What is a Cash and Carry Store?
You might have heard of a cash and carry style store before, but what exactly does this mean? Cash and Carry simply refers to a business model that excludes any credit transactions.
The definition of cash and carry is a method of purchase in which you must pay for your item on the spot and then take it with you. In this situation, the customer pays cash for the goods that they purchase and the retailer doesn’t offer credit. Also, the customer carries away the item themselves and the retailer doesn’t offer delivery service.
When a company works on a cash and carry model, they eliminate any type of “accounts receivable” from their bookkeeping and they can match up all of their sales with actual cash receipts. Not surprisingly, cash and carry operations used to be the most common type of business in the olden days, before the technology came along to make credit possible. It is the most time-honored trade method – next to a barter system. However, this traditional business model has been making a resurgence in recent years.
Although traditionally a cash and carry business would only accept hard currency for goods, these types of businesses might also accept credit under certain circumstances. They might extend lines of credit to a local frequent customer, especially if they are a small business within a well-known community. In this situation the business owner can use their discretion to offer case by case credit and deal with the customer personally if they do not pay.
The Pros and Cons of Cash and Carry
So what are the concerns that are associated with the cash and carry system?
- A cash and carry business model makes it difficult for a business to offer any high ticket items, as most people don’t buy such large items with cash.
- Often customers can see the bargain aspect of a large purchase if they can pay for it over time. When people are told that they can only pay cash for that same item, it suddenly becomes a onetime expensive purchase that they will put off for a later date.
- Business owners who rely only on cash can also open themselves up to fraud more easily, as there are no checks and balances for denying or approving the cash funds and avoiding counterfeit money.
- Indicating that you only accept cash payments for products lets thieves know that you have a large amount of cash on hand.
- If a dishonest employee wants to embezzle, a cash and carry system makes it easier for them to do so.
Effect on Spending Habits
Do cash and carry operations have an impact on consumer’s spending habits? It is important to consider the fact that credit cards are essentially the same as up –front payment for the business. The credit card company will pay the business the money up front, whether or not the customer pays his bill. In this situation, people can still make credit purchases at a cash and carry business but they end up switching the debt to a third party.
Of course, in times of financial turmoil the credit card companies often increase their interest rates and fee structures and make it more difficult to get a credit card. This means that personal credit lines can dry up or become too expensive and consumers can start to move back to a primarily cash and carry method of shopping.
What About Cash and Carry in the Future?
As the credit market responds to issues and events in the larger landscape, the future of cash and carry may change. The situation might force consumers into making more frugal spending choices, saving their money for a long time before making large purchases. Also, in times of financial struggle if credit card companies are generous with their credit policies the vicious cycle of debt and defaulting on loans might continue.
Returning to a predominantly cash and carry marketplace as a whole would have a number of negative economic effects. Many people would adopt wiser spending habits and gross domestic product figures would decline as a result. Also, there would be a decrease in income which could lead to unemployment in all industries.