Petty cash management is a critical aspect of every business, but most companies fail to record transactions correctly. Understandably, marketing, sales, administration, and delivery of products and services could make you forget to record your petty cash transaction adequately. However, ineffective petty cash management can result in compliance breaches and misrepresenting accrued expenses.
Petty cash is a fund made available for daily expenditure. Most companies use the imprest system to manage petty cash, but don’t give the accounting process the attention it deserves. Errors in handling the funds could lead to more money problems and legal ramifications in the future.
So,how do you manage your petty cash effectively and avoid or mitigate complications that could arise? Here, we’ll state some problems and give you tips to solving them and keeping your books in shape.
Problem – Insufficient Transaction Information and Expense Documentation
Filling forms, paying expenses, and holding on to the right receipts can become a pain.With various financial activities that go on in small businesses, you might lose track of transaction information and forget to record expenses in the petty cash ledger.
This act eventually results in problems as you can't verify your purchase and claim expenses.
Solution – Meticulous Documentation
It’s vital to keep all petty cash receipts and meticulously record all financial transactions. Consider using an online transaction processing system to track expenses and get detailed transaction status information.
You may also want to use a petty cash excel sheet for monetary records. It will give you a detailed overview of incoming funds, payments, and remaining cash at hand.
Problem – Not Tracking Employee Expenses
Tracking employees’ physical expenses can be challenging. If you don't correctly monitor how colleagues and employees spend funds, you’ll encounter problems during reimbursements of accrual accounting expenses.
Solution – Detailed Expense Management
The only way to ensure that petty and cash expenses align with your business goals is to have an extensive expense management system that puts proper checks and balances in place.
#1 Have an Expense Policy
An expense policy ensures your business handles accrued expenses effectively and sticks to its financial goals. Consider creating regulations around the following:
· What’s your reimbursement policy?
· What’s the timeline for receipt submission?
· What’s the purpose of the petty cash? Should it be used for limited transactions?
· What’s the spending limit? Should you limit employees’ expenses or put a threshold on weekly expenditure?
#2 Digitize Expense Records
Make your petty cash records easy to handle by digitizing them. Employees can snap pictures of physical receipts and send to an online database with their mobile phones. You can also pick a financial technology solution for your business.
#3 Reconcile Accounts Daily
It’s easy to overlook petty expenses and decide to record them in the future. But postponing balancing petty cash sheets could result in wrong financial records. Reconciling accounts every day will keep you on top of financial transactions. To ensure you have accurate records,consider using an app to keep track of daily expenses.
#4 Track Expenditure In Real-Time
With a digital solution, you can quickly discover if someone is spending over the budgeted limit. You’ll also be able to file receipts and expenses as you spend money. Tracking expenditure in real-time helps you stick to your company's budget.
Problem – Losing Records
If the Tax Authority chooses to audit your organization, they’ll ask for several financial documents. Failure to provide them could lead to a breach of compliance. Besides, losing records is bad accounting, and it’s detrimental to your business. If you can’t find your receipts and documents, how do you know the payment deal you brokered? Since records are missing, you can't use them to budget or create a financial plan.
Solution – Backup and Archive All Financial Documents
You can keep all records safely by changing the way you store them. Why would you want to stop at filing physical receipts and digitizing them? Instead, create a backup, remember to categorize your documents, and save them to an online archive.
Backing up financial records will help you to maintain compliance for business, fill tax returns easily,and claim expenses effectively.
Petty cash management might seem like an unimportant aspect of business finance, but it’s necessary. It provides funds for day-to-day expenses. Despite its necessity, handling petty cash involves unique problems. You might not get detailed knowledge of financial records.Besides, employees expenses can be challenging to manage and might get out of hand. But the worst case occurs when you lose financial documents and are unable to comply with tax laws and regulations.
ZayPay can solve these problems. As an online technology solution with an expense manager software,it helps you manage your petty cash effectively. The mobile payment provider ensures that your colleagues track expenses. With ZayPay, you can make payments for petty expenses, document all monetary transactions, and keep your records safe.