Business owners lament the cost of accepting credit cards, with retailers paying typically up to 3%. But the costs for accepting cash is higher. According to an extensive research whitepaper published by IHL Group called Cash Multipliers in January of 2018; costs for accepting cash can range from 4 to 15%. A whitepaper on the economics of Interchange regulation by Todd Zywicki from June of 2010 covers areas in addition to those covered by Greg Busek.
Todd Zywicki’s full Whitepaper can be found here; http://laweconcenter.org/images/articles/zywicki_interchange.pdf. From his 63-page report, I will cover five items on costs of cash to the merchant and ten costs to consumers and to taxpayers.
Costs to Merchants according to Zywicki:
- Theft—Employee theft or robberies
- Handling of cash
- Cost of avoiding theft—Security protocols, POS, tracking, security officers
- Check handling costs
- Check fraud
I will cover more on handling costs covering discovering IHL Group’s research. But you might find Todd’s costs of cash and checks to consumers and taxpayers. Most people do not consider them when covering other costs.
- Theft from consumers—Stands to reason that if retailer does high volume of cash that consumers will be carrying cash.
- Costs of avoiding theft—This concerns costs borne by consumers to prevent thefts. Like more trips to ATM to limit cash on hand.
- Tax evasion—Business owners that handle a lot of cash may avoid paying taxes on the cash and thus cost taxpayers through lost tax revenues.
- Costs of printing cash—Cost to taxpayers
- No liability cap—There are limits to losses on credit card from theft or fraud. But no protection or limits of losses when consumers robbed of cash.
- Time and opportunities for obtaining cash—Runs to bank and limited options for large withdrawals only during bank hours and maybe not when needed.
- ATM fees
- Disease transmission—This is seldom if ever considered. Cash is paper with cloth fiber that can absorb viruses or bacteria that can spread illnesses from person to person as money is transferred. You may also want to consider where people carry their cash while you are handling.
- Time for checks—This line is not referring to fraud risks of merchant, but the time added to other consumers in line due to added processing time for checks.
- Ordering checks and overdrafts—These costs are borne by check writers. If no room on a debit or credit card, the card would simply be declined. But writing a check exposes writer to bank fees plus fees from merchants if check is NSF (non-sufficient funds).
When I considered the costs associated with handling cash, I was thinking that overall they would not be excessive. Then I saw IHL Group’s research paper ‘Cash Mulipliers’. If you go to this site… https://www.ihlservices.com and search for “Cash Multipliers” it will show the video of a webinar. Beneath the video it says to get the report, go here. The report is 27 pages. The section on costs is describing the issue and the research completed to get the handling costs of 4-15%. The remainder of the report covers areas that may reduce these costs in some retail segments.
IHL Group’s research includes these costs as part of cash handling:
- Start/ Rebuild Drawer: This is the time that management or cashier needs to count out the drawer to the $50 or $100 starting point. If it takes five minutes for a manager and cashier each five minutes to count down. A full-time employee could take 21 hours per year (5 days per week, 50 weeks per year). Management typically will not recount drawers if tills are stored in the safe.
- Closing Drawer: Is the cashier closing or is management? Costs increase for management closing the drawer. I’m dyslexic. I normally had to count tills three times to be sure the counts matched, and deposits accounted for.
- Pickups: When a manager or key holder picks up surplus cash, there is an expense for the time of doing so in man hours.
- Change orders: Whether within the store or from the bank, change orders carry costs.
- Audits and Discrepancies: Theft is always an issue and to keep it down, management needs to do random audits and resolve discrepancies promptly.
- Prepare and coordinate deposits: When the front-end manager of a large electronics store, deposits were created from each till at closing and added to a deposit till. Then after closing, a final deposit was created with each check listed individually on the deposit slip.
- Cost in Transit (CIT) and Deposit costs: CIT refers to armored vehicles but could be time of manager or owner delivering deposits to bank night deposit box. Deposit costs include fees that many banks impose for daily deposits.
- Bank Charges: These will include statement fees, reconciliation, and change orders sent via armored cars picking up the deposits.
- Cash Shrink: Cash Shrink includes theft, fraud, and other cash losses. Greg says it is where cash “just disappears in the process.”
IHL Group’s 4-15% cost of cash is just on the handling. Todd’s analysis is on the cash and check costs and includes both external shrink (robberies) and cost of security.
The topic of the costs of cash is not to push business owners to accept credit cards. The topic is to give the business owner a complete picture to make decisions on what is best for his or her specific situation.
Future blogs in this category will be providing more details on topics and tips on reducing expenses including security protocols.