Sick of processing fees eating into your margins? We explore whether it’s realistic or profitable to accept only cash payments.
This article is part of a larger series on Payments.
Running a cash-based business is completely legal, and there are, in fact, certain business types that thrive with purely cash transactions (i.e., vending or laundry operations). Cash-only merchants are free from the burden of merchant account applications and the monthly fees associated with them. However, growing a cash-only business in an increasingly cashless economy and society where shoppers prefer alternative payment methods can be a struggle.
Let’s explore some of the advantages and disadvantages of cash-only businesses and what you should consider when deciding if it is right for you.
Cash-only Business Pros & Cons
|Keeps cost of doing business low||Missed growth/transaction opportunities|
|Faster setup; does not require a merchant account||More susceptible to theft and human error|
|Not affected by chargebacks||Possible increased IRS audits|
Advantages of Running a Cash-only Business
- Low operating cost: Merchants who accept non-cash transactions are subjected to monthly payment processing fees plus incidentals. With a cash-only business, merchants are able to keep business expenses low by avoiding the monthly payment processing cost.
- Faster business setup: In general, non-cash payment methods require a merchant account. With a cash-only business, merchants do not need to apply for one and wait to get approved before they can start accepting payments. Learn more about merchant accounts.
- Free from chargebacks: Businesses that accept credit card and ACH payments are vulnerable to chargebacks (reversal of payment) from fraud. A high chargeback ratio can significantly affect a merchant’s credit score.
Disadvantages of Cash-only Businesses
- Missed customers and growth opportunities: According to the latest statistics, 57% of consumers prefer businesses that offer contactless payment methods, while 41% would not shop at a store that does not offer contactless payments. Explore more contactless payment statistics.
- Susceptible to manual errors: Even with a traditional cash register, a cash-only business is prone to manual errors in terms of cash tracking. It also makes a business highly susceptible to theft.
- Effects of inaccuracies in manual accounting: Without payment processors that integrate with accounting software, merchants will have to do their accounting process manually. As a result, business financial statements are more prone to human errors and attract an increased likelihood of Internal Revenue Service (IRS) audits.
Tips for Successfully Running a Cash-only Business in a Digital Economy
The US government protects the rights of consumers who prefer to pay in cash (learn about the U.S. Payment Choice act).
If a cash business makes the most sense to you as a merchant (see the next section for examples of cash-only businesses), then it’s important to have a strategy that keeps your business competitive. Note the following considerations and cash-only business best practices:
Things to Consider
- Cash-only businesses are not tax-exempt: Although we see some questions about this, cash-only businesses do not have any special tax exemption. Regardless of type, merchants will have to pay business taxes. And unless you have an accountant on retainer or are already using an accounting platform like QuickBooks separately, chances are you prepare taxes manually. This includes deducting employees’ income, Social Security, and Medicare taxes.
On the other hand, some credit card payment software is, at least, partially automated to record taxes.
- You may need to use business software to grow your business: The challenge of growing any business is managing increased inventory and sales. While some cash-based businesses can easily attract customers, they may benefit from POS technology to keep up and efficiently track products, customers, and payments.
- The latest vending machines and laundromat washing machines are equipped with payment cards: Vending machine and laundromat operators will eventually have to replace outdated equipment. Not surprisingly, new versions come with payment card readers. This opens merchants to the opportunity to cater to non-cash paying customers.
- Consider alternative payment methods while encouraging cash payments: This is one strategy to minimize missed income opportunities from non-cash paying customers. For example, cash discounting allows merchants to offer discounted prices for customers who decide to pay in cash.
- Notify customers: Make sure that new and existing customers are aware that you are running a cash-only business. Post notifications that can be seen before they walk into your store and at the checkout counter. If you have a website or business social media page, make sure it’s displayed there too.
- Keep accurate business records: Without business software that automates record keeping, cash-only merchants should develop a system to meticulously and accurately maintain financial records. You should also take the time to properly file a paper trail for your transactions, such as receipts and invoices, to track daily income and expenses.
- Train your employees: An efficient cash-only business needs well-trained employees to operate cash registers and not be distracted when processing transactions. Employees should also be equipped with the knowledge and tools that help spot counterfeit bills.
- Implement business/transaction policies: Merchants should develop strict company policies in handling and recording transactions. Employees should also be well-trained in these policies to avoid mistakes.
- Consider adding a simple peer-to-peer (P2P) payment alternatives: If you are a sole proprietor looking to keep the cost of doing business low, consider simple P2P payment alternatives like Venmo with your cash-only setup so you don’t miss out on sales from customers who don’t bring cash.
Types of Cash-only Businesses
In general, the cash-only business model works for merchants looking for a low-cost business setup. Transactions are always in person (sometimes peer-to-peer), and the dollar value per transaction is also low enough that paying merchant account fees does not make sense. In some situations, cash is required because of the nature of the business.
Below is a partial list of cash-only businesses:
- Vending machine operators that use traditional vending machines accepting cash
- Traditional laundromats accepting cash
- Solo proprietors, particularly those involved in part-time or gig-type services such as babysitting, lawn mowing, and pet sitting
- Micro businesses characterized by low-ticket products such as mom-and-pop shops, farmers’ market vendors, food carts or food stalls, and delis
- High-risk businesses that are particularly having difficulty getting approved for a merchant account, such as cannabis dispensaries
Cash-only Business Frequently Asked Questions (FAQs)
Cash-only businesses are commercial establishments that only accept hard cash payments from customers. These are easy to set up, low in cost, carry low-ticket products, and rarely experience refunds.
Yes, cash-heavy businesses are completely legal. It is also sustainable with the right business types. However, most customers nowadays look for non-cash payment methods, which can result in missed sales opportunities.
Paying employees in cash is also perfectly legal. However, make sure that the proper employee taxes are deducted on a regular basis to avoid being fined by the IRS.
Cash-only transactions can be profitable with the right business types. However, growth may be slower than those that offer alternative payment options.
The list of cash-only businesses is short, but this method of accepting payment is sustainable with the right strategies, even in an economy where cashless payments are growing in popularity. Merchants that prefer to accept cash-only payments should know how to balance the ease and affordability of doing business against minimizing lost sales and plans for business growth.