A cash business accepts most or all cash transactions. A cash payment system usually doesn’t allow customers to use checks and credit cards to make a purchase. If you’re thinking about accepting cash payments, read on for more information.
Pros and cons of accepting cash
There are benefits and disadvantages to primarily accepting cash. Weigh the pros and cons below.
- You receive instant payment.
- No fraudulent or NSF checks come into your business.
- You can use a simple online accounting system.
- You need enough cash on hand to make change.
- Many consumers carry little or no cash, so you might miss out on sales.
- Keeping large amounts of cash is a security risk.
Running a cash business does not mean your operating methods are wrong. But, cash businesses are more than twice as likely to raise an IRS audit red flag for recordkeeping mistakes than a business accepting credit cards.
5 tips for accepting a cash payment
You might be a cash-only business or just need some help handling your cash transactions. Whichever kind of business you run, here are five tips for accepting cash payments:
1. Keep cash in the bank
When you run a cash business, you don’t have to wait for checks and credit card payments to process into an account. But, you still want to deposit cash payments into a bank account.
Keeping your cash in the bank helps you match income to your sales records. This way, you can keep tabs on every dollar that comes into your business.
Using a bank account is also more secure. When you keep large amounts of cash on hand, you run the risk of someone stealing your money. Your cash could also be damaged by a fire, flood, or another business disaster. Make sure to setup a business emergency preparedness plan as a backup, but keeping your cash in the bank is a great place to start.
2. Record every transaction
It is important that you record every cash payment you receive. You could use a spreadsheet or journal. If you want an easier way to track cash transactions, use online accounting for small business. Each month, reconcile your accounting journal entries with your bank statement.
You need to report all income on your tax return. If you do not report all your revenue, including cash payments, you are subject to an IRS audit and penalties.
3. Communicate to customers
When you operate a cash business, you might lose out on sales if some customers don’t carry cash. Let’s face it — a lot of people use credit cards today.
Communicating with customers helps avoid surprises at the point of sale. Post signs so customers know you only accept cash payments before they reach the counter.
Do you run a cash-only business to avoid credit card processing fees that you’d have to pass on to customers? Show your customers the positive side of cash payments. Let them know that accepting only cash allows you to avoid swipe fees and maintain lower prices.
4. Manage petty cash fund
A petty cash fund is a cash account set aside to pay for smaller business purchases. Even though you are a cash business, you want to keep petty cash separate from your income. Separating your petty cash will help with your recordkeeping process.
Record all your petty cash payments separate from other business transactions. Always keep your receipts from petty cash purchases. Refill your petty cash fund when necessary.
5. Use Form 8300 for large sales
It is completely legal to run a cash-only business (unless you try to avoid taxes). And as a small business owner, you know to report all income. Some income for cash-only businesses requires special reporting instructions.
If a customer pays over $10,000 in cash for a single transaction (or for two or more related transactions), you have to report the sale to the IRS. Use Form 8300 to report the transaction within 15 days of the sale.
Do you need a simple accounting system for your small business? Patriot’s accounting software is made for small business owners and their accountants. Try it for free today!
This article has been updated from its original publication date of February 23, 2016.This is not intended as legal advice; for more information, please click here.