David R. Henderson  

The Economics of Receipts

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Megan McArdle has an excellent short piece on why businesses provide receipts even when customers don't ask for them. She gives a brief interesting history of the introduction of cash registers also. Bottom line: the purpose of cash registers, with loud bells, and of receipts is to prevent employee theft.

A few things to add:

1. That's also one reason the company will often have an offer on the receipt that allows you to get something free. If the receipt were not offered, some customers would ask for it.

2. It's also why a sign by the cash register will often say, "If the employee does not offer you a receipt, you get your purchase for free." Then customers will monitor sales clerks directly. Yes, it will cost the company the occasional zero-revenue purchase, but these will be rare because employees will get in trouble with the boss when the customer goes to the boss to get the item(s) for free.

3. Personal story: A friend of mine, with whom I moved from Canada to the United States to go to graduate school at UCLA, had taken a year off as an undergrad in Canada to run a service station. He bought his Sunoco station when he was 20 or 21. He ran it well and made a lot of money. He ran it so well that Sunoco asked him if they could pay him to write a manual for other service station operators. He turned them down. Why? Because, he said, the most important way to run a service station successfully, besides obvious things like giving good service with a smile, was to guard against employee theft: employees giving free oil to their friends, etc. How do you do that? By being there. Not by being there 8 hours a day but by being there a huge percent of the time that the service station is open.

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CATEGORIES: Business Economics

COMMENTS (9 to date)
MingoV writes:
by being there a huge percent of the time that the service station is open
That was one man's solution, but it isn't the only one. There is a revolutionary process known as inventory control. Link a smart register to an inventory database and compare results frequently. Theft or loss of product will be obvious. If an employee does not have a believable explanation for the inventory discrepancies, then it's time to hire a new employee.

Note: Three of my uncles ran service stations. One had a serious problem with an employee, but it wasn't theft. He was selling drugs.

Brad writes:

That's a nice story. As an auditor by trade, I can appreciate the usefulness of receipts. Of course, the cash register also keeps a z-tape - an unalterable account of all cash register transactions. This is what really keeps employees honest (along with the physical inventory).

Michael Stack writes:

Oh boy this is so true.

I have a friend who is a regional manager for a large gas retail company. He is responsible for around 10 stores in his area; each of the store managers reports to him.

When I asked him what his biggest problems were, he told me "employee theft" and that it dwarfed any others.

His company keeps cameras trained not only on the customers, but also the register and the cashier. The company's software will let him bring up any transaction in the past N days and review the tape from the beginning of the transaction to the end. The tape will show both the cashier as well as the register.

According to my friend, the typical abuse is faked returns. The cashier 'returns' an item and puts the cash into his pocket. Apparently, if the average thief weren't so greedy, he could safely pocket hundreds of dollars a month this way without being noticed.

Of course, many of them *are* too greedy and when returns show too high a variance, he gets a report. Once he has the report, he can revisit all of the returns to validate whether or not they were real returns.

Assuming any of the returns are fishy, my friend gets to 'interview' the employee but that is a story for another day.

Summary: it is clear that this company believes spending a lot of money on anti-theft security is a sound investment.

Mark V Anderson writes:

I have long been curious about an aspect of potential employee theft. I've noticed that cash registers no longer seem to have the price of the purchase showing in a window for the customer to see, which seems like one method to keep employees from stealing from customers. I remember when I was a teenager, decade ago, an acquaintance talked of how he stacked magazines in front of the cash register he worked at so the customers couldn't see the amount. Then he charged his customers an amount higher than the cash register indicated, and pocketed the difference. Now the stores make it easier for such employee thieves. Of course the store isn't out any money for this kind of theft, at least until customers find out what is happening and don't patronize the store any longer.

Jim Rose writes:

the need to use the cash register was the reason so many prices ened in 99 cents. the customer policed the recording of the transaction in the course of getting their change.

Megan McArdle writes:

Brad--the thing about the receipt is that it makes sure the transaction is recorded. When I was a cashier, long ago, I was fast enough at sales tax for common amounts that I could have under-rung the transaction, quote the customer an approximately correct price, and pocketed the difference between what I rang and what they paid. What stopped me personally is a painfully bourgeois upbringing. But what stops people in general (aside from bad mental arithmetic skills) is that customers are likely to notice if the receipt is only for half as much as they paid.

Charly Fox writes:

It's not only about the sum. In the receipt there is a lot of other important information: the date of a purchase, the name or number of the store and so on and so forth. I usually keep it for big purchases and throw away for trifles.


Aaron writes:

Cashier at a coffee shop. We ask people who pay with cards to sign the credit card receipt, and if they'd like a copy for their records. Our official stance is that its required, and good business in case of a dispute, but really we do this to direct the customer's attention to the line reserved for filling in a tip, or as I prefer to think of it, a bribe :)

Curmudgeon writes:

The most annoying bit about being shanghaied into a company's loss prevention scheme is the placement of the receipt between the paper change and the coins.

When I was a a cashier, 25-odd years ago, it was required to count the change back to customers. Now, in return for my patronage, I frequently get a pile of uncounted money, a receipt, coins, my purchase, and an impatient look when I can't put it all away fast enough.

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