cashier
Prepare/Coordinate Deposits 7.7% Costs associated with preparing or coordinating deposits
Pickups 7.6% Pickups during a shift for too much cash in the drawer or bills that are large denominations
Change Orders 7.5% Cost associated with a cashier requiring change throughout the shift
CIT/Deposit Costs 6.9% Costs of Cash In Transit (armored trucks) or cost of employees to go to the bank to make the deposit
Cash Shrink 6.6% Cost of theft, fraud or other cash loss activities. Cash that disappears in the process
Bank Charges 4.3% Statement fees, reconciliation, cash value fees, and change orders
Audits/Discrepancies 2.9% Costs of redoing counts, auditing tills, and time associated with recounts for discrepancies

As the COVID-19 pandemic has swept the world, Square has been keeping an eye on seller payment trends around cash transactions, credit transactions and safety-first approaches to business. Customers, now more than ever, are considering paying with cash advantages and disadvantages as well as advantages and disadvantages of paying with a credit card. And with Square POS, you can accept payments however the marketplace changes and in the methods your customers want to safely pay.

Deborah is an editor at Square, where she writes about investment, finance, accounting and other existing and emerging payment methods and technologies.