Screaming Won’t Help when Too Much Cash Kills Your Business

I’m embarrassed to tell you that I actually screamed at a salesman over the phone today.  It takes a lot to get me worked up, but in this case I broke.  I simply wanted to PAY this guy, and he could not take payment over the phone.

ME: “What? No invoicing?  No credit card?  No Paypal, SquarePay, or Intuit Payment Network?”

SALES GUY: “No.  Cash or check only, payable on delivery.”  

Since his office was an hour away, it was now impossible for me to get the services I desperately needed.

But instead of screaming, I should have explained to him how his policy of cash only is slowly killing his company.

Evidently these guys believe that accepting only cash protects them from incurring expensive credit card charges (about 3%) and other bank fees.  Yes, credit card fees can be expensive (and I’ve suggested alternatives to merchant fees like ACH, which costs just 50 cents!)  But a 3% fee is nothing compared to the cost of handling cash.

Accepting cash and checks (ie: “Cash on Delivery” or C.O.D.) is the most expensive way to get paid….often C.O.D. costs you 100% of sales or more.  Consider this:

  • Theft.  C.O.D. companies have minimum wage workers driving around town with thousands of dollars in their pocket.  How long will it be before some of that cash goes missing?  The cost of theft or loss, is 100%
  • Insufficient Funds. If a customer pays by check, and that check bounces, chances are you are stuck.  Sure, you could take them to court, but you won’t. One bounced check could ruin your profits for the month.  The cost of bad checks is 100%.
  • Fraud.  If you work for cash, and send your team into the field, there is nothing to prevent them from doing work without telling you.  Have you ever seen a windshield repair guy by the side of the road with a cardboard sign — “Fix Windshield: $20”.  You can guess that his boss thinks he’s at lunch.  The cost of fraud is 50% or more — materials & labor at least!
  • Fraud 2.  Here’s another story.  You tell your guys to collect $600 from the customer.  They write an invoice for $750, which the customer pays.  They pocket $150.  I don’t know how to calculate the “loss” here, but as my grandfather would say, “it ain’t right”.
  • Record Keeping.  When transactions are done in the field the record keeping is often a second thought. Poor records will cause someone (accountant, CPA or CEO) to work extra hours trying to patch together the transactions after the fact.
  • Running to the Bank.  Even when the cash makes it back to your office safely, there’s no way to make a deposit without getting out of your chair, into your car, and going to the bank.  If you pay a $20/hour employee to go to the bank once a day, you’re spending more than the credit card fees just for his time (not to mention gas at $4/gallon!).

So one equation my COD friends should have been doing is this:

Theft + (Fraud * 2) + Mistakes + Inconvenience = Cost of Cash on Delivery

But don’t forget the screaming.  When C.O.D. makes your customers scream at you over the phone, you can count that as a 1200% loss.  Why 1200%?  Because in this day of Yelp, Facebook, and Angie’s list, you can be sure that my bad experience will be broadcast far and wide…. costing this company not only my business but that of 10 or 12 other people.  (Statistically, a dissatisfied customer tells 12 friends.)

So… if you are still charging your customers COD, please consider the alternatives.  I named 6 alternatives in this article already… and would be happy to help you think through more.

Dedicated to your (electronic payment) Profits,  David.

PS: Read more about Electronic & Mobile Payment Options!

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  1. Your post points out the silliness of being behind the times. COD? Come on! No one in their right mind goes this route. I agree that if I am asked to pay COD, I will take my business elsewhere.

    • Thanks Mary!

      I was shocked when I heard they wanted C.O.D. And perhaps that’s what put me into screaming mode… but I’ve recently met several companies that are doing COD, so thought this was worth a blog. One in particular is a $20 million (annual rev) supplier of auto parts. They make their customers pay COD because they themselves are on a COD relationship with their Chinese manufacturers.

      It is crazy, and points out an even larger problem that I did not discuss above: When you charge COD it allows you to NOT develop your finance capabilities (lines of credit, loans, equity, etc.). In turn, not having good credit facilities will severely limit your growth. If you can only sell what your customers can pay for today, then you’ll miss a huge opportunity to sell so much more. Imagine WalMart paying you COD for your product? No way Jose. If you want REAL customers, you must be ready to give them credit!

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