The Use of Cash in Maltese SME’s


With today’s advances in technology, cash utilisation within some Maltese SMEs is declining, in part due to the existence of other convenient and secure payment methods. Nonetheless, depending on the type of industry, the presence of cash still exists and misappropriations may take place if internal controls are weak.

Large cash balances within an SME may lead to misappropriations since cash in itself is of a physical nature and can be easily transported. Since small businesses have limited resources, generally less anti-fraud controls are implemented, leaving the business more vulnerable for abuse and fraud.

SME’s and their background in Malta

The term ‘Small and Medium Enterprises (SMEs)’ may be defined as those entities engaged in an economic activity, which satisfy the criteria as laid down by the European Commission in respect of the number of employees and either the turnover or balance sheet total.

SME’s play an important role in the European economy since they represent 99% of all European businesses, thus effectively being considered as the backbone of Europe’s economy.

Malta’s membership in the EU in 2004 facilitated the entry of Maltese SMEs into the European Market. Thus, since the EU in itself is a single market, Maltese businesses are capable of trading within Europe as if they are trading in their own country. Another aspect that made trading easier for Maltese businesses was the introduction of the Euro in 2008.

The majority of businesses in Malta are SMEs that tend to be also family owned businesses. Table 1 has been extracted from the Small Business Act (SBA) Malta Fact Sheet 2014. It gives an insight into the number of small, medium and large enterprises in Malta.

Number of Enterprises
Number Share
Micro 28,905 94.6%
Small 1,298 4.2%
Medium-sized 291 1.0%
SMEs (Total) 30,494 99.8%
Large 54 0.2%
Total 30,548 100.0%

Table 1 – Small Business Act (SBA) Malta Fact Sheet 2014

As one can see, Malta’s economy is made up of small businesses which are mainly micro-enterprises representing 94.6% of total businesses.

The Use of Cash

The term ‘cash’ may be defined as money in coins or notes, as distinct from cheques, money orders, or credit. The rationale as to why firms hold cash “to some extent depends upon management’s attitude towards risk”. There has to be a balance between keeping cash-in-hand and investing cash wisely, which will eventually reap profits in the future. Moreover, the transactions motive, the precautionary motive and the speculative motive are the three main reasons why firms may sometimes want to keep cash since it is the most liquid of assets in a business.

Unlike credits cards and other methods of payment, which have some form of theft protection, cash cannot be traced. This may allow cash to be mishandled, through physical theft and fraud. Mishandling of cash can take various forms and may take place well before it is injected in the business. Figure 1 relates to misappropriation of cash by employees.

Skimming Cash Larceny Fraud Disbursements
Skimming occurs when cash is misappropriated before it is posted in the accounting records of the business. Cash larceny schemes take place after the cash has been recorded in the books. Fraud disbursements occur during the process when the company is acquiring goods or services.
Skimming may take place at the cashier’s desk, from accounts recievable or from refunds. It can take place while the cash is being held by the company. These range from payments made by the employer, which are not business related, to acts carried out by employees, such as tampering with cash systems in order to conceal the withdrawal of cash.

Figure 1 – Types of cash misappropriation

Theft and mishandling of cash in businesses are likely to occur through the falsification of accounting records; destroying accounting records; creating fictitious invoices or refunds; or not recording the cash received, among others.

One of the major implications of having a business dealing in high cash balances is tax avoidance. In a report published for the European Parliament’s Progressive Alliance of Socialists & Democrats Group by Murphy (2012), it is reported that Malta is losing an estimated €577 million in taxes each year as a result of underground economy 1.

Internal Controls

Organisations with weak internal controls are vulnerable and more likely to be abused by asset misappropriation schemes.

Although internal controls vary depending on the type of SME, certain basic controls are common to all. It is important that SMEs have a cash policy in place. Such a policy often includes how cash should be handled; by whom and for which purpose. Cash policies should mainly specify the duties and responsibilities of the persons:

  • in charge of cash once it has been received;

  • securing the asset;

  • in charge of reconciling cash.

SMEs tend to fail to understand the importance of having a written cash policy in place either because the individual who takes care of the cash is the owner manager or it is an omission from the management’s part.

Restaurants and hotels are likely to implement cash policies since they have several employees dealing with cash transactions at different stages of the cash handling cycle. On the other hand, sole traders are less likely to have a cash policy, which makes this type of environment more susceptible for fraud.

If cash policies are in place, the whole process can be overseen and random spot checks can be carried out constantly, leading to proper cash management. Cash policies act as a deterrent since employees would be expected to know and conform to such policies. Also, lack of cash policies in place can have a negative impact on the auditors’ perception of the company’s cash management practices.

Cash related internal controls can be divided into four main categories:

1. Segregation of duties
  • Different persons carrying out the cash process.

  • In reality, this might not be practical for some SMEs since the owner of a small business or an accounts administrator usually takes care of this function.

2. Accountantability
  • Approvals from authorised personnel.

  • Cash should be documented appropriately.

  • Transactions can be traced to the employee who performed the task.

3. Security of assets
  • Cash must be put in a secure location and access to such cash should be given to few persons.

4. Reconciliations
  • Reconciliations of cash receipts and bank statements must be carried out to confirm that accounting transactions have been recorded properly.

  • Frequent reconciliations will flag any irregularities that might be occurring in the business.

Table 2 – Cash related internal controls

On-going evaluation and monitoring of internal controls where discrepancies in cash have been identified are crucial to make sure that any improvements necessary are made. It is important that strict rules are imposed when there are discrepancies in cash.

The following are some characteristics for effective internal controls.

Strong internal controls will not prevent fraud or theft, but will minimise the possibility of fraud. Management should periodically perform assessments on internal controls to identify any weaknesses, which should be rectified immediately. Figure 2 below presents the cycle involved for maintaining internal controls.

Internal Controls Maintenance Cycle

Figure 2 – Internal Controls Maintenance Cycle

Businesses should bear in mind that the creation and implementation of internal controls impose legal obligations on management. Staff and clients have a right to privacy within the parameters of the law and this should be adhered to. Therefore, companies should be cautious when implementing certain controls on customers.

Findings for selected Maltese SMEs *

SME’s analysed for the study hailed from the retailing and the services sector 2 whereby the majority of the sample were micro enterprises followed by medium sized enterprises.

Based on the sample of businesses under review, the majority do not deal with high volumes of cash-in-hand, with the exception of supermarkets. This is mainly attributed to the fact that customers are nowadays effecting payment through non-cash payment methods, primarily through cheques and cards.

Consumer’s payment methods *

For service-based companies (such as IT related entities and insurance companies), cash utilisation is less when compared to other payment methods. Customers’ first prefer to effect cheque payments with their second preference being online bank transfers. With respect to hotels, customers’ prefer paying via credit cards. Hotels tend to have policies in place to either accept cheque payments up to pre-determined amounts (which is set by management) or in the case of foreign clients, refuse cheque payments for plausible reasons. Furthermore, certain businesses tend to only accept cheque payments from known and trusted clients.

Pharmacies and certain supermarkets that are frequently visited by consumers have an almost balanced proportion of cash and cheque/credit card payments. Moreover, food outlets are generally paid in cash followed by credit cards.

Other retailers still deal with cash balances since customers use cash when paying for items of low amounts. Moreover, some local stores have a ‘cash only payment’ policy since they are reluctant to introduce credit card machines in view of the bank charges incurred.

Certain businesses that still have a proportion of cash payments (such as supermarkets), are nowadays encouraging their clients to pay through cheques and credit cards in an attempt to reduce cash handling and misappropriation. Although businesses acknowledge that these options may be more costly and burdensome, it would reduce the risk of theft or misappropriation of cash by staff.

In March 2015, the European Parliament approved a regulation to cap the transaction fees charged for the use of debit and credit cards. Currently, banks impose fees on businesses for debit and credit card transactions carried out by their customers. Retailers pass this cost to consumers who are effectively paying a higher price for the purchase. Although the cap introduced by the new legislation should effectively lead to lower prices, SMEs could decide to increase their profitability by maintaining the same prices, meaning that consumers will not benefit from lower prices.

Payments to suppliers *

Although the tendency is that payments to suppliers are effected via cheques or bank transfers, some suppliers still require cash payments. Consider an example where the owner of a restaurant is dealing with local fishermen. The norm is for the fishermen to be paid in cash. Another example includes hardware stores, whereby the cash collected from customers is normally used to pay its suppliers.

Some business owners use Internet banking themselves apart from cheques. Where employees are involved, it is still common practice that cheques are prepared for the employers’ review and signature since employees do not normally have access to the company’s Internet banking system. This implies that business owners might either be reluctant to give limited rights of the Internet banking system to the employee to effect payments or are unaware of the main benefits provided by the Internet banking function.

Although the use of cheques is not the most efficient type of payment nowadays, it is still considered to be the main preferred payment option by local SMEs.

The concept of traceable methods of payment

Nowadays the use of Internet banking by both individuals and businesses is increasing and certain payments may be effected even on smart phones.

Cash is not considered traceable. Examples of traceable methods of payment include the use of credit and debit cards, cheques and online banking facilities.

Malta with the highest % of cheque payments

According to statistics published by the ECB (Table 3), Malta holds the highest percentage of cheque payments when compared to all EU countries. In 2013, 26.28% of non-cash payments in Malta were through cheques (increase of 2.38% from 2012).

Malta Credit Transfers Direct Debits Cards Cheques
2011 21.67 4.18 43.47 30.62
2012 22.10 4.41 49.46 23.90
2013 19.54 6.49 47.59 26.28

Table 3 – ECB statistics

It is evident that older generations might be unwilling to use newer payment options. They tend to feel ‘safer’ issuing a cheque rather than processing an online bank transfer or effecting payment via credit cards.

Limits on cash payments in some countries of the EU

In recent years, a number of foreign Governments have been introducing cash caps in order to reduce the amount of cash that a business may accept from its customers; and alternatively using controlled financial flows such as credit cards. The primary reason for some countries is to reduce tax evasion and fraud; while for other countries, the main aim is to slowly move their country towards a ‘cashless’ society. At present, there is no law being imposed by the EU regarding such limits.

Country Effective Year Present Cash Payment Limit Description
Italy 2011 €1,000

The Italian Government introduced a new limit on the use of cash in an attempt to reduce and limit tax avoidance in the country.

The Law provides that the maximum allowed cash payment that businesses can accept is €1,000. Any payment of an amount above this limit should be made using traceable methods of payment. This legal cash cap was initially set for Italians and foreigners alike.

In late February 2012, the Italian Government sought to revoke the law for foreigners since retailers, especially those operating in luxury goods, claimed that such restriction would lead to losing foreign business.

Spain 2012 €2,500 Residents €15,000 Non-residents

The Spanish Government, proposed the implementation of a cash transaction limit of €2,500 for residents and €15,000 for non-residents in 2012. Any transaction, involving at least one businessperson and an amount above the mentioned limit, cannot be made in cash.

Furthermore, the Government imposes fines of 25% on the value of the cash payment if citizens do not comply with the limitation.

Belgium 2012 €3,000

The Belgian Government introduced a cash limit of €15,000 with the aim of reducing black economy in commercial transactions. However, this threshold has been further decreased to €5,000 in 2012 and subsequently lowered to the present amount of €3,000 as from 2014. Any amounts above €3,000 have to be made either by credit cards or bank transfers.

France 2010 €3,000 Residents €15,000 Non-residents

France introduced a cash payment limit of €3,000 for professional and personal expenses in 2010. However, this limit changes to €15,000 for persons who have a tax residence outside France. The latter limit applies for personal expenses only.

Further decreases in limits are being discussed.

Denmark €1,500 Denmark has proposed the introduction of a cash payment limit of 10,000 kroner; equivalent to €1,500. However, payments made in cash over the amount of 10,000 kroner will still remain legal. Nevertheless, adhering to the suggested limit ensures that “the buyer won’t be culpable in a major case of tax evasion”.
Sweden Sweden does not have any cash limits within its legislation and might be the first country where the presence of cash will be almost inexistent.

Table 4 – Regulations on cash capping in Europe

The introduction of the law to limit cash transactions is relatively new since such changes started in recent years. While the main aim for this measure is to combat tax evasion and other related fraud, it may also eventually lead to more surveillance in the EU. One still has to determine whether this measure is really effective in the long-run and what repercussions it might have on other aspects of the economy.

Respondent’s views on the introduction of the cash payment limit in Malta

Some of the sampled SME’s claimed that there will not be serious implications for their business should cash limits be introduced. However, owners expressed concern that the company may incur higher bank charges due to the increased use of credit cards, which might not always be recoverable. Governments should consult and negotiate favourable terms with local banks to aid businesses in this respect.

Nevertheless, advantages may be foreseen from using traceable methods of payment; more transparency since non-cash payments produce digital trails and less cash-in-hand will be safer for staff during cash handling processes.

Certain businesses stated that should the cash payment limit be introduced as a proposition (instead of a law), they would not adopt such practice; however they would closely monitor those companies who have chosen to adopt this proposition.

Such payment limit will not affect each industry in the same way. For example, a €1,000 cash limit will not affect restaurants since clients rarely exceed this limit. On the other hand, this limit might affect clients purchasing from a white goods shop. Thus, should this cash limit be introduced in Malta, it might be fruitful for the Government to propose and adjust limits for different industries as it deems appropriate.

The way forward

Businesses should be constantly proactive and aware of the technological advances, which are leading countries to slowly move towards being ‘cashless’ societies. On an international level, a recent technological innovation is the use of near field communication 3 (NFC). This technology allows a customer to make payments by simply waving his Smartphone at specific NFC terminals.

Alternatively, customers may use their special VISA Cards, namely, ‘VISA payWave’ instead of their Smartphone. These cards incorporate a tiny microchip in order to transmit payment details securely to specific payment terminals. Although the NFC technology has not yet been introduced in Malta, this is considered to be the way forward.

Concluding remark

Cash utilisation for payment purposes is being replaced by other traceable methods of payment. Consequently there has been an increase in the use of electronic money.

In view that in the future, our society is to move towards being cashless, SMEs should embrace the various types of current and upcoming payment technologies in order to be most efficient, for the benefit of the business itself and also for its customers. It is important that SMEs are proactive and alert for all technological advances and innovations that might cause a shift in the way businesses operate.

* Certain information presented in the article, specifically in those sections denoted by an asterisk, is based on the limited sample of SME’s chosen at the time of the study and may not necessarily reflect the practice of all the SME’s in Malta. Therefore, such information should not be generalised since respondents’ views do not reflect the views of all SMEs in Malta.

Tutor’s Bio

Lauren Ellul delivers lectures in Financial Management and Cost Accounting at the University of Malta. Lauren holds a Bachelor of Accountancy (Hons.) degree from the University of Malta and an Executive Masters in Business Administration, accredited by the University of Edinburgh in association with ENPC School of International Management, Paris and KPMG. Lauren has worked within the Advisory function of KPMG for a number of years, as a Senior Manager.

Tutor’s Review

Cash is gradually being replaced by traceable methods of payments, which are considered as being more efficient and safe. These non-cash payment methods, however trigger bank charges.

Ms Abela’s dissertation provides an insight on the use of cash within selected SMEs and the specific related internal controls in place to safeguard the asset. Moreover, it analyses the general practices of the payment methods varying from one industry to the other. The dissertation also provides background information regarding the introduction of cash payment limits in some countries within Europe.


  • 1 The part of a country’s economic activity that is unrecorded and untaxed by its government.
  • 2 Including IT related companies, insurance industry, tourism and hospitality, healthcare and retail shops.
  • 3 A technology allowing the short-range wireless intercommunication of mobile phones and other electronic devices for purposes such as making payments.


All references used in this article are available upon request at the Department of Accountancy, University of Malta.

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