Pros and Cons of Cash-Based and Online Business

February 23, 2021

Economists have defined cash as money in the physical form of currency, such as banknotes and coins. While in bookkeeping and finance, cash is current assets comprising currency or currency equivalents that can be accessed immediately i.e. near money.

In general, cash is the amount of money available to your business – including coins, notes, money in your bank account, any unused overdraft facility, foreign currency, and deposits that can be quickly converted into your currency.

Our Economy is fast evolving into a cashless economy. Despite that, there are still primarily cash-based businesses.

A cash business is a business that runs primarily on cash transactions. For example, restaurants take cash regularly, as do coffee shops, the regular open market, baby sitters, and so on.

These businesses operate in areas where credit or debit cards are not easy to come by. 

It suffices to say that cash-based businesses can work well for businesses selling items that don’t cost a lot, so customers can easily pay out of their pockets. 

Note that these businesses tend to be single-person operations that can be set up easily and quickly. 

Advantages of cash-based businesses

Photo from Pixabay

1.Lower overhead Costs

Taking cash saves your business money. The cost is percentage-based, so it’s difficult to know ahead of time how much each use of a payment card would cost you. As well, some processors charge additional monthly or per incidence fees. These charges can add up and affect your profitability, especially if you operate a small business with narrow margins. You won’t have to deal with recurring monthly charges for services you may or may not need. Best of all, you won’t have to pay a processing fee every time a customer pays you, so your profit margin stays intact.

2.No Risk Of Funding Holds

When you take cash, you get your money right away. With payment cards, your account may take up to 24hrs before it will be funded. Even after that, with card payments, you are at risk for chargebacks. A customer could reach back several months after a purchase to demand their money back so that your sales are not always final until many months after the purchase. Your processor could freeze your account if you have too many charges back or even terminate your account altogether. With frozen or terminated accounts, you might not get back the charges in those accounts at all.

Disadvantages of cash-based businesses 

Photo by Hello I’m Nik on Unsplash

1.Loss of Customers

Going cashless means that these customers won’t be able to make purchases at your business unless they either have the cash on them or can access a nearby ATM.

Even though these customers may heed the cash-only policy and manage to get the cash to complete the transaction on their first visit to your store, they might not come back because they might not want to deal with the inconvenience of paying with cash again.

2. Few Growth Opportunities

Taking only cash can reduce your business growth opportunities. Cash might make sense when your customer must physically be present to get that piece of material or get their product fixed, but if you have the type of business where you can sell online or even take phone orders, then taking only cash could limit your business’s growth opportunities. Many customers today prefer the convenience of shopping online.

Also, online sales can reach customers who live far from your store. Going cash-only means you might be missing these customers who can help your business grow.

 3. Difficulty Obtaining Bank Loans

If you wish to borrow money to expand your cash-only business, you might have trouble borrowing from a bank.

Unless you have excellent accounting records, it would be difficult for you to show a bank that you have the adequate cash flow to repay the loan. Under those circumstances, they might decline to lend to your business.

It is no secret that we are moving towards a cashless society, where customers carry little to no cash and make purchases through credit, debit, or cash cards. These have made many businesses evolve from being cash-based to accepting online payment systems. For instance, the vendors in the open markets now have POS machines, and so on. 

Online payment businesses are businesses that accept e-payment options like credit cards, cheques, bank transfers, etc. 

 

Advantages of online payment businesses 

 Photo by NeONBRAND on Unsplash

1. Instant payments

Online payments facilitate instant payments for an organization. It breaks the geographical restrictions and lets customers purchase even without a physical presence. One can easily make a payment sitting comfortably at home or office.

The gateway to accept payment online provides instant notification of the transaction that makes the customer remain assured of the purchased items.

2.Induces More Trust in Customers:

Customers today often consider those merchants more reliable that accept payment online through their site. It encourages them to do business with the merchant.

At the same time, online invoice payment offers consumer fraud protection that secures their money if they don’t receive the product purchased online through a website.

3. Adds Convenience to Recurring Payments: 

If you are offering some subscription-based services where your users/customers need to make payments after a certain period of time, the option to receive online payment could be more suitable for you.

Instead of sending them reminders every time and requesting to send cheques for the payment, you can automatically collect payments after the end of the subscription term.

4.Influences impulse buyers:

An online invoice payment method may influence customers to purchase items listed on the website. Since the transaction is quick and easy, and one can pay via credit cards, buyers are more likely to grab the deal, if there is an online payment system in place. 

 

 Disadvantages of on-line payment businesses

Photo by Joshua Hoehne on Unsplash

1.Security issues

Although there are strict measures such as symmetric encryption for the security of electronic payment, it is still susceptible to piracy. For example, scammers use phishing attacks (a cybercrime in which a target or targets are contacted by email, telephone, or text message by someone posing as a legitimate institution to lure individuals into providing sensitive data such as personally identifiable information, banking, and credit card details, and passwords.), to engage unsuspecting users into providing credentials for their electronic wallets that they collect and use to access victims’ personal and financial information.

Inadequate authentication also damages electronic payment systems. Without superior identity verification measures like biometrics and facial recognition, anyone can use someone else’s electronic cards and wallets and run away without getting caught. These security concerns can make some people reluctant to use electronic payment systems.

 2. Increased business cost

Electronic payment systems are associated with an increased need to protect confidential financial information stored in a company’s computer systems from unauthorized access. Companies with internal electronic payment systems have to pay additional costs for the purchase, installation, and maintenance of advanced payment security technologies.

 3. Technical problems

Like any system that depends on technical infrastructure, online payments themselves may be subject to disturbances and downtime. Tech maintenance operations performed on online payment gateways or in the card network system are usually limited in time, announced in advance, and scheduled for periods when e-Shops don’t have a lot of traffic, often during the night.

 If you enjoyed this please leave a comment and use the share button.

Thank you for reading.

Related Articles

Career Opportunity CTO

Career Opportunity CTO

CTO (Chief Technical Officer) Job DescriptionWe are seeking a skilled CTO with a storied history in the technological sector. You should be a strategic thinker, an effective communicator, and an expert in technological development. You will act as both a technology...

We are expanding!

We are expanding!

Dear valued customers and partners, We are happy to announce the opening of our office in Abuja, Nigeria. You can join us at Aiivon Hub, St. James House, 167 Adetokunbo Ademola Cres, Wuse 2, Abuja. Nigeria. We would like to use this opportunity to express our...

We are expanding!

We are expanding!

Dear valued customers and partners, We are happy to announce the opening of our office in Abuja, Nigeria. You can join us at Aiivon Hub, St. James House, 167 Adetokunbo Ademola Cres, Wuse 2, Abuja. Nigeria. We would like to use this opportunity to express our...

Stay Up to Date With The Latest News & Updates

Join Our Newsletter

Sign Up to get Updates and Tips

Follow Us

We are on Social Media