Accepting cash? Here's when to avoid it in your service business

In previous posts we’ve talked about how to price your services and how offering too many pricing options can result in fewer signups. But that’s not all — if you run a membership based businesshow you charge your customers is just as important as what you charge them. 

It can seem nice when a client hands you a couple of benjamins for her monthly membership — who doesn’t like being on the receiving end of a handful of cash? But for a business that is seeking longevity and revenue predictability it’s really not that nice. Accepting cash for memberships often means several months of lost revenue and an inability to plan for future growth.

But, but…”Cash is king!” Yes, it’s true, I agree with you — just not in this situation.

So why am I suggesting you eschew cash as a form of payment at your business?

Let me explain.

Let’s say you have a new client, Bob, who signs up on the first of the month. He tells you he prefers paying cash and hands you his monthly fee in greenbacks. You accept the cash and explain that Bob’s monthly fee is due each month on the first. He nods in agreement.

Bob’s happy and you’re happy.

When the first week of the following month rolls around, Bob is out of town for a business trip. He returns on the 6th — “I’m sorry, I don’t have enough cash on me, I’ll bring it next time.”

Bob feels a bit embarrassed, and you’re slightly annoyed.

On his next visit, the 11th, he brings payment. It only takes a handful of similar instances over the course of a year for your business to lose out on one or two months of monthly membership fees — that’s several hundred dollars! And that’s just a single client paying with cash. If you have multiple clients paying with cash your revenue losses from delayed payments are likely significant.

If preventing lost revenue isn’t compelling enough, requiring that all memberships be paid via autobill offers another key benefit — the ability to predict future revenue. When you have clients on autobill you know exactly how much money will be coming in and on what days. Barring payment failure you can count on this revenue for planning and budgeting purposes. More sophisticated business owners can predict future revenue by taking into account the number of new clients coming through the door each month, the average billing per client, as well as the conversion rate and attrition rate. Plugging these values and some smart formulas into Excel or Google sheets can give you a pretty good idea of what your revenue will look like in six months, twelve months, and beyond.

Of course, accepting cash may be the only option in some circumstances — for example, international businesses where merchant processing is difficult to obtain. For these businesses Pike13 aims to help keep clients paying on their due date — clients with cash memberships are emailed a payment due reminder notice three days before their due date. And the due date is fixed — so even if Bob pays on the 11th this month, he’ll get his reminder email three days before the first of next month. Not as foolproof as recurring billing, but it can certainly help keep your clients on track!

If you’re a U.S business with cash memberships I encourage you to make the switch to automatic billing — you’ll be able to count on each membership dollar arriving in your bank account when you need it and you’ll be in a better position to plan for the future.

photo credit: IMG_2579 via photopin (license)