Question

In: Finance

Suppose you own a small business. Why might it be more beneficial to accept: debit or...

Suppose you own a small business. Why might it be more beneficial to accept: debit or cash versus a credit or check payment?

Solutions

Expert Solution

Though many customers would prefer to pay by debit / credit cards, or by check, the benefits of accepting payments by cash only can be beneficial to a small business in the following ways:

1. For a small start-up, accepting payments in cash is a huge advantage, as it can pay for unexpected expenses immediately.

2. According to the U.S. Small Business Administration, fraud risk is much more common among businesses that accept debit, credit cards or electronic payments.

3. To run a business accepting only cash payments requires very small investment in currency counters and cash drawers.

4. Accepting cash payments allows a small business to keep track of its profits on a daily basis, as all transactions are immediately accounted for. They do not have to wait for clearances from credit card companies.

5. Lower transaction cost is another important advantage of accepting cash payments. Retailers have to pay a fee to the credit card company for each transaction involving credit card.

The cash-only business should however ensure that there is an efficient cash management system in place.


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