How can I replace the petty cash process?

‘Petty cash’- two small words that make this aspect of business finance sound trivial and unimportant. Yet this one small feature of business accounting can easily consume considerable amounts of hidden effort and cost. 

What is petty cash?

Petty cash is physical money (notes and coins), managed by one of your team, to cover small unexpected expenses, for example stationery items, or kitchen supplies. Cash is available for a team member to go shopping using the money. 

The key advantage of petty cash is that it saves your team members having to complete and submit an expenses claim for small one off business purchases. Your colleague returns with the goods and a receipt, and the amount of cash used is balanced against the value of the receipt.

What are the disadvantages of petty cash?

Managing petty cash is more complex than it might appear, and there are many opportunities for cash to be unreconciled. This means that you have a cash shortage in your business and a gap on your accounts.

Despite petty cash appearing to be a simple process, there are several linked steps required to control it well, and without any one of these, your petty cash can soon fall into confusion.

The key steps in managing petty cash

The first step is to nominate a colleague or colleagues who will control the petty cash. Those with control will be expected to control all office cash that is used for small purchases, and make a note of colleagues it is given to. Whilst this might appear strict, general experience of office finances tells us that it is not feasible simply to allow people to help themselves to cash and expect them to log and reconcile it.

The person controlling the petty cash needs to keep a log of who has been given what amount, on what date, and for what intended purpose.

When the colleague spending the cash returns with the items and a receipt, the log is updated, so that the money spent is balanced against the value of the receipt. 

For example, if a colleague is given £20 from petty cash and spends £15.50, they would be expected to return with a receipt for £15.50 and £4.50 change.

What are the problems with petty cash?

If the spender does not return with the receipt (and change) the person controlling the petty cash needs to spend time contacting them to remind them what is required. 

Petty cash systems can be hungry on colleague time and fraught with errors. Failure to log the petty cash correctly, or perhaps forget to log it at all, provide the opportunity for an imbalance. 

Lost receipts, change, or colleagues who simply forget to return with the receipt, can also create an imbalance, which equates to lost cash on the company books. 

Dispensing and logging cash, gathering receipts and reconciling the balance all takes valuable colleague time, and distracts members of your team from the core purpose of their job. Lost cash - and the time taken to pursue and reconcile it - adds even more burden.

How can I replace petty cash with cashless payments?

Thankfully, technology can replace the clunky processes associated with petty cash. 

Nearly all retailers provide card payment facilities, and very often there is no minimum spend limit. So, it makes sense to eliminate petty cash by using a prepaid Expend employee card to help colleagues manage company purchases on your behalf.

You can eliminate the need for petty cash and manage incidental purchases without the drag weight of petty cash slips, logs and chase ups. 

For extra control and peace of mind, you can set spending limits on cards, withdrawals at cash machines and control online transactions, which helps to manage responsible and auditable usage, As important, all payment transactions, including VAT reclamation, can be automated via your company accounting software such Xero and QuickBooks. 

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.