A surprising number of small businesses still don’t accept credit cards. Some want to avoid credit card processing fees and the hassle of swipe-and-chip hardware, while others face internet connectivity issues.
However, consumers overwhelmingly prefer credit over cash, and not accepting credit cards could hurt your business. We’ll explore why cash-based businesses eschew credit cards and how accepting credit cards can boost your bottom line.
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What is a cash-only business?
A cash-only business accepts and issues cash payments only. For a cash-only business, credit and debit cards, checks, ACH payments, wire transfers, and other payment forms never enter the picture. You’ve likely encountered plenty of cash-only businesses.
Types of cash-only businesses
The following types of companies are commonly cash-only businesses:
- Food trucks and other street vendors
- Babysitters, dog walkers, landscapers, and other people hired for short-term, intermittent at-home services
- Vending machines
- Some restaurants and coffee shops
- Nail salons
The people and companies providing these services have largely remained cash-only businesses, even as credit card and electronic payment technology has proliferated.
Why do cash-only businesses continue to exist?
Even the smallest business might benefit from accepting credit cards or digital payments. However, some businesses face external hurdles and other factors that prevent them from expanding their payment methods.
Some of the most common reasons businesses stay cashless include the following:
- Location issues
- Lack of internet
- Under-the-table payments
- Hesitancy adopting new technology
1. Location is a factor for cash-based businesses.
Your business location may make you more likely to be a cash-only business. Cash-only businesses are prevalent in specific places in the United States, including New York City, where locals know to keep cash on hand or risk being unable to pay for their items.
Generally, very high-traffic areas (like dense urban centers with ample wealth or a large percentage of unbanked people) and remote areas (like ultra-rural areas with limited internet service) are more likely to have cash-only businesses than suburbs, towns and midsize cities.
In urban areas with a plethora of customers in the vicinity, small business owners may be able to operate at full capacity without accepting credit cards because customers are willing to pay in cash. Businesses in such areas can turn away non-cash customers without alienating their local community because they have many other potential customers nearby.
By contrast, if a grocery store in a small city doesn’t accept credit cards, it might quickly gain a negative reputation and go out of business. But in a dense metropolis, a cash-only deli is just one of many delis in a multi-block radius, so customers who want to pay via credit will go elsewhere. Customers who don’t mind paying cash will patronize the cash-only establishments without thinking twice.
2. Lack of internet connectivity can create cash-only businesses.
In rural areas, internet connectivity is sometimes why businesses don’t accept credit cards. They may also accept only cash because they have fewer customers or a significant percentage of unbanked customers.
It costs businesses money to accept credit cards; businesses may feel the interchange fees aren’t worth it if they operate in a remote area.
Like urban dwellers, customers in rural areas are likely to carry cash for purchases, understanding that internet connectivity can be a problem. Thus, they will also be less put off by cash-only establishments than residents in most towns, midsize cities, and suburbs.
3. Some cash-only businesses accept under-the-table payments.
Some small business owners prefer operating on a cash-only basis for a more nefarious reason: There’s less of a paper trail when tax season rolls around. When business owners report their profits to the IRS, it’s up to them to track and honestly report cash purchases.
Credit card purchases can be cross-checked with credit card companies, but cash is easier to conceal. Of course, not all cash-only businesses engage in illegal activity, but some do.
4. Some businesses are hesitant to adopt new business practices.
Some businesses don’t offer credit card processing out of habit. Small mom-and-pop shops, especially those in business for a long time, are often highly resistant to change. They may have put off credit card adoption so long that they no longer even consider it.
What are the benefits of a cash-only business?
Not accepting credit card transactions has some benefits, including the following:
- No credit card processing fees: Any business that accepts credit card payments can attest to the challenges of credit card processing fees. Many business owners find it difficult to understand credit card processing service agreements. Additionally, credit card processing can cost small businesses thousands of dollars per month. If your company can’t afford substantial additional expenses, you may find cash-only operations appealing.
- No pending payments: If you’ve ever paid for something by credit card, you know that credit card payments rarely clear immediately. Usually, payments take one to three business days to clear (or longer for certain transactions). If waiting for cash to hit your account isn’t feasible for your company, you might prefer the cash-only route.
- Easier accounting: You must track your company’s spending and earnings through either cash or accrual accounting. Although many small business experts advise using the latter, some small businesses use cash accounting. Cash accounting focuses solely on cash in and cash out rather than additional and complex business concerns. Cash accounting may give a more realistic depiction of cash flow for a smaller business.
How is not accepting credit cards hurting your business?
The downsides of not accepting credit cards outweigh the pros in terms of profitability and overall business success.
The cons of not accepting credit cards include the following:
- Digital payment methods are increasingly prevalent. Like it or not, the world is becoming less dependent on cash. Young and tech-savvy consumers of all ages use credit cards and mobile wallets like Apple Pay and Google Pay. Additionally, major retailers like Starbucks and McDonald’s are offering alternative payment methods. Cash-only businesses are likely to be viewed as outdated.
- You’ll lose important customers. High-income customers and customers under 45 use cashless payments more often. According to the Federal Reserve’s 2022 Diary of Consumer Payment Choice, cashless payments are on the rise, accounting for 57% of payments in 2021, up from 55% in 2020 and 54% in 2019. This trend is particularly pronounced among consumers under 45, who used cash for less than 20% of transactions. This decline is even more significant for customers under 25, who used cash for just 17% of payments in 2021.
- You could lose money by not accepting credit cards. As customers continually expect to pay for goods and services via cashless transactions, you’re likely losing money by refusing to accept credit. This is especially true if you’re trying to appeal to high-income people and people under 45. Additionally, small-value transactions are decreasing. The Federal Reserve report says a reduction in the number of payments under $25 – which has been on the decline since 2016 – is a significant reason for the overall decline in cash payments. While the pandemic contributed to this decline, the report notes that this trend precedes the pandemic and will continue afterward. In 2021, customers used cash for 40% of small-value transactions, down from 47% in 2019.
Credit card receipt signatures were implemented to fight credit card fraud and chargebacks. Today, collecting receipt signatures is optional if you have an EMV chip-compliant credit card reader.
How to save money on credit card processing
A cashless society isn’t here quite yet. Still, not accepting credit cards can seriously hurt your bottom line. If you’re concerned about the costs and hassles involved with accepting credit cards, there are ways to lower fees and ease your entry into digital payments.
Consider the following strategies for keeping your credit card processing costs as low as possible:
- Ask if the card is debit or credit. Ever wonder why some retailers ask if you want to pay with debit or credit? It’s because the interchange fees for debit cards are much lower than for credit cards. Asking a customer this question reminds them that they can pay with debit, helping you cut down on monthly fees. Additionally, credit card processing fees may be lower than you think. The most widely accepted debit and credit cards have fees of approximately 1.3% to 3.5% of the purchase price. Some retailers accept only specific cards with lower fees.
- Set a credit limit. It’s legal for businesses to set a $10 minimum for credit card purchases. This payment level can offset the costs associated with credit card purchases and eliminate interchange fees on small sales.
- Consider a surcharge policy – carefully. Credit card processing services always charge fees for accepting payments. However, some businesses use surcharge policies to pass the fee on to the customer. With a surcharge, the customer pays a small fee if they opt to pay via card. Before starting a surcharge policy, be aware of all the laws and regulations surrounding surcharging and how it may affect your business. You also want to ensure you don’t upset your customers.
- Consider a “no refund” or “store credit only” policy to minimize chargebacks. A chargeback is when a credit-card-paying customer gets their money back. The most common chargeback type is when a customer returns a purchase and is issued a refund. However, a customer can also request a chargeback if they feel they were unfairly charged for a good or service; for example, if an employee accidentally charged a customer twice. Customers might also attempt to receive fraudulent chargebacks. Chargebacks carry a processing fee the business owner must pay. To minimize chargebacks, some businesses post “no refund” policies or issue store credit instead of refunds. Store credit allows a retailer to remedy the customer’s situation without paying a chargeback fee to the credit processing company.
- Investigate new credit card processing software and hardware. The days of bulky point-of-sale (POS) systems that require thousands of dollars in upfront costs are over. Today, it’s much cheaper and easier to set up a credit card system than ever. Many lightweight POS-style solutions are ideal for small spaces (and even mobile businesses). Online-only credit processing is also a seamless solution. For example, PayPal credit card processing works well for both low-volume and high-volume online businesses and even side hustles.
Best credit card processing service providers
Choosing the right credit card processing service for your business can be daunting. To help you find one that meets your unique needs and budget, we evaluated the best credit card processing companies and rated them on various factors.
Here are five top credit card processing services to consider:
- Merchant One: Merchant One is our pick for the best processor for easy approval. In addition to its easy approval process, we like its full slate of features and seamless integration with a wide range of third-party software. Read our in-depth Merchant One review to learn more.
- Clover: Clover is our pick for the best credit card processor for new businesses. We like its flat-rate pricing, month-to-month contracts, and affordable POS software and hardware. Learn about additional features and options in our full review of Clover.
- Stax: Stax is our pick for the best credit card processor for high-revenue businesses. We especially like its in-house customer service and tech support. Read our full Stax review for more information.
- Helcim: Helcim is our pick as the best payment processor for high-volume businesses. We like its transparent interchange-plus pricing, competitive rates, month-to-month service and price-lock guarantee. Learn more about Helcim by reading our in-depth Helcim review.
- Square: Square is our pick as the best payment processor for growing businesses. We like that you pay only for the processing you use; there are no long-term commitments and no monthly or annual fees. Read our review of Square for more information.
Jocelyn Pollock contributed to the reporting and writing in this article.