Are You Paying Interest on Your Own Money?

Provisional credit can help businesses in their day-to-day finances, but the cost is real.

May 21, 2024

This article is brought to you by Cash Depot.CashDepot-logo-for-in-text-(1).png

Retailers already have a lot on their minds. “The convenience industry operators we work with are passionate about their culture, their team members, their fueling program, their evolving food service—you name it,” said Sean Burke, CEO of Cash Depot. “But what seems like money management minutia … they may be less passionate about that.”

The cost of provisional credit, the “next-day deposits” received for money placed in a smart safe or cash recycler, is one example.

Provisional credit is a good thing for retailers. They have access to the cash in their smart safe before it hits a bank, which means cash flow is easier to manage, daily cash profits are easier to account for and the money is immediately available to cover expenses or make investments.

But there’s no such thing as a free lunch. Provisional credit was cheap when interest rates were historically low. “Retailers basically ignored this cost,” Burke said. “And then when the costs became meaningful, they weren’t used to monitoring them. Many retailers don’t know how much they pay for the provisional credit they enjoy.”

Like all interest-based expenses, provisional credit is tied to the federal interest rate. Most companies today pay an annualized rate between 8.5% and 12.5% for next-day credit. “So, a business with weekly deposits of $20,000 is paying about $200 per month in these fees,” Burke said.

If that seems steep, retailers can get rid of next-day bank account credits and can either go back to taking the money to the bank manually or wait for funds to be picked up, processed, and deposited. But this usually takes seven to ten days.

Another option for retailers is to look at new ways to manage their cash. Cash Depot’s BANK IN A BOX cash recycling system recycles deposited money back out to consumers who use the system as a self-service financial kiosk and ATM. Money pulled out by a store’s customers in this manner is deposited into a business’s bank account the next day—without interest charges for provisional credit.

“BANK IN A BOX lets operators be more self-sufficient and less reliant on interest-riddled bank services by recycling their physical cash straight into the digital system through the consumer cash services channel. That means a reduction in bank-related costs, including provisional credit,” said Burke.

Dive into more content about cash management sponsored by Cash Depot. Read about cash management and recycling, the hidden costs of cash management and how to save on cash management.