Cheque Vs. Cash: Understand differences between cash and cheque transactions here

. 8 min read
Cheque Vs. Cash: Understand differences between cash and cheque transactions here

Many small businesses opt for cash-only transactions. It is the easiest option as you get your money in hand instantly. Some people choose cash to avoid taxes, which is illegal. If you are a business owner, opting for cheque transactions is always better in comparison to cash. It is irrespective of the scale and size of your business.

Most traditional businesses still accept cheques for transactions to increase the payment options for customers. Additionally, cheques offer various benefits when compared to cash.

Let us explore differences between cheque transactions and cash transactions and check  seven critical reasons why cheques get preferred over cash transactions.

Cheques are more secure than cash

Cheques are safer for your business than cash. Therefore, it is a great reason to switch to cheques.

Carrying a large amount of cash with you makes you vulnerable to theft. On the other hand, having a chequebook around is hassle-free. Moreover, it is not easy to forge a signature and issue unauthorised cheques.

You are also prone to internal frauds or thefts when you have a lot of cash lying around. If you accept cash for your business, you will have to make an additional investment in secure storage options.

woman giving cash

Customers may not always carry enough cash.

Times are changing, and people never have enough cash on them. Electronic payments are preferred over cheques, no doubt. However, the chances of closing a transaction are higher if you are open to cheque transactions.

When you are selling products in bulk, especially, having the option of cheques is highly recommended. The opposite party may also be more comfortable issuing a cheque for more significant amounts because it is easier to track.

Accounting is easier with cheques.

It is much harder to keep track of cash transactions in comparison to cheques or other digital options. If you forget to issue a voucher or a bill for a cash transaction, you can run into many accounting issues. You may even have trouble proving a transaction in case of a conflict.

On the other hand, with cheques, the payer and the payee have data like the cheque number, deposit slips, etc. So when you deposit a cheque, the details reflect automatically on your balance sheet as well.

Another major issue with cash transactions is that they can quickly get mixed with your money. The cash you accept for your business will not be automatically loaded onto accounting software, unlike cheques and other digital options.

Cheques are easier to track

When you use a cheque, it leaves behind a paper trail that makes it easy to track. Likewise, the chequebook itself gives you essential details like cheque numbers for easy tracking.

You also get an SMS or email when your cheque transactions are complete. It is beneficial when you need to settle accounts. It also gives you an upper hand when you run into any disputes with vendors or customers.

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You have more control over outgoing funds.

For small businesses, this is a prime advantage of using cheques. If you have a financial emergency, you still have some cash at your disposal until the cheque is cashed. In addition, cheques take 2-5 days to process, giving you some time on hand to manage cash flow issues, if any.

You also have the option of stopping payments on your cheque. There are many instances when this is useful:

  1. Your vendors may fail to deliver on their commitments.
  2. You may notice that a cheque has been issued without your authorisation.
  3. It keeps you safe from fraudulent transactions.

On the other hand, once you have made a payment in cash, you make a financial commitment. In case of any issues with the transactions, tracking the payee and making amends is harder.

Cash can waste a lot of time.

Today, with advancements in banking technology, you no longer have to visit the bank to deposit your cheques. Instead, you can simply log in to your mobile or net banking account and enter the details of the cheque to make the deposit. Then, all you have to do is fill in the necessary information and upload images of the front and back of the cheque. This facility is available with most leading banks.

You also have multiple cheque deposit boxes, including ones at ATMs. So, it is easier to deposit your cheques. But, on the other hand, when you accept mostly cash payments, you need to visit the bank regularly to make deposits.

It is not advised to keep a lot of cash in your organisation. But, on the other hand, even if you have to visit the bank to deposit a cheque, you can wait until you collect a few.

businessman filling the cheque from his cheque book

You can run into tax issues with cheques.

One of the primary reasons why people accept cash is to avoid taxes. While getting cash is not illegal, avoiding tax payments is.

It is also much easier to forget to account for cash transactions. So, when the time to file your taxes arrives, you can have many issues. In particular, with your income tax, you may find it harder to account for income and expenses. The result is that you may have to pay heavy fines. You may also not be able to show enough expenses. It means you will end up paying more taxes.

Lastly, if you have too many unaccounted transactions in your account, you can find yourself in serious legal issues. It is easier to manage your tax returns when you choose cheque transactions.

There are better payment options like electronic transfers that have caused a decline in the use of cheques. Still, many businesses extend this option to customers and clients. The more the payment options, the better are your chances of completing your sales.

We hope that our article on cheque vs cash transactions turned out to be useful for you. For more such informational articles, keep visiting OkCredit. You can also download our app OkCredit, to keep a track of your transactions.

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Q. Under what conditions can I accept cash payments?

Ans. You can accept cash payments anytime for your business. Cash transactions are not illegal whether you are receiving or making payments. However, you need to make sure that you have the proper accounts of these transactions. Ensure that you issue a voucher, bill, or any other document to prove that the transaction has occurred. It is significant for taxing and accounting purposes. It can also help you immensely in case of any financial disputes with your customers or vendors.

Q. Are there any processing fees with cheque deposits?

Ans. According to the Reserve Bank of India guidelines, banks cannot charge any deposit fees for amounts up to Rs.1 lakh. In addition, the bank cannot charge more than Rs.150 to process your cheque and complete the transaction for higher amounts. Thus, it makes cheques more affordable for transactions as well.

Q. Can I deposit a cheque without visiting the bank?

Ans. Yes. You do not have to visit the bank anymore to deposit your cheque. You can drop the cheque off at any collection box of the bank concerned. You can also log in to your net banking or mobile banking account and deposit the cheque online. You have to fill up a form with the necessary details and then upload your cheque images.

Q. How to stop payment on a cheque?

Ans. If you have to issue a stop payment on a cheque, there are three options that you can choose from:

  • Call the customer care service of your bank or financial services provider and give them the cheque details.
  • You can place an online request by writing to the bank.
  • You may visit the bank personally and issue a handwritten letter to stop the payment.

Please note that stopping the payment on your cheque is only possible before it has been cashed. If your recipient has already cashed the cheque, the options mentioned above will not work.

Q. Why are cheque transactions declining if they are so helpful?

Ans. Today, you have several other payment options that are instant and faster. Customers also prefer to use credit or debit cards to make purchases. For this reason, the use of cheques has declined. Nevertheless, it is still one of the most popular payment choices for business owners, tiny and medium scale industries.