While growing increasingly more rare, there are still businesses operating today that only accept one form of payment: cash. In the modern age of card transactions and mobile payments, cash-only businesses stick out like a sore thumb and remind customers of simpler (and less convenient) times.

Some examples of cash-only businesses include:

• Laundromats
• Nail salons
• Food carts and food trucks
• Mom-and-pop shops
• Farmer’s markets
• Mechanics, handyman services, and repairmen
• Street vendors (art shows, public performances, musicians, etc.)
• Tutors
• Pet care

Some of these businesses fit the cash-only formula better than others and may debatably benefit from staying cash-only, while others are more likely to be losing out on business due to their limited payment options.

Because merchants may be curious about which payment options to accept and whether the cash-only model might work for their business, this article will focus on the benefits and drawbacks to a cash-only system and which storefronts are best suited for it.

Why businesses choose to be cash-only

Equipment with limited payment options: To put it simply, some businesses were literally made for the cash-only payment model in that they run off older equipment designed to accept only bills and coins. Laundromats are a good example of this, as are merchants in the business of managing older modeled vending machines.

New machines now have card integration and can even accept mobile purchases, but making the switch could be a hefty investment that some merchants can’t justify.

Payments planned in advance before service: In the case of tutors, freelance mechanics, and other services in which someone contracts themselves out to complete a job, the rate or price of the service is typically discussed beforehand (also known as an estimate), which means customers have time to collect the amount of cash they’ll need to cover the charge (or charges if it’s a continual routine service).

This delay between requesting a service and then paying for it allows for these businesses to operate as cash-only and avoid having to implement card services. They’ll be able to tell their clients ahead of time which payments they accept and leave it up to them to adapt to their conditions.

Belief that they’re avoiding taxes: Some cash businesses choose to operate as they do under a false idea that by doing so they can report less taxable income. This is because cash payments are at the mercy of merchants to be accurately reported, unlike card and mobile payments which have automated recordkeeping.

But these businesses are one audit away from disaster with the IRS, and risk losing their seller’s permit and other business licenses if found out (on top of increased fraud penalties). The IRS is aware that some cash-only businesses attempt to report false incomes, so they’re on the lookout and have systems in place to uncover this deception.

Advantages of operating as cash-only

Less overhead due to no processing fees: To accept card and mobile payments requires modern POS systems; and to own, maintain, and use these systems can be costly, especially when compared to the expenses that the cash-only alternative accrues.

When a customer pays in cash, the full amount of the payment goes toward your business. With card payments, however, each time a card is run (or a mobile payment is made), a percentage of the payment is taken. Additionally, there is often also a “per card transaction” fee.

These startup costs and continual processing costs can be an overwhelming prospect to new merchants and businesses with tight budgets. For this reason, a cash-only model can be appealing until it’s affordable to implement card payments.

Immediate payments: Card payments take time to process and travel through the card network, resulting in a delay between when you run a card and actually see the funds transferred into your account.

Cash payments, however, are immediately yours at the moment of payment. This is understandably a huge perk for businesses that rely on being able to have easy access to their profits as soon as possible.

Avoid chargebacks: Furthermore, card payments can result in chargebacks. A chargeback is when a merchant is required to return funds to a cardholder due to an issuing bank completing an investigation on a disputed purchase and finding the transaction fraudulent. This can occur months after a purchase is completed (see our article: What are chargebacks and how to prevent them)

However, businesses using cash payments don’t suffer from this problem. Cash payments are theirs to keep.

Disadvantages to operating as cash-only

Loss of customers: For all the advantages that a cash-only model might bring you, they quickly lose their luster once you have to turn away a customer due to not accepting their preferred choice of payment. As card and mobile payments become more and more popular every year, running a cash-only business can make your company standout for the wrong reasons. It’s in every business owner's best interest to make the customer payment process as easy and seamless as possible, and this could mean accepting both card and cash payments.

Losing out on ecommerce integration: The online marketplace has grown exponentially in the past few decades, and maintaining an online storefront can now make or break certain businesses. But successfully doing so requires using the online’s standard payment option: credit and debit cards.

Cash-only businesses simply can’t make full use of online integration as they’ll have to limit their sales to local cash payments, thus contradicting much of the reason to enter the ecommerce field. While they can use the digital realm to raise awareness about their business, they’re limiting themselves from a host of other benefits the online marketplace could bring them if they accepted other forms of payments.

Cash payments are also susceptible to fraud: When the word ‘fraud’ is uttered, most minds visualize credit cards, bank statements, and stolen data. But cash payments can also be fraudulent through counterfeit bills.

The United States Treasury estimates that somewhere between $70-200 million dollars in circulation are counterfeit, creating a need for businesses to pay just as close attention to cash payments for suspicious behavior as other merchants do with card payments. This means training employees for proper cash handling and counterfeit inspection, and could also mean investing in counterfeit detecting tools.

Increased manual entry/human error: Card payments and the systems in place to accept them make for easy and accurate accounting. Rather than having to keep careful track of cash receipts and then manually count up your drawer at the end of the night, modern POS systems automate this process for you, for all the different methods of payments.

Automating this process not only saves you time, but can end up saving you in costs from errors that would have occurred if you or your workers were entering the information by hand each day.

Easy documentation: Electronic payments make for automated and streamlined record keeping, which can prove crucial in allowing you to make better business decisions. Payment processors can track this data and present to you in real time the statistics of your business: what’s being sold, what’s not, product quantity, most popular payment options, busiest sale hours, etc. Save time and worker hours and let the electronic payments do the data entry work for you.

These records can also prove crucial when facing an audit. Being able to easily transfer accurate transaction data to the IRS ensures you’ll move through the process quickly and more likely without any issues. Compare this to a cash-only business audit in which receipts have to be found, organized, and then commonly presented incomplete to the IRS, creating a slower process with potentially numerous problems.

Closing thoughts

Should there be cash-only businesses? While a cash-only business will create some inconveniences on both the merchant and customer, there is still an attractive option to new business owners due to the low cost of entry to accept cash payments. Specifically, merchants with a small business that is deliberately local and specializes in making a large volume of low cost sales could benefit from staying cash-only.

But even for these specific businesses, the larger benefits and opportunity for growth from accepting electronic payments is debatably too good to pass up. It’s a long term investment that certainly pays itself off through automated record keeping, customer convenience, and online integration.

As consumers grow more individualistic toward their preferred payment option, it’s in every merchant’s best interest to invest in modern payment processing that allows them to accept various forms of payment and not leave any customer behind.

Looking for a partner who can help you enable electronic payments at your business?

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us.