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8 Reasons Why the Cash-Only Model Doesn’t Work for Small Businesses

Jennifer Dublino
Jennifer Dublino
business.com Contributing Writer
Updated Nov 16, 2022

Customers want the convenience of multiple payment options.

A surprising number of small businesses still operate on a cash-only basis. While it’s true that cash-only businesses save money on credit card processing fees, the benefits of accepting multiple payment forms far outweigh the disadvantages. 

If your business accepts cash payments only, you may alienate customers, reduce sales revenue and create a poor customer experience. When their needs aren’t met, customers will become dissatisfied and go to a competitor – perhaps for good.

Did you know?Did you know? Insufficient payment options create a point of potential friction in the customer journey. Multiple payment options help create a zero-friction approach and a smoother customer experience.

Why the cash-only model doesn’t work for small businesses

According to the Federal Reserve, cashless payments comprised 57% of all payments in 2021 – up from 55% in 2020. Consumers under the age of 45 used cash for less than 20% of transactions, and customers under 25 opted for cash payments only 17% of the time. 

Clearly, cash payments can limit a small business’s reach. Here are eight reasons why cash-only isn’t the best formula for future growth.

1. The cash-only model limits your sales potential.

Beth owns a boutique; every day, shoppers fill her store. But time and again, when they get to the cash register and see her “cash only” sign, they sigh, put their items back and walk out of the store. She’s missing out on many sales opportunities.

According to Pew Research, 41% of people don’t use cash for purchases in a typical week. Among young people and higher-income individuals, that percentage is even higher. Whether they have only a small amount of cash on them or prefer not to use cash, many people will buy from you only if you accept credit cards

2. The cash-only model makes your business seem old-fashioned.

We live in an era where technology is ubiquitous and tech advances are everywhere. In addition to credit cards, customers have likely adopted mobile wallets like Apple Pay and expect omnichannel payment options. If you’re still using a cash register and accepting cash only, your customers will likely move on to your more modern competitors.

Joe Coffee prided itself on being cash-only for years. It was part of its charm. But then the coffee shop started seeing negative reviews on Yelp, with comments about the fact that it didn’t accept credit cards. The brand changed its tune and accepted cards, and its positive customer reviews skyrocketed.

TipTip: Omnichannel payment options can include in-person payments with a credit card reader or POS system as well as online payments with an e-commerce store.

3. The average transaction is lower in a cash-only model.

Often-cited research from Dun & Bradstreet indicates that the average spend per transaction is 12% to 18% higher when customers pay with a credit card compared to cash. Other research from the MIT Sloan School of Management found that people were willing to spend twice as much when paying with a credit card compared to cash. 

If your customers are limited to purchases equal to what they have in their wallets, they won’t buy as much from you. You have to open up your payment options if you want larger transactions.

4. Cash transactions take longer.

Many of us have experienced a tinge of frustration when the customer ahead of us in the checkout line is painstakingly counting out bills and coins to pay for their transaction. There’s no denying that credit cards and mobile payments are fast and easy. With just a swipe, scan or tap, you’re finished – freeing up the salesperson to help the next customer.

5. The cash-only model makes a business more likely to be audited. 

Cash-only businesses have less of a paper trail than businesses that accept credit cards and electronic payments. Because there isn’t much paperwork to back up expenses and income, the IRS may think a cash-only business is finding a way around paying what they owe in taxes. This makes cash-only businesses more likely to undergo an audit to prove their claims. 

6. Collecting payments via checks is a long, arduous process. 

If you’re in the service industry and wait for clients to mail you checks for payment, you’ll be waiting much longer than you would if you accepted credit cards online. Customers like payments they can make with a few clicks of a mouse. You’ll receive your payments more quickly via an online system than you would invoicing, waiting for checks, calling about payments and possibly re-invoicing.

7. Cash doesn’t protect your customers and your business.

There’s some assurance when customers use cards because there’s consumer protection built into most debit and credit cards. If they trust their transactions, customers are more willing to spend money. Cash doesn’t provide that comfort. 

Additionally, unscrupulous employees may be tempted to steal from your cash register or pocket some cash transactions. Further, thieves who know you’re a cash-only business may target you.

8. Cash can’t compete with credit card rewards programs.

For many consumers, credit card reward points are reason enough to make significant purchases using a credit card. But no matter what kind of customer loyalty program or promotion you offer, you can’t compete with credit cards’ cash-back programs and rewards points. Your customers will likely go somewhere else to find their rewards.

FYIFYI: Cash registers and POS systems can both accept credit card payments, but even high-end cash registers may lack reporting capabilities and have the risk of losing data.

Cash-only businesses

Although a cash-only payment model isn’t ideal for most businesses, some businesses still use this method of handling finances. 

Here’s a list of businesses that typically operate on a cash-only basis:

  • Small, nonfranchised restaurants: Although larger, franchised restaurants tend to accept payments of all kinds, many smaller restaurants with one location don’t. Setting up the ability to accept credit, checks and other payment forms can be a costly expense not in a small restaurant’s budget.
  • Street vendors: Businesses in street vending face similar circumstances. Additionally, the lack of electricity can make accepting other payment forms challenging. However, the best mobile credit card processors can help street vendors expand their payment options.
  • Babysitters: Given that many babysitters are either younger or watch only a few children at a time, there is often no need to set up entire payment systems to stay in operation.
  • Laundromats: Laundromats are supposed to be a convenient method for washing and drying clothes for those without immediate access to washing machines. A cash-only model is often the most convenient way to operate these businesses.
  • Lawn services: Since many lawn service companies operate only during specific months or are needed only monthly, the cash-only model is often the most convenient method of receiving prompt payment.

Bottom LineBottom Line: If you’re looking to grow your business and start accepting credit cards, check out our reviews of the best credit card processors to find one with the features you need at a price you can afford.

Accept more payment methods to grow your business

Many small businesses pride themselves on their cash-only model, thinking it ties them to the past and doesn’t need to change. However, what worked in the past doesn’t necessarily work in an era where technology has all but obliterated cash from the transaction equation.

It’s challenging to grow your business if you operate on a cash-only basis. Credit card processing boosts your bottom line, and the additional revenue more than pays for the cost to upgrade.

Image Credit: cyano66 / Getty Images
Jennifer Dublino
Jennifer Dublino
business.com Contributing Writer
Jennifer Dublino is a prolific researcher, writer, and editor, specializing in topical, engaging, and informative content. She has written numerous e-books, slideshows, websites, landing pages, sales pages, email campaigns, blog posts, press releases and thought leadership articles. Topics include consumer financial services, home buying and finance, general business topics, health and wellness, neuroscience and neuromarketing, and B2B industrial products.