Many merchants on average pay 60 percent more than necessary to move, process and bank cash. However, retailers can significantly reduce their cost of cash by learning how top-performing merchants optimize this area.
“It comes of no surprise to anyone that cash spend has been declining year-on-year,” said Zachary Capps, treasury manager at restaurant chain Red Lobster. “While this pattern is traversed by an increase in electronic transactions, the fact remains that cash management is still a substantial cost center with high fixed costs, therefore a drop in volumes of 1-2 percent doesn’t materially change the charges we pay. It does, however, mean we’re getting less bang for our buck. So when relative costs increase in this way, that’s when companies should start to seek out efficiencies.”
Simply reviewing headline pricing rates—comparing these to what your peers are paying, and negotiating a percentage reduction—will not help matters in the long term. Arbitrary demands for price cuts that fail to acknowledge the challenges to cash transport businesses’ operating model could cause them to fold, consolidating the number of available players and hastening both rising costs and possibly reduced service quality in the process.
The following three methods can help merchants reduce costs significantly and operate at maximum efficiency.
Get your house in order
Cash costs are largely fixed so that over time, declining cash volumes increase the expense of accepting each dollar. Top-performing merchants ensure that cash operations are optimized by getting the basics right. CMS Payments Intelligence calculates that efficient merchants are able to operate on cost bases up to 60 percent lower than their rivals, which means they are better oﬀ by hundreds of thousands—or even millions—of dollars each year.
Top-performing merchants achieve this through a range of techniques:
- Ensuring that cash is not counted multiple times
- Optimizing armored transport pickup/delivery schedules
- Tackling poor armored transport service levels by negotiating strong service level agreements (SLAs)
- Obtaining provisional credit
- Engaging competitive forces to achieve better contractual arrangements with all suppliers, including banks
- Optimizing store ﬂoats
- Optimizing ATM balances, residuals and deliveries
- Reducing shrinkage levels
- Automating reconciliation processes.
With the right know-how, these can be achieved with minimal impact on resource. Moreover, collectively they can make an enormous impact on the overall cost of cash, reducing your budget significantly.
Pickups are not always about how often they take place
Maximizing the efficiency of armored transport pickup and delivery schedules allows merchants to achieve the right balance of cost, cash ﬂow and risk, the three key drivers of optimal scheduling. However, this is a tough task to complete because of the sheer number of considerations, the amount of data to analyze and the intensive internal resource required.
Many merchants are unaware that there are 127 diﬀerent weekly scheduling options for each operational site. It is therefore extremely difficult to determine which of these options is optimal for each site.
Top-performing merchants are able accurately to assess the impact that variable factors have on the three key drivers and adapt their schedules accordingly. There are many such variable factors, including small change provision, store profile, safe size and insurance limits, seasonality and the pace of declining cash volumes. Top-performing merchants will ensure that these changes align with the overall business objectives. Unfortunately, managing this across a large number of sites is challenging and few merchants currently do it in a truly efficient way.
Distance is key
In a country of 3.8 million square miles—and with no armored transport carrier possessing more than 200 depots—merchants may find that carriers have to travel long distances to service many of their sites.
Inevitably, distance has an eﬀect on both price and service quality. When less frequent pickups are available, missed services result in higher volumes of cash being retained on site for longer periods than expected. More cash on site increases risk and means that merchants are not taking advantage of the value of cash in the bank.
We find that top-performing merchants understand the distances their carriers are traveling to service each site, allocating sites efficiently when they have multiple armored transport contracts, and then agreeing strict SLAs with carriers to ensure that service quality and processes are not aﬀected. Efficient merchants are those who maximize economies of scale while maintaining the lowest carrier price without compromising service quality.
Time to focus on cash management
Cash management is often neglected by merchants, with many prioritizing the costs associated with taking card payments instead. However, while card payments may incur higher total costs, many of these costs are fixed and non-negotiable. The cost of cash is largely made up of inputs that are variable and negotiable. So there are lots of opportunities for merchants to reduce their payments budget significantly by paying closer attention to cash processes.
Elley Frost is president of CMS Payments Intelligence.