While some businesses prefer the immediacy of cash payments, there may be valid reasons for certain businesses to stop accepting cash payments from customers. Here’s an analysis of recent payment trends and reasons why some businesses have decided to go cashless.
Recent trends
During the COVID-19 pandemic, U.S. consumers began favoring credit and debit cards over cash when purchasing goods and services, as well as increasing their use of online payments. A recent survey published in Federal Reserve Bank of San Francisco’s “FedNotes” found that the shift away from cash payments has continued post-pandemic.
The survey reports that only 18% of business-to-consumer transactions were completed using cash in 2022, down from 26% in 2019 and 40% in 2012. And that trend is expected to continue. However, both in-person and store-of-value cash holdings returned to pre-pandemic levels in 2022, suggesting that consumer demand for cash remains.
Demographic differences
Cash as a form of legal tender isn’t yet as obsolete as 8-track tapes and VCRs. But it’s definitely less popular with certain demographic groups than others.
Generation Xers, Millennials and even Generation Zers tend to be more comfortable swiping their credit and debit cards or tapping Venmo or Apple Pay than they are paying for goods and services with greenbacks and spare change.
Going cashless isn’t preferred by all Americans, however. Many middle-aged consumers and senior citizens are still more comfortable paying with cash than swiping a credit card or setting up a digital wallet. And some low-income patrons can only pay with cash, because they don’t have payment cards or bank accounts — or smartphones and the requisite identification that may be needed to qualify for digital payment.
Likewise, some brick-and-mortar businesses actually prefer cash payments. Cash is exchanged at the point of purchase, so business owners don’t have to wait to use it. Plus, credit card companies and certain payment apps, including Square and Venmo, charge fees to businesses that accept them from customers. However, when evaluating third-party processing fees, it’s important to recognize the operating costs associated with accepting cash payments.
Reasons behind the cashless movement
Handling cash can be costly and time consuming. For example, it requires businesses to:
- Have cash on hand in varying denominations (including coins) to make change for customers who pay with cash,
- Tally up cash receipts and count cash registers between shifts and at closing,
- Make regular cash deposits at the bank, and
- Implement physical controls over cash (such as lockboxes, safes and surveillance cameras).
Cash is also susceptible to theft, burglary and fraud, including the risk of accepting counterfeit bills. Additionally, some customers will spend less if they’re limited to the cash in their pockets than if they use a payment card. Some restaurants even say they don’t accept cash, in part, because it’s dirty.
By comparison, for many consumers, credit or debit cards and other digital alternatives are more convenient — just swipe, insert or tap, and then go. In addition, cashless payment forms facilitate sales and can dramatically reduce the chance of theft — if the business has adequate cybersecurity measures in place to prevent hackers from accessing customer data.
Going cashless isn’t just small businesses. In fact, many airlines have stopped accepting cash for inflight food and beverages. And some sports and entertainment venues have stopped accepting cash payments to minimize lines at concession stands.
What’s right for your business?
Outside of the localities that prohibit a cashless business model, business owners and managers have an important decision to make: Should we still accept cash from customers? There’s no universal “right” or “wrong” answer. Contact your accounting and legal advisors to evaluate the pros and cons before jumping on the cashless bandwagon.
Sidebar: Legal considerations of denying cash payments
Under the Coinage Act of 1965, “United States coins and currency [including Federal reserve notes and circulating notes of Federal reserve banks and national banks] are legal tender for all debts, public charges, taxes, and dues.” In other words, any type of money included in that definition is a valid and legal offer of payment for debts to a creditor.
But no federal law currently requires a private business, person or organization to accept currency or coins as payment for goods or services. So, your business can develop its own policy as to whether you’ll accept cash — unless state or local law requires it to accept cash payments. In that case, the state or local law would override federal law. For example, businesses in these cities and states are among those generally required by local law to accept cash, unless the seller suspects it’s counterfeit:
- Chicago,
- Miami,
- San Francisco,
- Washington, D.C.,
- Arizona,
- Delaware,
- Colorado,
- Connecticut,
- Idaho,
- Maine,
- Massachusetts,
- Michigan,
- Mississippi,
- New Jersey,
- New York,
- North Dakota,
- Oklahoma,
- Oregon,
- Pennsylvania,
- Rhode Island, and
- Tennessee
Several other locales are considering similar legislation. In addition, a bill was introduced in the U.S. Senate in June 2023 that would require U.S. businesses to accept cash as a form of payment. If enacted, the Payment Choice Act would also prohibit businesses from charging higher prices for using cash than for other forms of payment.
Important: Many jurisdictions provide certain exceptions to laws requiring cash payments. For example, Uber and Lyft riders can’t pay with cash; they’re required to pay for the service through the app. Local laws also may allow retailers to post signs refusing to accept bills over a certain denomination.
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