Despite its name having been derived from the french word ‘petit’, translated ‘small’ in english, Petty Cash serves great importance in all businesses for day to day expenses encountered by its employees. This may take in the form of transportation expenses, medical fees, office stationery and ensuring a well stocked pantry, just to name a few.
Perhaps you may be thinking: “Well in my company, these individual expenses aren’t much at all so why bother with the hassle of keeping track of the details?”
These individual expenses by themselves may not necessarily have a significant impact on business costs, however they do add up. In fact, due to the high frequency of such expenses, they add up real fast and soon you’ll be feeling the pinch.
You work together with 29 other employees. Every day, each employee drinks two cups of instant coffee from the office pantry that you stock up regularly. The cost of each coffee, including the cup, is 40 cents. Multiply that by 2 cups, then 30 employees, followed by an estimated number of working days of 250. That’s a whopping $6,000 spent on coffee alone each year!
Small businesses are more likely to be heavily impacted by accumulated petty cash expenses in comparison to their larger counterparts, since these expenses make up a greater proportion of total business costs. Hence, just as it is important to keep track of one’s own personal financial expenses, it is necessary that businesses have in place a Petty Cash System in order to keep a record of all transactions and ensure sufficient budget for the following years. Not to mention the input tax savings you will receive as long as you are able to provide evidence of relevant expenses.
If you’ve yet to implement a Petty Cash System in your business, here’s a few tips for recording Petty Cash:
Implement Clear & Transparent Claim Policies
Employees need to be constantly kept up to date with the rules and requirements of expense items that the company deems claimable, as well as the limit that can be claimed each time. For example, if an employee would like to submit a medical fee claim, perhaps your company sets a claim limit of $20 for each medical fee. It is important that all employees, and especially the Petty Cash-in-charge is fully aware of the claim limit of $20, in order to have a successful implementation of the claim policy and prevent any potential conflict that may arise. To facilitate this, you may choose to consider periodically emailing your employees a documented claim policy that they may refer to at their convenience, whenever necessary.
Limit Employee Access to Petty Cash
As with Brook’s Law of having more people to a job results in more time required to complete it, it holds true to the handling of Petty Cash as well. For smaller businesses, it is sufficient to designate just one employee to be in charge of Petty Cash reimbursements, with the benefit of a much more systematic and efficient Petty Cash System. The designated Petty Cash-in-Charge employee will follow the rules binding what can and cannot be claimed, and ensure all Petty Cash is backed up with relevant documents and receipts.
Follow a Periodic Payment Schedule
We recommend that businesses seek to try and avoid allowing employees to request for advance claims on cash payments. Why? Firstly, the eventual use of future cash payments, as the name suggests, is almost impossible to predict. In the event that such payments do not follow through, dishonest employees may simply abuse the Petty Cash System and take the advance claims for keeps. Furthermore, it can be mentally exhausting for the Petty Cash-in-charge employee to keep tabs on every single advance claim.
To avoid the need for advance claims, what businesses can do is to ensure Petty Cash claims are reimbursed on a relatively short term periodic basis. This will enable employees to not only know when to expect reimbursements of their Petty Cash claims, but also be able to receive the reimbursements within a short span of time and not have to compromise on their own personal spending.
Of course there may be situations where an advance claim is necessary, especially when the Petty Cash amount is significantly high. Nonetheless in cases like that, such advance claims should be authorised before being reimbursed to employees.
Secure the Bundle of Cash
If your business generally handles Petty Cash with physical cash, then you really should think about the security of where it is stored. Clearly, cash should never be left in an open location. Ensure it is stored in a cash box, a safe or in the locked drawer of your designated Petty Cash-in-charge.
As a small business ourselves, we have understood over time the importance of not underestimating Petty Cash in its contributions to our business costs. Aside from ensuring accountability, knowing which category of claims that are contributing to the bulk of Petty Cash expenses can enable businesses to budget efficiently for the future. Our Claim Management Application aims to not only provide your business with what has been stated above, but also to allow your business to retain Petty Cash History that enables assessment and analysis of your own business’ Petty Cash transactions. As we progress into the digital age where data is fast becoming the main driver of better decisions and implementations, it is imperative that businesses look into investing in technologies that can offer such to their daily operations.