In this blog: What are the hidden costs of cash for your business and what must be done to resolve them.
Cash remains the most relied vehicle for transactions in developed and emerging markets. Although with advancements in fintech, economies are championing transformations from cash to “cashless”, cash still remains to be the backbone of finance, with over 80% of the transactions being conducted in cash. Several businesses across the globe choose to or are forced to accept cash payments, either because of privacy, security or reliability. Paper based transactions cause friction costs resulting in 5 to 15% of all cash lost in managing and handling. For cash dependent emerging economies, it is vital for businesses to work around cash and eliminate such costs of cash. It comes with major hidden costs, which may grow out of proportion if left unaccounted. But what are the costs of cash for businesses?
Cash leads to undetermined operational costs which may also grow exponentially with the growth of the business. Cash also adds to reconciliation costs – involving human personnel to count, recount, account for cash in and cash out at the end of each working day occupying human resources and inhibiting their productivity. With the growth of the business, the business would either need to allocate a greater amount of work hours for manual cash management or invest in a resource to keep the productivity up to speed. Businesses also incur the hefty cost of secure cash transportation (or cash in transit) for deposits or rely on employee direct deposit for smaller volumes of cash. These operational costs tend to rise with the growth of the business or when dealing with larger volumes of cash.
Handling cash means carrying a constant risk of handling cash, managing discrepancies, frauds, and counterfeits, as well as the risk of life for personnel carrying and transporting cash at the beginning or end of each business day. This loss prevention cost accounts for an increase in insurance premiums that businesses inevitably must pay every year.
Cash at hand accounts for a liability, preventing businesses from investing in scaling up their businesses accounting for a lost growth capital – when cash is in hand but not in the bank. The journey from cash in hand to the bank may take several days before being reflected digitally. The cash conversion cycle (the amount of money tied up, preventing the business from investing in growth) for businesses dealing with cash goes uphill. Consequently, a longer cash conversion cycle would mean a detrimental growth in the working capital cycle, making businesses unable to invest and finance in new opportunities thereby accounting for opportunity costs solely because of paper based money being tied up. Freeing up this cash would mean shifting the focus towards meeting business goals and succeeding in scaling up the business every day of the week.
Besides the social costs of cash and the costs of cash imposed on individuals, a broad array of costs encompass cash payments which individual businesses incur. These costs otherwise remain hidden.
Loop offers solutions to businesses and SMEs to mitigate such costs. Particularly for startups and SMEs in emerging markets, Loop enables businesses to accept cash with no compromise. Loop is the digital on-ramp for cash, making it simpler for startups to stay afloat all while managing large or small volumes of cash. Free up resources, costs and downtime with Loop and grow your business!
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