The Petty Cash Box: Understanding Procedures for SMEs and Corporates

A petty cash or money box is essential for every office. Nobody wants to swipe the company credit card every time new paperclips are needed, or the coffee machine runs out of filters. While online banking has its advantages, cash remains the most convenient option for small, repetitive transactions.

However, managing petty cash expenses can be an administrative burden. On the one hand, you need to ensure these funds are used solely for company expenses. On the other, it’s crucial to show your employees that you trust them with this responsibility.

In this article, we’ll explore the imprest system, traditionally used by businesses, and how modern technology can help overcome the challenges of traditional petty cash management.

What are petty cash expenses?

“Petty cash” and “money box” are often used interchangeably, both referring to the funds kept on hand for minor or incidental expenses. Below is a quick petty cash expense list for reference:

1. Office stationery – books, pens, pencils, staplers, erasers, etc.
2. Postage stamps
3. Courier charges
4. Refreshments such as tea and coffee
5. Cab fare for employees
6. Batteries
7. Minor repairs
8. Reimbursements
9. Office decor
10. Printing and copying

According to the Financial Policy Office at Harvard University, petty cash funds should generally be used for expenses under $50, extending to $100 for human subject payments. This can serve as a useful guideline for SMEs, though there are no strict rules. The benchmark for what constitutes a petty cash expense is up to you, depending on the size of your office and the number of employees.

The imprest system: how does the petty cash box work?

Here’s a quick breakdown of how the imprest or float system operates:

1. The office starts with a fixed petty cash balance at the beginning of each month, say £1000, to cover small transactions. This is known as the imprest or float amount.
2. Team members withdraw money from the box as needed for office supplies, such as duct tape or new batteries, and report each expense.
3. At the end of the month, your accountant checks the remaining cash in the box and tallies it with the expense reports.
4. The balance is restored to the original imprest amount of £1000 for the next month, and the process repeats.

Although the imprest system simplifies certain aspects of cash management, it’s becoming outdated in the era of electronic payments.

Problems with the imprest system

While the imprest system offers some benefits, it also comes with several downsides:

1. Increased Recordkeeping: Proper documentation of every expenditure is crucial for transparency, making this system time-consuming.
2. Risk Factor: Cash carries a risk of mismanagement or mishandling since there’s no way to trace each transaction.
3. Unsuitable for all expenses: Some small expenses, such as subscriptions, may require online payments, which a traditional imprest system cannot accommodate.
4. Security Concerns: Even if stored in a money box and locked away, physical cash puts the office at risk of theft or loss.
5. Inconvenience: It requires administrative effort to finalise the imprest amount every cycle, document expenses, obtain approvals, and secure the necessary funds.

Virtual prepaid cards: a safer alternative to petty cash

Given the administrative challenges and risks associated with traditional cash management, businesses are now exploring alternative methods. Virtual prepaid cards have emerged as a top contender due to their minimal downsides.

Xpence’s Virtual Debit Cards, or Virtual Prepaid Cards, operate like digital wallets. You can issue as many as needed, load them up, and share them with your employees at the push of a button. The best part? They can never be misused or stolen.

Key Features

• Unlimited virtual cards: You can issue as many cards as you need to as many parties as you please.
• One-time use: Having one-time-use cards significantly curbs the risk of fraud.
• Apply spending limits and controls: Ensure funds are being used appropriately.
• Real-time tracking: The Xpence app lets you monitor all your team’s spending from one place with real-time insights.
• Integration with automated bookkeeping: Xpence’s automated bookkeeping solution handles the admin side of things for you, even when you’re sleeping.
• Instant issuance: New cards can be created in just a few clicks.
• Hassle-free transactions: Enjoy seamless transaction processing using Xpence’s user-friendly mobile app.

Have a prepaid card inquiry?

Book your demo today, and we’ll answer every question about how this works.

Final thoughts

To recap, petty cash expenses refer to the small, frequent payments offices must make daily. The imprest or float amount is the cash balance that needs to be restored at the end of every month.

While the traditional petty cash system has its merits, the risks and challenges associated with it are increasingly less justifiable. With technologies like virtual cards now more accessible to small firms, reliance on physical cash is diminishing.