The days of petty cash could be numbered…

Whatever type of organisation you manage, an office, café or charity, the petty cash tin can be a useful resource. It’s the go-to place when you need cash for emergency supplies, a team birthday present or surprise flowers.

What is petty cash?

Petty cash is an amount of physical cash that is kept on the business premises for small unplanned expenses.

The benefit of petty cash is that colleagues don’t have to pay for emergency or unexpected items from their own pockets, and then re-claim the cost by filling out an expense form. After all, this is time consuming and clunky for everyone involved.  

But whilst it’s tempting to regard petty cash as simple and convenient, it’s also important to think about the costs and risks of running this system.

What are the disadvantages of petty cash?

There are a number of downsides to petty cash. The key ones are lack of control and exposure to loss. At best, it can be tricky to reconcile money that has been legitimately used, and at worst it can be open to fraud which can  remain undetected for some time. Also, following Covid, and the increasing use of contactless payment, you may have less cash on your premises, and there may also be a reluctance from some retailers to accept cash.  

How does petty cash work?

Petty cash works in a similar way in most organisations. There is a physical amount of cash available for emergency use. 

When a team-mate needs cash for an agreed purchase, the cash is issued to them, and a voucher or log is completed to ‘tally’ the amount taken from the cash. 

The process also requires the person using the cash to return with a receipt to offset the money taken and balance the cash.  

What can go wrong with a petty cash process?

Petty cash systems can easily fall into disrepair, because the employee can lose the receipt or forget to submit it. (Worth remembering that their motivation to provide a receipt is quite low, because, after all, they are not claiming their own money with the receipt, they are simply reconciling the petty cash account. So, receipts can quickly be forgotten, lost or not submitted, meaning that the petty cash balance is not accurately maintained.)

Beyond the return of receipts, petty cash processes usually involve the update of a log or spreadsheet, which is also an overhead. And that spreadsheet probably does not connect with your accounting system, so there is a further overhead in reconciling the specific petty cash purchases with your tax-deductible expenses.

Is there an alternative to petty cash?

Smart technology from Expend provides the alternative to how you can better manage petty cash. It means that you can account for every penny spent on emergency or random purchases. It also gets rid of petty cash forms, notes and logs.

This means that your accounts are smoother and more accurate, and by managing these transactions digitally, you can make sure that you are easily able to reclaim VAT on these incidental purchases.

By using the smart technology, app and employee card from Expend you can remove the need for petty cash, and manage incidental purchases easily and effectively. 

You can set spending limits on cards, restrict ATM withdrawals or online transactions, and even block spending in certain sectors, such as pubs or bars - leaving no room for misuse.

Plus, your employees don’t have to wait around to be reimbursed - two of the most common reasons for expenses not being reimbursed are losing the receipt or missing the deadline. Automating the expense process solves both these problems easily.

Disclaimer: This is not legal, accounting, or tax advice - it's simply a guide. If you need help, check with your accountant or contact HMRC directly.