As a business owner it’s important to close every sale, maintain a healthy cash flow, and deliver a good customer experience. And how you let customers pay is a big part of that.
Whether you should accept checks, cash, peer-to-peer apps, or cards really depends on the type of business you run and who your customers are. So the most important thing you can do is understand each type of payment.
While consumer preference for paying with cards is growing, don’t believe the headlines — cash and checks aren’t going away any time soon. Consumers continue to pay cash for small transactions and use checks for large ones. And many business owners continue to prefer to accept cash or checks.
Business owners tell us that they prefer paper because they think it’s cheaper and safer, and they get paid faster when they use it. But there are hidden costs and risks associated with accepting cash and checks that many people overlook.
Let’s bust a few common myths about accepting cash and checks at your business.
Myth #1: It’s cheaper
Research shows that cash-handling costs range from 4.7 to 15.3 percent of revenues for businesses that accept cash. The majority of those costs are associated with starting and closing drawers at the start and end of the day.
Said another way, for every $100 a business makes in cash, it’s spending $4.70–$15.30 to handle all the costs associated with managing the drawer, preparing transfers, making change orders, dealing with possible theft or fraud, and auditing. Fewer cash transactions means less time counting money, less time making change, and a lower likelihood of mistakes or theft.
Myth #2: It’s safer
All payment methods have some risk associated with them. Studies indicate that funds theft and check fraud are the most common forms of fraud threatening small business owners. And small business owners are indeed at risk: 70 percent of check fraud happens to businesses with fewer than 100 employees. Besides the obvious detriment to your business, employee fraud can also create a toxic culture for your staff.
With checks, businesses risk receiving bad or false checks, which mean a loss in funds, inventory, and time as you track down proper payment. Which leads us to our third myth:
Myth #3: I get paid faster
We often hear from sellers that they like accepting cash or checks because they feel it gives them more control over when they get paid. Transferring cash or checks happens on their schedule, so they can better control their cash flow.
What many business owners forget to factor in is the time it takes to visit the bank or schedule pickups, and for the funds to clear. Checks, in particular, can take several business days to clear, holding up your cash flow for a week or more.
Meanwhile, credit card processors have worked hard to make sure you can get paid fast. If you accept credit cards with a company like Square, you see funds in your account in one or two business days. You can even choose to get same-day or instant payments.
So what can you do?
We don’t advise cutting out cash or checks — for many businesses, these are significant sources of income, and for some customers, they’re a simpler way to pay. Starting to accept additional payment methods like cards can benefit your business by shortening the time it takes to get paid, mitigating the risk of check fraud and employee theft, and reducing costs associated with taking payments.