Should small businesses consider going cashless?

Saturday, October 22, 2022

It's a (proverbial) jungle out there.

Between skyrocketing prices for raw materials, lingering supply chain breakdowns, chronic labor shortages and decreased spending power, everyone's feeling the heat. But for small businesses that often cannot endure prolonged disruption as well as their mid-size or enterprise counterparts, the pressure is ironically acute and widespread.

Icon art of 90%

A 2022 Bank of America small business survey revealed that almost 90% of entrepreneurs feel the effects of inflation

76% still have trouble sourcing the products they need and almost half endure staffing problems that negatively impact their daily operations.

Icon art of 76%

To offset these blows, many small business owners are raising prices and pouring over their operating expenses, hoping to find a quick and easy way to cut hard costs

Some believe they've found it in the form of cash-only commerce. The logic goes that cutting out digital payments and the costs that go with them — like credit card fees, processing fees and transaction fees — to only accept cash payments will impact their bottom line. And it will. But not in the way they think.

woman giving cash to register attendant

Cash-only businesses face unique challenges

While it does make sense for some folks to only accept cash payments — think, babysitters and dog walkers — for most types of business, it's a bad idea. If you are considering cash-only commerce here are some of the repercussions they could face:

icon of blue cash

Fewer sales: According to NerdWallet, roughly 10% of all consumers solely pay cash for goods and services. That means a business that switches to a cash only model could expect to bring in a tenth of the revenue they did before cutting out debit cards and credit cards. Or maybe less if their clientele consists of younger shoppers who tend not to carry cash at all.

Ultimately, all consumers have and want choices when it comes to how they pay. Your goal should be to reduce friction in the payment experience, not create it.

icon of a blue card

Smaller transaction values: In addition to making fewer sales, small businesses that only accept cash will see lower per-transaction amounts. Bankrate reports that of the people who carry cash, almost half of them (40%) carry $20 or less. Conversely, customers who pay with credit cards tend to spend more. A lot more. Businesses that accept credit cards can expect an average spend per transaction that's 120% higher than those that don't.

icon of blue robber

Greater security risk: There's no denying that accepting debit and credit card payments requires businesses to remain vigilant against fraud and theft. But cash carries a greater risk. Businesses that operate with cash are easy pickings for thieves. Robbery is a real threat, whether it's inside the business or at the bank, as your employees drop off the deposit at the end of the day.

If that sounds too dramatic, try this on: A cash-based business' vulnerability to theft isn't limited to brazen stick-ups. Unfortunately, it's all too easy for employees to pocket cash from the till. The worst part? Because financial institutions can't accurately account for cash until it's deposited, it isn't backed by anti-fraud measures if it goes missing before the deposit. No protections. No reimbursement. Once it's gone, it's gone.

icon of blue clipboard and exclamation

Painful accounting: A lot of small business owners believe that only accepting cash will minimize their accounting, payroll and tax burdens. But nothing could be further from the truth. Cash only businesses are still required to comply with applicable tax and labor laws.

Cash businesses will need to establish a system for manually recording every sale, and reconciling their drawers with their cash transactions at the end of each day. They'll need to track this information and retain all of their records to properly calculate and remit taxes, in addition to meeting recordkeeping requirements. Paying workers in cash demands a similar amount of effort, or more if your staff consists of tipped employees.

It's going to be a lot of work, but all of that due diligence will pay off when the IRS chooses to perform an audit. And they likely will. Kabbage reports that the IRS tends to target cash only businesses because they're the perfect front to conduct and hide illegal activity, like money laundering.

icon of blue chart

Low-ball valuations: Say you want to become a cash only business, but they also plan to eventually sell. It's important to know that establishing and substantiating the value of a cash-based business is tough. Accepting digital payments and using online accounting tools makes it easier to pull the data any potential buyer may need. It's the easier way to ensure you get everything you deserve when it's time to sell your business.

person signing a check

Checks aren't the answer either

Even though checks still play a large role in B2B payments, the days of people writing a check to pay for groceries or their kid's ballet lessons are over. It goes back to the idea that consumers want quick, easy and secure payment options. Popping into a business and dipping a debit or credit card, or tapping a digital wallet at checkout is the type of convenience modern consumers expect.

In addition to simply being an archaic payment method, checks are also rife with fraud.

That's mainly due to the ubiquity of EMV technology, which has made card transactions incredibly secure and driven would-be thieves back to paper checks. Not only are they easy to counterfeit or steal, they take a long time to process. Which is just one reason why fraudsters love them. By the time a business owner or a bank realizes that a check is hot or stolen, it's too late.

woman using credit card and a card reader

Go cashless instead

If you want to make a drastic change when it comes to the forms of payments you accept, consider going cashless instead. In addition to minimizing all of the challenges we listed above and other benefits, going cashless can help you:

Serve more people

Businesses that don't accept cash enjoy a faster check out process that allows them to serve more people. Is it any wonder? Eliminating counting and making change — which is prone to error and made difficult by a national coin shortage — gives you more time during the day to increase your sales volume.

Keep them coming back

Using a POS system that accepts digital payments and tracks your consumer base's purchases makes it easy to launch a rewards program. Business owners aren't the only ones feeling the pinch of inflation and economic stress. Savvy buyers are looking for programs that reward their loyalty with special coupons, deals and discounts.

Going cashless can also give you valuable insight in consumers' overall buying behavior. Electronic transactions produce data that drives strategic decision making, giving you the information you need to order the right amounts of the right products. Cash-based businesses would have to pay for market research, costing them extra time and money.

A word to the wise: If you are interested in going cashless, it's important to check to ensure doing so wouldn't violate any state or municipal laws.

Massachusetts, Rhode Island and New Jersey have laws banning cashless businesses, in addition to several cities, including San Francisco, Philadelphia and New York City.

To keep up with the latest news and trends in the payments technology space, visit our blog.


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