The True Cost of Cash

Merchants like cash. According to the 2008 State of Cash study conducted by Brink's and Hitachi Consulting, 94 percent of merchants accept cash, and the majority of them (66 percent) prefer it to other payment types.

It's easy to understand the reasons behind these high marks. Consumers like cash, especially for low-cost and convenience items. The denominations are well known, and virtually everyone is comfortable handling it. For the estimated 73 million unbanked and under-banked consumers nationwide, cash is not just the preferred method of payment, it is the only option. And in today's tough economy, retailers and consumers alike seek cash to boost their liquidity.

One of the most important reasons merchants like cash, however, is because they think it costs them less — less than credit cards, PIN debit, paper checks and signature debit. In fact, when asked to rank the various forms of payment by estimated handling cost, merchants rank cash second only to pre-paid gift cards.

On the surface, this assumption makes sense. After all, there are few barriers to accepting cash. There are no transaction fees and, unlike the acceptance of plastic, cash requires no added complexity or technology at the point of sale.

Upon closer inspection, however, the survey reveals something interesting. Fewer than half of merchants identified the most common elements of cash-management costs — bank fees, losses resulting from theft and cash logistics — and roughly the same percentage doesn't include the time associated with handling cash as an element of their cash costs.

This means that merchants' belief that cash is less expensive than other forms of payment may be based on erroneous assumptions and misinformation.

Cost of cash ownership
While the first step to lowering cash-handling costs is to understand the components that comprise cash management, today's tough economy is pressing retailers to take immediate action to lower their total cost of cash ownership, either through process improvement, automation technology, cash logistics services — or a combination of all three.

Process Improvements. Training with a specific focus on cash handling can translate into greater productivity and lower incidences of costly mistakes. Likewise, process improvements, lean thinking and creativity can help drive out waste and redundancy and uncover new opportunities to cut costs.

Automation Technology. Smart safes leverage bill counting and validation technologies to virtually eliminate cash handling in the store. Employees feed bills directly into the safe through a note acceptor; the cash is verified, counted, secured and readied for deposit, thereby reducing in-store cash-handling processes to a fraction of what they used to be. For some retailers, this can save dozens of hours a week.

Smart safes also lower the costs associated with theft by removing cash from the reach of employees and external criminals.

Cash Logistics Services. According to the State of Cash research, 84 percent of merchants still take deposits to the bank themselves, presumably to receive credit for the day's receipts as soon as possible. With cash logistics services such as armored transportation, deposit solutions and cash processing, getting the cash to the bank is no longer a prerequisite for account credit.

Store receipts can be transmitted electronically, eliminating manual data entry and deposit preparation, minimizing risk and optimizing cash operations efficiency. And, depending on the cash logistics provider and bank involved, retailers may receive credit for the deposit long before the cash is out of the store.

In an economy where access to capital is paramount, this invaluable service not only expedites funds availability, it also helps to optimize funds and drive security throughout the cash cycle.

While cash remains one of the most popular and economical forms of payment, it is nevertheless important for retailers to be fully aware of their cash-management costs. Especially in today's world of razor-thin margins, tight credit and increased criminal activity, understanding and exploring ways to reduce the total cost of cash ownership can help retailers thrive in any economic climate.