The Hidden Costs of Accepting Cash. A guide for retailers

Transcription

1 The Hidden Costs of Accepting Cash A guide for retailers

2 For the retailer, there is no panacea. You want to have the channels the customers you are attracting will use, but to offer each and every type of payment available would be prohibitively expensive. Bernardo Batiz-Lazo Professor of Business History and Bank Management Bangor University (Wales) Page 2

3 Your cash is costing you time, aggravation and cash In the retail industry, there is a dizzying array of payment choices you can offer your customers, and new methods often make headlines. While some of these payment types struggle for widespread acceptance by consumers, cash remains a vital player in the retail payment space. A survey of consumer payments by the Federal Reserve s Cash Payments Office showed that 40 percent of the participants spending was in cash. 1 The study also indicated that low-income consumers use cash more often for larger transactions than those with higher household incomes and that many younger consumers prefer to pay with cash. Millennials are the largest generation in history, and they will soon command the largest wallet power $10 trillion over their lifetimes as consumers 2 so cash use is only on the upswing. Because it is a popular payment choice by consumers, most retailers choose to accept cash or even prefer it, unaware of the hidden, intangible factors that cause the cost of accepting it as payment to creep up. It s easy to understand what it costs to accept credit and debit, but figuring out the cost of cash can be difficult. Retailers, especially smaller merchants, often view cash as the cheapest payment type they can accept. But research shows that in some retail verticals, the cost of cash is higher than the cost of accepting credit. 3 Whether you have thousands of locations or a single store, don t underestimate the impact of handling, counting, managing, tracking, ordering, depositing and accounting for cash. This expense can be broken down into tangible financial costs, such as bank and transportation fees, and harder-to-pinpoint time and labor costs. Inefficient reporting and a lack of understanding of cash demand also plague many retailers, so it s no wonder the cost of cash is so hard to determine. Cash cost equation Hard-dollar costs Time/labor costs Inefficient reporting Cost of accepting cash 1 Cash Continues to Play a Key Role in Consumer Spending: Evidence from the Diary of Consumer Payment Choice. Federal Reserve Bank of San Francisco Is The Year Of The Millennial Customer: 5 Key Traits These 80 Million Consumers Share. Forbes Retailer Payment Systems: Relative Merits of Cash and Payment Cards. Economists Incorporated Page 3

4 Hard-dollar costs that make a difference and what to do about them While the hard costs associated with transporting and depositing cash might seem fixed, you can optimize your operations to strategically use these services to your advantage. Bank fees To lessen the impact bank charges have on the bottom line, look at fees that apply specifically to cash. Banks can charge as much as $150 per month per location for cash handling fees, not to mention other charges for adjustments, deposits, deposit corrections and change orders. By ensuring efficient management and handling of cash at the store level, you can rely less on the bank for costly services that add up across the organization. Armored car fees Because armored car services charge fees based on the frequency of their visits and time spent on premise, costs can be as much as $300 per month per location. To keep these fees down, you need to limit armored car pickups without amassing too much cash on hand. Some stores have armored car pickups as often as five to seven days a week, but with strategic use of store data, technology and optimized practices, many are able to reduce armored car visits by at least half. Cross-shipping Another concern is cross-shipping depositing and ordering the same cash or coin denomination in the same week. This practice is inefficient and costly, but loose corporate policies or a lack of proper controls can leave it up to a store manager or bookkeeper to determine which denominations to order and deposit. This creates inconsistency throughout the organization and racks up unnecessary bank and transportation fees. Knowing how much cash by denomination each store needs each day will ensure deposits and orders are made only when necessary, reducing the cost of deposits and change orders. Cash loss Employees inevitably make mistakes, which end up being costly to the organization. Reporting deposit of one denomination while actually depositing another, incorrect counts of register contents, filling a self-checkout with an incorrect denomination errors like these happen every day. If you can reduce the occurrence of these errors, you ll minimize both the actual losses incurred and the time loss prevention spends researching them. You can reduce errors through stronger corporate policies, better or additional training, and consistent use of cash management systems and software. Loss also occurs through internal and external theft, and cash is a far easier target for fraudulent activity than debit cards, credit cards or checks. In 2015, the U.S. Retail Fraud Survey cited cash theft as the second-largest contributor to store loss. By making an effort to reduce the employee errors that cause cash loss, you can give your loss prevention team more time to investigate and stop cash theft. Page 4

5 Time is money Tufts University reported that the cost to merchants of accounting and bookkeeping was equivalent to an average of 3 percent of total revenues each month for the businesses surveyed. 4 That s a big impact on operating costs. If you haven t looked at your own procedures lately, you should pay close attention to the time it takes employees to handle cash, keeping in mind: Number of stores Number of registers and self-checkouts per store Average daily cash sales Staffing levels and wages Attention to your own procedures and corporate policies can help you tighten up the time and labor expenses involved. In most retail stores, those who handle reconciliation activity are experienced employees with higher salaries. When considering the cost of cash, take into account both the hard cost of paying employees to perform these tasks, as well as the value of other activities those employees could be performing that would generate revenue instead. Cash and the customer When considering time and labor spent on handling cash, you should also consider the customer experience. When store employees are mired in cash-handling tasks, they aren t working with customers, improving their store experience and increasing customer spend. In the US Total Retail 2016 Survey, 41 percent of shoppers surveyed cited associates with deep product expertise as an important factor in enhancing their shopping experience. Moving knowledgeable employees to customer-facing activities like working the floor to sell and performing omnichannel fulfillment can have a positive impact on both sales and customer satisfaction. 4 The Cost of Cash in the United States. Institute for Business in the Global Context, The Fletcher School, Tufts University Page 5

6 Minimize risk and expense by getting smart about cash handling Every time cash is touched, it s an opportunity for error or loss, increasing the expense of accepting it. Optimize the way cash is handled in your stores by setting clear corporate policies on cash handling. Pickups Too much cash in registers increases exposure and potential loss, so management must remove excess cash often without holding up customer transactions. The ideal number of pickups can t be prescribed for all retailers the number depends on factors like the type of retailer, customer demographics, and even the day of the week. A better practice is to establish specific times of day to perform pickups on registers that have been used the most. Starting amounts Corporate policies often mandate specific, low starting register amounts across the entire chain, usually in an attempt to reduce the potential for cash theft. However, the effort to save money actually costs more in labor and delays to customers loans tie up the time of a manager to process and perform them, and they create frustration for waiting customers. When a register is started at a higher amount, it will require fewer loans as it is depleted by transactions and cause fewer interruptions of both employee and customer time. Loans Cash exposure is also a risk involved with performing excessive loans. Transporting cash from the office to registers increases the potential for loss through errors or theft. While the proper number of loans varies greatly across retail verticals, many retailers can perform just one loan per register each day with optimal starting amounts. Page 6

7 Starting amounts: A tale of two stores With differing starting amounts mandated by their corporate offices, two stores in the same industry had very different experiences on the front end. Their names have been omitted to protect their privacy. Store A Starting till amount: $100 Loans: Large number to tills each day. Impact: The tasks involved with performing these loans were slowing down customer service at the lanes, disrupting cash office activities and creating risk when bookkeepers carried cash to the front end repeatedly. Store B Starting till amount: $200 Loans: 80 percent fewer loans each day. Impact: Starting with an appropriate cash level in the right mix of denominations makes a big difference in efficiency throughout the day and limits the risk of cash exposure. Page 7

8 Cash demand isn t one-size-fits-all You probably have corporate policies in place that designate specific amounts of cash on hand to maintain, but you might not specify amounts by denomination. In the case of large chains, cash needs can vary widely based on location, customer demographics, day of the week, holidays or even local events. Take a look at cash use by location to make sure you have a clear understanding of your cash needs in every store, every day. Strong corporate policies about holding cash will also discourage store employees from making judgment calls about how much to hold. Insufficient cash supply can lead to costly emergency orders from the bank or armored car service. Holding too much cash opens the store up to additional risk and creates large amounts of idle cash in safes and tills that could be used as operating capital or earn interest instead. Report delays cause trouble tracking loss One of the reasons we decided to move to an automated system was that our information was severely delayed. Automation has made it easier for us to react to discrepancies in a timely manner and resolve them quickly. Dean Sheaffer Senior Vice President for Financial Services and Chief Compliance Officer Boscov s, Inc. Inefficient reporting keeps you out of the loop on cash Most retailers still rely on manual reports to get information from stores. Typically, a bookkeeper or manager fills out paper reports or electronic spreadsheets, ten-keys totals and compares them to actual amounts, and then s, faxes or ships the reports to corporate. Not only is the process time-consuming at the store, but it s also laborious for corporate to process and manage. When manual reports are the source of store data, corporate can find themselves a step or two behind when trying to track loss and identify trends. Trying to find out why a deposit was $200 short several days ago is difficult in a fast-paced retail setting, where store-level employees often can t recall how or why the error occurred. This delayed reporting also makes it hard to identify and put a stop to negative trends. Page 8

9 So what s the solution? To address the issues that make accepting cash expensive, you can look to various automation solutions. A paper by the Federal Reserve Bank of San Francisco determined that employing cash handling technologies can assist retailers in managing cash more efficiently and understanding their cash position by location in close to real time. 6 These technologies can include hardware solutions such as cash dispensers, recyclers, and smart safes or software solutions that manage the data Partner Development, Retail Markets Glory Global Solutions output of hardware offerings and provide information to both stores and corporate for more efficient cash management. The automation provided by these software platforms brings accuracy and speed to a retailer s currency management, as well as the visibility and control to enforce the corporate policies you set. If a solution generates actionable data that can be used to make systemic changes throughout a retail organization, it can help significantly lower the cost of accepting cash. Bottom line: Start looking harder at how you handle cash Cash is a payment type of the past, present and future. To continue to offer your goods and services to a broad range of consumers, you must continue to accept it as payment, ensuring you handle it as efficiently as possible. But you can t make your operations more efficient until you examine your current cash management practices at the store and corporate levels and look for opportunities to improve. Careful study of how your cash is handled and managed will allow you to calculate your own cost of accepting cash and find out if you are on the right track. 6 Trends in Retail Cash Automation: A Market Overview of Retail Cash Handling Technologies. Federal Reserve Bank of San Francisco Page 9

10 balanceinnovations.com Page 10