Petty cash is crucial for the financial welfare of the business. So, manage it properly and experience a smooth accounting process.

Consider the following scenario: You manage an IT firm, and one evening, a client unexpectedly visits your office. Now, you're serving some coffee and snacks. Now the question arises - should the expenses be charged to the company credit card immediately, or should they be reimbursed later after processing by the accounts team?   

Here comes the factor, the petty cash. This petty cash is a common method used by many businesses to pay for the small daily expenses. But if this petty cash is not managed well, it may lead the business to serious financial consequences. This petty cash is not only for IT firms but also for the small businesses that deal with daily expenses.  

This blog will be a complete guide to the petty cash management details. If you’re a business owner dealing with petty cash, then continue to read. 

What is Petty Cash? 

Petty cash is a minimal amount of money managed by the business to meet the daily small expenses. This cash is used for making small, sudden, and informal payments. Some of the payments made by this petty cash are as follows.  

• Buying food items, coffee, etc., for a client during the client meeting. 
• Unexpected purchases, such as restocking office supplies during urgent shortages. 
• Employee compensation for small operational purchases.  
• Parking fees.  

All these expenses are paid by using the petty cash. Managing this petty cash properly is referred to as petty cash management.  

Top Challenges in Managing Petty Cash Effectively  

Managing petty cash deals with small amounts. But the fact is, if it is left unmanaged, it makes the situation worse and may cause headaches to the finance department that deals with it. There are many challenges in managing petty cash, and some of the top challenges are mentioned below.  

Challenge #1: Handling numerous small transactions can lower efficiency and business productivity. The time spent here will be high, which prevents the worker from focusing on other effective activities.  

Challenge #2: As petty cash is used to pay the local expenses, there are numerous chances for fraudulent activities to occur. Implementing strict rules for petty cash management can also lead to overuse of money.  

Challenge #3: Without proper tracking, the petty cash can lead to confusion about where it is spent. This leads to significant confusion and misunderstandings among the employees of the business.   

Challenge #4: Sometimes, there are chances for the employees to forget to bring the receipts for the purchases that they have made. This may create a state of confusion in the person who manages the petty cash.  

These are common challenges, and, in some cases, if the petty cash is not managed properly, it may create discrepancies in the entire accounting process and in auditing periods. 

Smart Tips for Successful Petty Cash Management

To prevent yourself from confusion raised by the petty cash, some smart tips can be implemented. They are mentioned below.  

1. Set clear terms and conditions regarding the petty cash. Give access to an employee who can access the petty cash and explain the conditions of dealing with it.  

2. Maintain clear records of the petty cash spent. This record must include the following details.  

• Amount given  
• Reason for which the petty cash is given  
• The concerned person who gets the petty cash, the date, and the time.  
• Receipts for the amount spent  

3. Make a reconciliation process regularly to avoid any confusion and discrepancies. 

4. Make use of expense management software to track expenses and to access all the expenses of the business.  

5. Implement a clear system for petty cash reimbursements that outlines receipt requirements and due dates.  

Petty cash is crucial for the financial welfare of the business. So, manage it properly and experience a smooth accounting process.