Growing Magazine - April, 2014

COLUMNS

Business: Is "Cash Only" Hurting Sales?

By Tamara Scully


Photo by jppi/morguefile.com.

These days, paying with cash can seem obsolete. Where pocket change may once have paid for small purchases, such as a soda or quick snack, many consumers today pay with debit cards. Yet this too may be starting to change. Paying virtually, either from a credit card, bank or other payment account, isn't just for online purchases.

Cash registers are quickly becoming relics as sales are made from tablet-style computers with apps that make accepting virtual payments practically effortless. With payment systems changing rapidly, does "cash only" make sense at the farm?

Today at the market

Farmers' markets across the nation accept Supplemental Nutrition Assistance Program (SNAP) benefits, which have been processed with Electronic Benefits Transfer (EBT) since 2004. In the ensuing years, the USDA has worked to assist farmers' markets in accepting SNAP benefits, promoting systems that allow all vendors to participate if the farmers' market itself becomes licensed and processes payments for all vendors. The EBT system for SNAP benefits also led to the acceptance of credit or debit card transactions at markets, allowing customers the option of purchasing without cash, even when vendors themselves have a cash-only policy.

For many farms, accepting credit cards hasn't made practical sense. Credit card companies impose a fee, typically calculated as a percentage of every transaction based on sales volume per year. Special equipment requirements add to the hassle. At the farm market or roadside stand, where electricity isn't always readily available, and clunky credit card machines would be required, swiping and signing on the dotted line wasn't always a viable option. Some have argued that the added convenience for customers boosts sales, increasing per-visit sales as well as return visits and customer loyalty.

Today's credit card processing equipment has evolved to include smart credit card readers, which are used in conjunction with wireless phones, making infrastructure concerns a nonissue. Newer "tap and pay" options allow a customer to pay for a purchase using their smartphone - no card reader required. However, the fees associated with these transactions, combined with the necessary software and compatible wireless devices, plus the learning curve on utilizing these systems, are obstacles for some growers.

Benefits

While EBT transactions at the farmers' market may have helped to make fresh food more available to SNAP benefit recipients, would credit or debit card transactions, no matter how they are processed, lead to increased farm sales? Would accepting these payment options lead to other benefits, even if they don't increase overall sales?

Mary Peabody of the University of Vermont Extension works with beginning farmers. In a blog post aimed at new farmers, she tackles the question of accepting more than just cash (http://bit.ly/1jbfVDy). Aside from the possibility of increased sales, she cites other possible benefits due to convenience for potential customers, particularly those who may not be prepared with cash.

"You will want to know whether your decision results in more overall customers, increased sales per customer and/or higher customer satisfaction. Any of those results could be interpreted as a good business decision," Peabody writes.

There are plenty of statistics and anecdotal evidence indicating an increase in farm sales after switching from cash only to accepting credit or debit cards. However, there are also stories of farms that tried the switch and then went back to cash only, fed up with the fees, the system and longer wait times while transactions were processed. While newer mobile payment options can simplify the equipment issue, and the trend toward more streamlined transactions may work for many, others can still argue for doing business the old-fashioned way.

If you're selling to a stable customer base and not relying on attracting new visitors to your farm market, your customers are already used to paying with cash. If you're selling what you grow and don't want to expand, there may be no good reason to stop a cash-only policy. If you sell at a self-service roadside stand, accepting point-of-sale credit card transactions would not work, although some type of online ordering and payment in advance for pickup at the stand would be a possibility.

In the article "Do Payment Mechanisms Change the Way Consumers Perceive Products?" (Journal of Consumer Research, April 2012), Randall Rose, University of South Carolina, and Promothesh Chatterjee, University of Kansas, show that customers oriented toward paying with credit cards are more likely to pay attention to "benefit words" rather than "cost words," while the opposite is true for cash customers. This change in perception, they argue, leads to making different purchase choices based on payment method.

For farmers selling produce, this change in perception could promote increased sales of locally grown or organic products if customers consider those to be value-added traits, despite the typically higher per-unit cost.

Other studies show that credit card purchasers tend toward unhealthy food choices. So if a farmstand or farmers' market offers an array of nonproduce items, would the baked goods win out over zucchini sales, detracting from overall sales of farm products?

Simplification

While deep psychological processes may be at work when consumers choose credit or debit options over cash, farmers must weigh the potential increase in sales and customer convenience against the fees, time investment and equipment needed to make options other than cash work. Today there are even mobile payment services geared specifically for farmers, such as Farm Wallet (http://www.farmwallet.com). Many other payment services promote their benefits to farm marketers, and having a lot of cash on hand at the farmstand can make safety an issue.

Local food systems and bartering are back in vogue, yet paying with cash has morphed into using wireless payment transactions. While accepting only cash transactions has kept things simple, accepting other forms of payment is becoming increasingly simplified, without a lot of necessary equipment, making these transactions portable. Yet today's new virtual payment methods require software, wireless devices and a bit of screen tapping to complete the transaction. Maybe the sounds of the cash register won't go out of style after all, at least not yet.

The author is a freelance contributor based in New Jersey. Comment or question? Visit http://www.farmingforumsite.com and join in the discussions.