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Disadvantages of Handling Cash in the UAE

  | Published: 25 January 2020 | Last Updated On: 19 January 2021

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Digitization has entirely changed the way we spend our lives. Everything today is so easy to access due to internet services and digitization. The digital world offers different payment gateways that are highly secure and reliable. In order to match the pace, most of us have partially switched to digital currency and reduced the use of cash. Countries like India are emphasizing on promoting digital payments to reduce cash flow in physical forms.

Proper management of cash flow is vital for the success of any business; it is an integral component of financial planning in Dubai. Very often large companies and firms have access to better financial resources in comparison to SMEs and small business owners. In such a scenario holding cash appears to be a logical solution to counter the problem. However, it is important to strike a balance between cash reserves and digital payments.

Holding cash might appear to be beneficial it involves several disadvantages. Here’s a quick rundown-

Missed Financial Opportunities

The foremost and probably the biggest disadvantage of holding cash is the opportunity cost of cash. Holding cash might lead to the loss of purchasing power primarily due to inflation and its impacts. Furthermore, investors miss out on various potential opportunities for adding surplus revenue you might generate by utilizing the excessive capital in the form of cash. The better approach would be parking extra cash into a business account or savings account that would yield returns in the form of interest which allows investors to indulge in financial planning in Dubai. The interest obtained can be used to expand and diversify your business.

Careless Financial Decisions

Very often holding capital in the form of cash lulls investors into a sense of false financial security which might escalate to careless expenditure. Holding cash provides a sense of confidence that tempts investors to commit cash into projects without properly understanding and researching the market. With a relatively tighter flow of capital, investors are more likely to spend with care and thoughtfulness. The phenomenon is a result of simple human psychology. People tend to spend carefully when they have limited resources. On the other hand, people tend to spend more without assessing the consequences when they have adequate capital particularly in the form of cash.

Higher risks of theft

Although digital currency is not completely safe from theft and crime, capital in its physical form is highly prone to the risk of theft and burglary. The benefit of using digital modes of payments like credit cards and debit cards is that they can be blocked in case of theft. Contrary to this cash once stolen is very difficult to redeem.

No Benefits/ Offers

According to statistics, approximately fifty percent of the total payments made globally are via plastic. Shopping using cash is old school and does not offer any complimentary offer or benefits. On the other hand, shopping using a credit card provides reward points and complimentary benefits, discounts, etc.

Credit cards are tempting when it comes to rewards and offers; the cash backs help buyers to save some extra money and enjoy some additional benefits.

Interest payments on debts

The money that is to be paid by investors on business debts is called interest payment. The correct approach based on financial planning in Dubai would be utilizing extra cash to make purchases instead of opting for a loan. This will help to save some extra capital for your business. Using this approach you can sell assets in return of cash if your business is going through swings.

Cash can be damaged by External Forces

The physical presence of cash itself is a problem. All of us have encountered situations where our cash is damaged due to external forces. Since currency is a physical asset it is subject to wear and tear which is not the case with digital modes of payment.

The Bottom-Line

Cash has always been the preferred mode of currency flow not just in the UAE but all across the globe. However, with evolving technology digital transaction is taking over conventional cash flow.

Cash has its own set of advantages and disadvantages. If you are a business owner or a working professional the correct way to efficiently manage cash flow would be striking a balance between cash payments and digital payments. Financial planning in Dubai helps business owners to efficiently manage their expenses.

Digital payments and cash payments when carried out together can be a solution to all your currency flow problems.