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The Cost of Cash Only

Pay CashSticking to a “cash only” system may seem like the simplest way to run your business and ensure consistent cash flow, but when you don’t offer customers the opportunity to use other forms of payment, including credit and debit cards, you miss significant opportunities to build your business. Here’s a look at the cost of operating a “cash only” food service operation, and why opening your mind to additional forms of payment can lead to more revenue and profitability.

Your customers spend less when they pay with cash

You may not like the idea of payment processing fees that are required in order to accept debit or credit cards, but such costs are minimal compared to the potential improvement in your average order sizes. As cognitive scientist Art Markman, Ph.D., explains in a Psychology Today article, people tend to be less price-sensitive when they pay with credit, compared to parting with tangible cash. He also cites a study specifically conducted for the restaurant industry indicating that when customers see a major credit card logo when paying for their order, they tip more than they would in the absence of a card logo.

You’ll lose most of your potential audience

Javelin Strategy & Research estimates that just 23 percent of transactions will involve cash by the year 2017; The Huffington Post reports that 81 percent of money spent in full-service restaurants is now done by way of credit, debit or prepaid card. In response to customer demand around payment options, it’s estimated that 92 percent of restaurants now accept credit cards. Operating with a “cash is king” mentality presents a barrier to reaching the majority of your potential market and is an inherent competitive disadvantage in the eyes of the customer — despite your best efforts to provide exceptional service, food and prices.

It’s not as tough to accept credit as you think

If the perceived cost of accepting credit and debit cards is the reason you’ve maintained a “cash only” position, many options tailored to suit the needs of small businesses and startups now exist in the payment processing space. Accepting credit cards no longer requires bulky equipment or long-term contracts. In fact, accepting credit cards may allow you to transition to a less cumbersome point-of-sale alternative than you currently use for cash, such as a “dongle” — a small device that plugs into the jack of a smartphone or tablet. Though merchants who accept credit cards do incur payment processing fees ranging anywhere between 0.95 percent to more than 2 percent per credit card transaction, those rates are significantly less costly than the lost opportunity a cash only model presents. If you’re truly concerned about your ability to absorb the costs of accepting credit cards, you can also mandate policies around minimum purchases required to pay with a credit or debit card, and/or raising menu prices slightly to make up for the additional processing costs.

You take on unnecessary operational burdens and risk

A cash-only model may seem like the easiest way to handle income, but it presents operational inefficiencies with inherent costs, including the time and fuel expenses associated with driving to the bank to make manual deposits, the risk of human error in giving customers the wrong amount of change for a purchase, and possible theft. Many payment processors now deliver electronic payment for credit card purchases directly to the merchant’s bank account in as little as 24 hours.

You can’t give customers convenience

When you only accept cash, transaction processing tends to be longer, adding to wait times, and inconveniencing customers to the point that they may choose your competitor out of convenience. Additionally, there’s a cost associated with that customer who places an order, only to discover that he or she can’t pay for the order once it’s ready because he or she didn’t realize you’re a cash only restaurant.

Cash is no longer king in the collective consumer mind, even for small purchases like coffee and snacks. Though accepting credit and debit cards does present a cost you may not bear with a cash-only business, the fees are minimal compared to the lost opportunity you face today, and will continue to battle, as cash becomes a less and less popular form of payment over the next few years.

About Kristen Gramigna

Kristen Gramigna is Chief Marketing Officer for BluePay, payment-processing company for restaurants. She brings more than 15 years of experience in the bankcard industry in direct sales, sales management, and marketing to the company and also serves on its Board of Directors.

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One comment

  1. I agree with what you’re saying, but “between 0.95 percent to more than 2 percent per credit card transaction”? Ha ha ha ha ha. I have (what I believe to be) pretty good rates (because I shopped around), and it averages right at 3%. The lowest monthly fee I see is 2.4%. I’d be ecstatic if it were 0.95%.

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