Petty cash is the small amount of cash that a business keeps on hand to pay for any day-to-day expenses because payment of these small and day-to-day expenses is not get paid/ accepted by a cheque or credit card. Petty cash is often used to pay for minor expenses like office supplies, flowers, small luncheons, employee reimbursements, and so on.
Depending on their needs and the nature of their businesses, companies keep between INR 5,000 and INR 50,000 in a petty cash stash. Most businesses keep petty cash in a secure location like a locked drawer or box.
But a petty cash fund is a part of the company’s larger finances and needs to be reconciled in the financial statements periodically. The cash that is deemed ‘petty’ can cause problems if it remains unaccounted for in your ledger.
For larger companies with multiple branches, maintaining petty cash records is a tedious task.
What is Petty Cash Management?
Petty cash management helps companies to record transactions and establish rules to restrict overspending. It keeps track of petty cash usage for small transactions in daily business operations.
Having petty cash doesn’t mean that anyone can access it for any purpose. Only designated employees or petty cash custodians are authorised to handle the money. Companies enforce strict internal controls to eliminate illicit use.
Companies can use cash receipts, spreadsheets, or accounting software to record petty cash.
What are the challenges with Petty Cash Management?
Petty cash is convenient. It allows you to quickly settle a small purchase. Without adequate control, these ‘trivial’ purchases can snowball. Accounting for petty cash expenses is a repetitive and time-consuming task. Here are some major challenges with petty cash management:
1. Outdated:
Documenting petty cash expenses on paper while accounting for the receipts and hand-written notes when proper receipts are unavailable is a tedious task for the Finance teams. A paper-based approach is outdated. So, during an audit, if the receipts and handwritten notes are reconciled at the last minute, it can cause problems.
2. Carelessness:
Since the amount under consideration is often small, people don’t pay adequate attention to petty cash transactions. The ‘petty’ nomenclature leads to a less-vigilant attitude in matters of petty cash management. Ultimately, this causes fraud that remains undetectable for a long time.
3. Extra work for custodians:
Along with their core responsibilities, the custodians are also responsible for managing petty cash. With time, they can become lenient with recording every transaction as many of them don’t have proper accounting training, which further leads to loss and dissatisfaction for these employees.
How can Petty Cash Management Software help your business?
The best way to reform petty cash management is to go digital, and eliminate paperwork, and handwritten notes. The digital approach is effective for all organizations, whether small or large.
MyndSpendX is a petty cash management solution that offers a centralized paperless approach to maintaining petty cash for multiple locations.
When you use petty cash management software, the Finance team has a real-time overview of the office expenditures across various locations. They can set a limit for petty cash transactions. The system will not process any transactions beyond the limit.
MyndspendX: Features
Scan documents on the go: Capture claim details by uploading documents on a smartphone
Email Reminders: Users can take action and facilitate transactions in a timely manner over their Mobile PhonesSeamless Integration: MyndspendX can be integrated with your existing ERP
Dashboard and Reports: Get a real-time overview of your organization’s spending
Balance Update: Enables finance team to monitor the petty cash level at each location and timely reimbursement of petty cash to ensure availability of balances at locations.
MyndspendX’s Impact on Petty Cash Management
MyndspendX software helps businesses to:
- Eliminate cash pilferage by implementing on-time reconciliation
- Follow process compliance with built-in checks and validations on the nature of the expense and the cash expense limit
- View cash balances on a real-time basis and improve working capital management by faster reimbursement of submitted claims
- Improve discipline in expense booking and reduce disputes by implementing self-certification of physical balance
Conclusion
Petty cash is a small amount of cash that a company stores on its premises to pay for day-to-day small expenses. Most organizations keep petty cash ranging from INR 5,000 to INR 50,000 depending on their nature of business. Without proper oversight, petty cash can be prone to misuse. Managing petty cash through a pen-and-paper approach can cause problems for Finance teams. There are better alternatives to managing petty cash expenses.
Mynd Integrated Solutions is a leading global service provider in business process and technology management. MYNDSpendX is a Finance and Accounting (FAO) offering that helps clients to manage petty cash at multiple branches from a central location.
Read also: Benefits of Opting for Accounts Payable Outsourcing Services