Managing petty cash
Posted on 26th April 2024
Many businesses put aside a limited amount of cash for small purchases, such as stationery, for example. However, lost receipts and complicated processes are the biggest problems when you’re trying to manage petty cash for your business. Many business owners don’t know how their employees keep track of small expenses.
Petty cash is often used for the wrong things too. For example, some businesses use petty cash to buy assets.
What is petty cash?
Petty cash is a common type of ‘imprest system’ where there’s a fixed amount reserved to cover specific costs. When the money falls to a certain level you can top it up from another account.
What you can do to improve petty cash management
Have a clear process. Decide how much petty cash your business needs to run smoothly and who will be responsible for it. Ideally just a couple of people should look after your petty cash.
Write down a process that makes it clear what to buy with petty cash. Define how to record money taken out along with the receipts and change returned.
Make everyone aware. It’s a good idea to create a short checklist so that everyone knows what they should do.
Regular reconciliation. Regular reconciliation of your petty cash confirms there are receipts to cover spending. If possible, this should happen every day.
Minimise the use of cash. It’s much easier to keep track of small expenses with a business debit or credit card. This helps minimise the amount of petty cash you need to hold and simplifies tracking.
Benefits of an effective petty cash process
Like all your other business expenses, it’s important to correctly allocate money spent from your petty cash account. This provides an accurate picture of your business spending so all your allowable expenses are included in your company accounts. If you are registered for VAT, you can make sure your returns are accurate too.
Digitising your receipts
Using a mobile app like Dext you can photograph receipts and immediately forward them to a dedicated email address. It’s then easy to upload them to your accounting software, like Xero. This minimises errors and safely stores all your records. You won’t have to search in pockets, vehicles or drawers to find them anymore.
Going cashless?
Cashless payments are now the UK’s favourite way to pay. Mobile wallets, pre-order apps and spending cards are becoming more common. However, this can make it more difficult to keep track of small purchases for your business.
There’s often a 2% to 4% fee for cashless payments which will add to your costs. You might also find your local stationer or hardware store doesn’t accept cashless payments.
Prepaid cards are an alternative to petty cash. You can monitor the budget allocated to each card, keep track of payments, and restrict their use. Employees won’t have to spend their own money or sign money out of petty cash. You’ll benefit from a streamlined receipt and expense tracking process too.
If you would like help or advice to set up a process for small business expenses, just get in touch.
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