February 1, 2018

Can too much cash can be a bad thing?



Too much cash is bad? Absolutely, when it’s sitting idle in your stores. Cash is essential in a retail store, but striking the right balance of cash on hand and cash in corporate’s bank account is a never-ending challenge. If stores have too little cash, they can’t operate properly. But fear of running short often causes retailers to keep too much cash on hand, creating a costly problem — idle cash.


Store cash levels can be an area of contention among various groups in your organization. The operations team might have policies in place that establish a minimum required cash-on-hand level to ensure optimal customer service. But other teams, like treasury or loss prevention, also want to free up or deposit as much cash as possible for entirely different reasons.

Opening or remodeling stores

New and remodeled stores have a big impact on customer experience and loyalty in your stores. A study published by the American Marketing Association’s Journal of Marketing noted that sales to new customers increased by 43 to 44 percent after a store remodel, and existing customer sales rose by 7 to 10 percent.

The study also found that new customer visits to a remodeled store were 16 percent higher after their first purchase in the store. As you look for sources of working capital for store improvements, idle cash can help boost your spending power.

Lower your borrowing cost and take advantage of rising interest rates

In pursuit of store improvements, technology investments or other capital expenditures, pulling money out of stores to put in the bank will help you buy down your borrowing cost with your bank. As interest rates rise, as they have five times since 2015, your funds become increasingly valuable out of store safes and in your bank account.

Decrease cash exposure

According to the 2017 National Retail Security Survey, the average amount lost in a robbery of a retail store was more than $5,300, and robbery occurrences have doubled since the previous year. With theft numbers that high, it’s wise to keep cash on hand low to mitigate loss.

Reduce cash-handling costs

The cost of accepting cash in retail is significant – more than 9 percent of annual cash sales for the average retailer. Many of these costs are hard to identify and control because of a lack of corporate visibility, but the simple act of counting and verifying store funds each day is a hefty labor expense when multiplied across your chain. When you factor in bank and transportation fees and cross-shipping inefficiency, the cost of the cash in your stores only becomes more significant. How could you reduce that cost by ensuring your stores have less idle cash to handle? Simple adjustments to policies like register starting amounts can have a significant impact on store cash, so it’s important to work with your operations team to understand the day-to-day cash processes in your stores.

Getting idle cash under control is a must for any retailer. Moving it out of stores protects your employees, your funds and your bottom line. But take care not to hamper customer service in the process. To learn about four factors that cause idle cash and tips for optimizing your in-store cash, read our white paper, Idle Cash.




Image: iStock