Your business may receive payments by both cash and credit card, especially if you run a retail business. The credit card sales to cash sales ratio measures the distribution of the sources of your business revenue. This ratio helps you manage your relationship with the credit card issuer and may even assist in identifying fraud.
To calculate the credit card sales to cash sales ratio, you must first list your sales figures by payment method. You can then simply divide all credit card sales by all cash sales to calculate the ratio. For example, if your total revenue is $10,000, and $4,000 is paid by credit card and the remaining $6,000 is paid by cash, your credit card sales to cash sales ratio would be 0.67 ($4,000 / $6,000).
Accountants usually treat credit card sales as cash sales in financial statements. This is because you obtain the funds in your account immediately after giving the credit card issuer the credit card sales slips. However, you have to pay a service charge of 2 to 4 percent to the credit card issuer. As such, your business may not have data on the amount of cash sales as compared to credit card sales.
The credit card sales to cash sales ratio can help you manage your account with the credit card issuer. If you have a high credit card sales to cash sales ratio, it means that a large portion of your revenue is paid by credit card. You will benefit from a lower service fee percentage if you have a high credit card sales to cash sales ratio. In such a case, you may be able to negotiate a lower fee with the credit card issuer.
If you keep a continuous record of credit card sales to cash sales ratio, it may help you spot skimming. Skimming occurs when employees steal the revenue of the business. This reduces your revenue and profit. Employees may be able to steal cash, but they can't steal credit card payments because they go straight to your account. If skimming occurs in your business, your credit card sales to cash sales ratio may go up because there is less cash revenue.