March 22, 2018

It’s official: The cost of cash is more than you think


Get 10 retailers in a room and ask them what their most expensive form of payment is. What do you think they’ll say? I’d wager most of them would say credit – but they’d be wrong.

Labor, poor visibility and lack of control influence cost

Credit card fees generally hover around 3 percent all in, but the cost of cash averages 9.1 percent, according to a 2018 study by IHL Group. Why is it so high? Many factors come into play: labor to handle and report on cash, lack of visibility that leads to idle cash, and lack of control that leads to loss.

According to IHL’s study, end-of-day reconciliation of registers is the biggest culprit in driving up cash costs – more than 40 percent of it, in fact. But unless you’re willing to go cashless, you need your stores to reconcile and report on cash at the end of each day, no matter how much or little you take.


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Cash challenges by vertical

Each retail vertical has their own challenges that lead to a high cost of cash, and IHL breaks down some of those causes in their study. For instance, restaurants’ cost of cash tops the list at 15.5 percent because it’s a high-touch environment where manual processes and reporting abound, as my colleague and restaurant expert Ami Bensman pointed out in a recent post. Poor training in a high-turnover environment leads to errors and loss, contributing to the cost.


What about the specialty soft category? Many clothing retailers have told us that their cash sales are so low that it becomes a hassle and an impediment to handle and manage cash, driving the cost up. Still others cater to younger shoppers, who tend to favor cash. In a high-cash environment, it’s tough to keep costs down because of the sheer volume and opportunity for loss.

Department stores are a unique beast. The IHL report shares that while department stores’ cash sales are relatively low (12.5 percent of total sales), their cost of cash is among the highest (10.5 percent). These stores have far more registers than other retailers, meaning more drawers to open, close, count and reconcile each day.


Supermarkets have the lowest cost of cash, primarily because that vertical’s high-volume environment has driven chains to lead the way in implementing comprehensive platforms to manage cash.


Examine cash procedures to battle costs
Decoding the cost of cash isn’t as simple as you might think, but it doesn’t have to remain a mystery.  A hard look at every step in your cash process will show you areas you can improve. Examining how you handle your funds at stores and at corporate is the first step to getting cash under control.  




Image: iStock