There seems to be a universal belief amongst retailers that converting traditional cash control processes to an automated cash management service will add costs to the business. The fact is that this belief is inaccurate and warrants closer investigation.
Richard Phillips, the joint CEO of Cash Connect Management Solutions says that at the outset one needs to identify where the existing costs actually lie and what those costs are in order to establish a realistic comparison.
Understanding these costs is the first step in the process and the following guidelines provides valuable pointers as to where the hidden costs can be found.
For purposes of this exercise we’ve used an example of a retail store that trades 30 days a month, employs a Cash in Transit (CIT) service from Monday to Saturday and banks a monthly total of R1, 5 million in cash.
The minimum amount of cash that would accumulate in store in this scenario is that which is received between Saturday morning’s CIT pick-up and Monday morning’s CIT pick-up and approximates R100, 000.
- In store cash & cash in transit insurance.
The national average cost of in store cash insurance is 1.25% of maximum exposure or R1, 250 per month, while the national average cost of insurance of the cash while with the CIT carrier is 1.86% of maximum exposure or R1,860 per month.
- Cash in Transit service fee
While this fee can vary dramatically between companies, the national average for a 6 x weekly collection approximates R3, 000 a month.
- Cash shrinkage
Cash shrinkage can arise at various points between the till and the bank account. The national average approximates 15% of cash turnover. On the assumption that the store takes R50, 000 in cash a day, shrinkage amounts to R75 a day or R2, 250 a month.
- Cost of funds
In a traditional cash management environment the retailer receives value for his deposits the next day and in some cases this stretches to up to three days depending on factors such as the distance between the store and the nearest bank cash centre, the CIT vehicle routing schedule and sometimes the bank where the account is located and even the day of the week. The delay in receiving value even for one day creates a permanent shortage of cash flow and a loss of one day’s interest. The retailer may resort to reliance of an overdraft with which to fund the shortfall. Under these circumstances and assuming an overdraft rate of prime plus 4%, the cost of funds can amount to R1, 104 monthly.
- Bank cash deposit fee
The fee for banking cash varies quite dramatically, but if banked via a commercial cash centre the cost averages R0.35 cents per R100 which translates into a monthly cost of R5, 250.
- Cash counting supervision
Without automated technology, the retailer has to employ someone back of store for cashiers to hand over their respective takings throughout the day or alternatively manage the cash personally. Trials conducted in fast food outlets suggested that a store manager will spend as much as 17 hours a week counting and verifying cash receipts from the cashiers. Assuming a basic salary of R8, 000 and applying a conservative approach of apportioning only the 17 hours a week cost to this equation, the cost of counting cash amounts to R2, 308 per month.
In summary, this store spends R16, 774 managing its cash. The equivalent, fully automated, End 2 End cash management service that provides same day value will approximate R11, 850 a month and the risk is entirely removed from the moment the cash is in the cash vault device in store and a saving of 29% or R4, 942 a month in this scenario is achieved!
The cost of crime
Then there are those costs that are difficult to quantify::
- These are costs associated with the consequences of an armed robbery in which lives are severely threatened.
- The costs associated with the drop off in feet in the store that generally arises after a robbery incident and can continue for as long as six months.
- The loss of cash flow arising from the robbery and the cost of this shortfall for as long as it takes for the claim to be settled.
Phillips says that in a climate in which business is experiencing an average of 51 armed robberies a day, it’s worth taking time out to protect yourself, your staff, your customers and your business from becoming a victim and save costs while you are at it.
Identify what your actual costs are and obtain a quote to automate your cash management processes.
Cash Connect will gladly send a specialist to assist you at no cost or obligation.
“We wish you all a safe and prosperous 2015!”
Joint CEO Cash Connect Management Solutions (Pty) Limited
Approved supplier of retail cash management services to most leading retail organisations.