It was interesting to read the feature in July’s edition of FT ’Change on the Cards’, which highlighted the growing frustration of many dealers with fuel cards. As we’ve pointed out on these pages previously, the real problem with the terms under which most retailers work with those cards is not so much the margin although that could always be better but the adverse impact that the payment terms have on the retailer’s cash flow. Unfortunately fuel cards do now represent a very significant chunk of core volume for many dealer sites (and that really means fuel volume historically fuel cards have generated negligible non-fuel sales). These are customers who still come to fill up even if your pole price is 3 or 4ppl more than the nearest supermarket, so it’s very difficult to see how anything will change. The tail now wags the dog.
This month we’re concerned with the other end of the payment spectrum cash. It’s very easy to forget that while plastic payment methods may indeed be used for the majority of fuel transactions, even a moderately-busy forecourt can still generate thousands of pounds per week in old-fashioned notes and coins. If the site features a really busy convenience store with many walk-in customers then there are very substantial amounts of cash being taken. Think of the regular customer who pops in daily for a newspaper, packet of cigarettes and adds a lottery ticket every few days they’re probably not going to use even a debit card to pay for a purchase of around £10. Cash may not be king any more, but it certainly hasn’t disappeared. The problem is what you do with it, since very few organisations seem to want to take it from you at least without charging you a small fortune for the privilege.
It comes as quite a shock for many small businesses. You start your operation and open a business account with one of the big High Street banks. For the first 12 or 18 months your bank charges are very low or perhaps even non-existent. Then the introductory period ends and your account reverts to the ’standard’ business tariff. Suddenly there’s a regular £500-£600 or more being taken out of your account each month in bank charges. You ask for a breakdown of the charges, and the largest element turns out to be ’cash handling’ say 75p per £100, or maybe (as we’re hearing more often now) 95p per £100. Just think about it: if you were to bank £10,000 a week in notes and coins, which is certainly not unusual for a busy forecourt even today, at 75p/£100 that is a weekly cost of £75 before any other charges for electronic receipts, payments or account ’facility’ or ’management’ charges, which equates to £3,900 over a full year.
There are ever fewer ways of avoiding these charges; traditionally retailers used several different routes to try and do so, but over time most of these have been closed off, or severely curtailed:
Personal bank accounts since many banks still claim to offer free banking to personal customers. Unfortunately, if you turn up at your bank with large amounts of cash, the bank is now required to ask where it’s come from and satisfy themselves that it is not the proceeds of criminal activity (money laundering regulations) and if you can’t provide a plausible explanation, you may find yourself reported to external authorities even without your account being suddenly frozen. From an accounting perspective it’s also a no-no: mixing ’business’ and ’personal’ funds in any account is a recipe for potential accounting and tax problems at some stage usually at your year-end.
Building societies very popular back in the ’80s; but try finding one now that (a) isn’t just another bank, and (b) is still prepared to accept your cash without levying the same sort of charges as every other bank.
Paying suppliers in cash in theory you can still try to re-circulate your cash takings to minimise how much you actually deposit in the bank. However, most forecourts now buy their products from major wholesalers who only accept payment by direct debit. The days of delivery drivers taking large amounts of cash from sites at each delivery are gone. That really only leaves the cash and carry option, but even then you have to consider security. Will your insurance policy cover leaving large amounts of cash on your premises for days at a time in between visits to the cash and carry, and do you want it to become known that you always go there carrying large amounts of cash in a shopping bag?
Paying staff this is much like the supplier option mentioned previously. Yes, you can still pay your staff with cash (and indeed many employees would prefer that you did), but it still carries the problem of just how much cash you can leave in the safe until pay day, and most weekly wage bills aren’t large enough to need more than perhaps a day or two’s cash takings, so what about the other four, five or six days’ cash each week?
consider the post office
The consolidation of the retail banking industry is relentless. There are fewer and fewer brands to choose between and even the ones still operating are closing branches continually. One possible avenue left to explore is the Post Office. They not only offer normal ’business banking’ accounts, but their branch network is still larger than all of the major bank names combined and apparently they are willing, even keen, to accept cash deposits from small/medium businesses. It would certainly be worth obtaining a quote from them if you’re facing steep charges from your present bank.
Ultimately, whether we look at fuel cards or cash, the underlying problem is that very few financial institutions seem to understand the particular nuances and requirements of the petrol retail sector perhaps it’s time for a new player who does to come into the industry?