Today, consumers often pay with plastic, but cash is not obsolete. Many individuals prefer to use paper bills. And in some situations, it just makes sense to pay with cash, like on small purchases. As a business owner, you might not like dealing with cash on a daily basis and prefer to only accept electronic payments. Can a business refuse cash?
Can a business refuse to accept cash under federal law?
Is it legal for a business to not accept cash? To answer the question, we first need to look at the law. The federal government makes rules for legal tender in the United States. These laws fall under Section 31 U.S.C. 5103, entitled “legal tender”:
United States coins and currency [including Federal Reserve Notes and circulating notes of Federal Reserve Banks and national banks] are legal tenders for all debts, public charges, taxes, and dues.
Basically, the government says that U.S. currency is accepted as legal tender. Cash holds the same value throughout the entire country. So, a dollar bill is worth the same amount in one state as it is any other.
Cash is a legal tender for all public and private debts. The law does not say you can’t restrict customers from paying with cash. According to the federal government, you are not required to accept cash payments.
On the surface, the concept seems simple enough. But, can a business refuse to accept cash? And, if so, would you refuse cash payments at your company? Let’s take a deeper look at cash payment policies.
Can a business refuse cash?
Federal law makes U.S. currency a legal tender for paying debts. As a small business owner, you must accept dollars for your products or services. This doesn’t mean paper notes. You can accept electronic dollars as payment.
Private businesses can create their own payment policies, including ones that restrict cash payments. You can say that customers must pay with a credit card, check, or money order. You can also ban large bills at your business.
Bottom line—you can accept payments in whatever form you want. Here’s why:
- No federal law requires businesses to accept cash.
- You only need to accept cash when someone owes a debt. If the customer pays before you provide the product or service, you don’t have to accept cash.
You need to establish a cash payment policy before a transaction occurs. You can’t change your policy mid-transaction or refuse someone’s paper bills when you say that you accept cash. As long as you tell customers upfront that you don’t accept cash, you can refuse cash payments.
Is it legal to not accept cash according to state laws?
Your state might require your business to accept cash. State laws on cash acceptance policies trump federal rules. If your state says you need to accept cash payments, you must follow those rules. If you refuse cash in a state that requires you to accept paper bills, you could face penalties and fees.
Some states limit restrictions businesses can impose. For example, many states require private impound lots to accept cash from individuals trying to retrieve their vehicles. Check with your state before refusing cash.
Should you refuse to accept cash?
There are pros and cons to accepting and refusing cash payments. Ultimately, the choice is up to you. Take a look at how cash payments could affect your company.
Why some businesses refuse cash
Refusing paper bills is safer than accepting cash. Cash can be stolen, lost, or damaged. With electronic payments, you don’t have to worry about losing your hard-earned money once it’s in your hands. The money goes directly to your bank account.
You’re less likely to be robbed by not accepting cash. If a thief knows your business does not handle cash, your chances of them trying to rob you are probably slim. You can protect your business by publicizing that you don’t hold onto large amounts of cash.
You also might refuse cash because it is time consuming. When you handle a lot of cash, you constantly have to run back and forth to the bank. Electronic funds transfers go directly from your business to your account, so you don’t have to make extra trips.
Why others accept cash payments
Some businesses welcome cash because it widens their customer reach. Not all consumers use a bank. In fact, about 10 million U.S. households do not have bank accounts. You could be missing out on business from unbanked individuals who can’t buy from you.
Another benefit of accepting paper bills is that you get instant access to cash. You don’t have to wait for a credit card to process or a check to clear. When a customer pays with bills, you have cash in hand immediately. This is helpful if you need to speed up cash flow.
Tips on cash payments
As a small business owner, you can enforce a payment policy that fits your needs. You might accept cash but have some restrictions. Or, you could refuse cash altogether. Use the following tips for accepting cash payments and refusing paper bills.
Post your policy
If you refuse cash payments, you must make your policy visible to customers. Post the policy on your business’s front door, website, or somewhere customers will see before making purchases. That way, customers can prepare to pay you at the point of sale.
Use a convenient payment process
Make it easy for customers to pay you without cash. Check that your processing equipment is up-to-date and functioning properly. You might even consider using a mobile payment option to give customers more ways to pay.
Train your employees on how to accept credit cards and checks. And, talk your customers through the steps when they need help making cashless purchases.
Review your merchants
If you don’t accept cash, you probably get paid with credit cards. Credit card processing fees can get expensive. Usually, you pay the credit card merchant a percentage of each sale made with a credit card. You might also pay setup and equipment fees. Shop around to find the best credit card merchant for your company.
Record all cash transactions
You must keep records of every sale, including those made with cash. If you accept paper bills, treat cash transactions like you would a credit card or check. Make a general ledger entry in your accounting books for every cash sale. Record what the sale was for, the date, and the amount. Keep supporting documents like register tape.
Deposit cash in the bank
Leaving cash in the register is dangerous. Open a business bank account to use exclusively for company transactions. At the end of the day, deposit cash earned from sales. The bank account keeps your cash safe from theft and damage. And, it gives you an extra record of sales.
Avoid large bills
Large bills are the most common bills to be counterfeited. Counterfeit $50 and $100 bills make up over 90% of U.S. counterfeit money. Avoid large bills to protect your business.
When you have to make change for a large bill, you might not have much cash left for other transactions. You waste time going to the bank to withdraw more cash. You can avoid this by refusing to accept large bills.
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