According to Richard Phillips, joint CEO of Cash Connect Management Solutions, it appears that there is a universal belief amongst retailers that converting traditional cash control processes to an automated retail cash management service will add costs to the business. Phillips however says that this is not true!
The following guideline is based on a retail store that trades 30 days a month, employs a CIT service 6 days a week and banks a monthly total of R1, 5 million in cash.The benefits of a professionally constituted cash management service are significant:
- In store cash insurance
- The national average cost of in store cash insurance is 1.25% of maximum exposure or R1, 250 per month.
- Cash in Transit insurance
- The national average cost of insurance of the cash while in the custody of a 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 along its route between the till and the bank account and in a traditional cash management environment the retailer is forced to introduce people to control people to control people. Nevertheless 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 3 days depending on various external 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 upon an operating overdraft with which to fund the shortfall. Under these circumstances and assuming an overdraft rate of prime plus 2%, the cost of funds can amount to R510 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.
- Back office supervision
- Without the aid of automation technology, the retailer has to employ a supervisor to receive and confirm what the cashiers hand in. Trials conducted in fast food outlets suggested that a store manager or supervisor will spend as much as 17 hours a week counting and verifying cash receipts from the cashiers.
- Assuming a basic salary of R8, 000 monthly, the cost of counting cash can amount to R2, 308 per month.
Phillips concludes that in summary this example store would spend R16, 428 managing its cash. The equivalent, fully automated, cash management service that provides same day value to the store will approximate R11, 850 a month and the risk is entirely removed from the moment the cash is dropped into the cash vault. Thus achieving a saving of 28% or R4, 578 a month