Consider a typical situation. You are planning a brainstorming session with your team. And you want to offer some snacks to all in the meeting. Or, you are expecting a client and you want to arrange some refreshments for him. All businesses, however big or small, have some requirements like this, where they always need some cash to manage these small expenses.
What is Petty Cash?
Petty cash is a small amount of cash, which has to be maintained by the cashier to meet small or 'petty' , and often unexpected, expenses that come up during a business day. Most companies maintain a petty cash fund to pay for petty expenses like minor expenses and employee reimbursements for small expenses like taxi fare, stationery expenses, etc.
Why is petty cash important?
The cash economy is no doubt shrinking. But it's not possible to write a cheque for small things, especially when the exact amount of expenditure is not known. For example, if a parcel has to be couriered, the office boy won't know the exact postage to be put on that.
In such cases, some cash is given to the office boy for sending the courier. This way it is much simpler and eliminates the need and time required to write cheques and get them signed by the business owner. Also, many of the small vendors don't accept cheques, so they need to be paid in cash.
How petty cash system works?
The company decides an amount to be maintained as petty cash. This amount is maintained as imprest. Once this amount is used up, it is replenished.
Each transaction is booked in the accounting system in the normal manner, such as date, amount, payee details, and purpose of business expenditure. A person is designated, who oversees this amount. He is the one, who gives petty cash, does the voucher entry, and informs the management when the petty cash goes below a threshold limit so that it can be replenished.
When a person takes some amount, that amount is debited to his ‘imprest account. The person does the expense and collects the receipt. Then, he needs to get fill a receipt or 'petty cash voucher', get it approved by the person concerned and submitted to finance. The finance people book the expenses in the company's accounting system and credit the amount into the employee's
account.
Challenges in petty cash system:
Despite the many benefits of maintaining petty cash, there are several challenges, which companies face while maintaining it. Some of the challenges are listed below:
1. Cash is vulnerable to theft: Let's face the reality. Any amount, big or small, having cash lying around creates a risk of theft. And with petty cash, it is virtually impossible to track missing money. In some cases, discrepancy, if any, goes unnoticed for a long time. And this creates a financial drain for the business.
2. Difficult and risky to manage records: Managing petty cash is not a full-time job. So, no company puts a dedicated person for this. The responsibility invariably falls on the admin or finance person. And the person has other important things to manage. So, over a period of time, the management of the petty cash declines due to a lack of attention on record-keeping or insufficient training on the correct process. Also, if there is any difference in the amount, the concerned person has to bear that loss. That makes it riskier.
3. Managing receipts is tough: Most of the petty cash expenses are done to small vendors, who don't have a proper invoice. They normally give a handwritten bill or just mention it on slips. Now, it becomes very difficult for everyone to keep the receipts. Also many times, the receipt is illegible but still needs to be filed. This takes away a lot of time. And in today's time, time is money.
4. Difficult to manage in multiple locations: The nature of petty expenses is that each location or division has to manage a separate petty cash account. Due to this, the company funds are divided into many locations and it makes tracking very difficult.
So, what's the option?
Looking at the various issues involved with managing petty cash, many companies are looking for ways and means to manage this situation better. One of the options is giving employees, prepaid cards, which can be used to make these petty expenses.
How Prepaid Cards help you manage corporate expenses?
All the above-mentioned challenges can easily be taken care of by moving to prepaid cards. These cards help you manage business expenses more efficiently and effectively.
1. Convenience for employees, when they are travelling for work: Traditionally, when salespeople travel on business, they have to collect all the receipts and keep them carefully. Once they return, they have to prepare a travel report, get it signed by the boss, and submit it to accounts. Now the finance person has to check each and every bill or receipt. This is a very tedious process and sometimes creates disputes also.
A prepaid card can handle it easily. You may provide the employees with a prepaid card, which they use to pay for expenses. You can set a limit to the card, so that employee does not overspend. In addition, all the purchases made on the card are carefully recorded and can be easily accessed via an online platform. This means there is no need to prepare a separate travel report.
2. Easy Settlement and reclaiming unused funds: In the case of petty cash, after expenses are done, unused funds are lying with the employee only. But in the case of a prepaid card, you can load an employee's card, whenever required. Once the task is over, the unused funds can be reclaimed easily and deposited back into the company account. Now, there's no need to track the petty cash or chase the employee to return the unused money.
3. Safe and secure: The prepaid cards come preloaded with a fixed limit, which is set by the company, so the employees cannot overspend. In fact, you may also restrict the types of outlets, where the card can be used. This ensures that the money is spent for genuine purposes.
4. No interests or risks: In case a company uses corporate credit cards, there is always a risk associated with maintaining a line of credit. You need to make sure that, any payments due on that are paid on time to avoid heavy interest charges. But since prepaid cards come preloaded with money, there is no question of worrying about payment or interest charges. And just like credit cards, prepaid cards are easily accepted at all online or retail stores globally.
Companies always need and would need in the future as well, some amount of petty cash to take care of sudden and incidental expenses. But recording these expenses and keeping a track of receipts is a big challenge. So, with prepaid cards, we can limit this to a great extent. Prepaid cards make things not only simple but also transparent and secure.
