An easy way to give your small business some payment flexibility is to set up a petty cash float. This float lets you and your employees quickly access money to make quick purchases or address minor emergencies. Although a petty cash float shouldn’t replace your full-scale supplier payment process, it’s an alternative payment method that’s easy to set up and use.
Why do businesses use petty cash floats?
Businesses mainly set up petty cash floats for convenience. Sometimes you need a quick alternative to use in place of your company’s standard payment process. You may come across situations where you don’t know the final price of a product, but you need to purchase it immediately. In these cases, you can simply take cash out of your petty cash float, pay now and account for it later.
For example, if you suddenly need to buy a USB flash drive, you can easily run to a local office supply store to get one, but you don’t know in advance how much it costs. It also doesn’t make sense to write a supplier a cheque or create vouchers for immaterial items. If you need to spend $5 to take a client out for coffee, it may just be easier to pay with petty cash.
How to establish a petty cash float
To set up a petty cash float, you simply need to withdraw money out of your bank account to keep on hand at the office. Keeping smaller denominations of cash makes the petty cash float easier to use and manage. It’s a good idea to keep your petty cash in a safe location that you can physically secure with a lock. A lockbox works well because you can move it if needed. It’s also an effective plan to keep it in a spot where someone can monitor it at all times for security purposes.
The amount of petty cash should not exceed a few hundred dollars, and it may even be much less based on the size of your company and your expected need. It’s important to keep this money separate from the rest of your money because you want to track it over time. Make sure you keep a record of your petty cash float so you can perform petty cash reconciliations in the future.
Petty cash becomes particularly susceptible to theft or misuse because it’s in the form of cash. That makes internal controls important to ensure it stays safe. It’s a good idea to designate a specific employee as the petty cash custodian. This person safeguards your petty cash, releases money as it’s requested, and collects change and receipts after purchases.
It’s a good idea to have employees sign, date and explain the reason for the withdrawal any time they request petty cash. Reviewing the petty cash withdrawal record and the expenses being paid for from petty cash helps you spot potential misuse or theft. You should also perform periodic reconciliations of the fund regardless of whether you need to replenish the petty cash.
Setting up a petty cash procedures policy
As you set up the physical petty cash float, it’s also a good idea to create a policy to oversee how employees spend the money. Your policy might outline who handles the petty cash, when it’s okay to use it, required information before and after using petty cash, and how often it gets counted.
This policy also gives you a chance to set guidelines on the allowed cash amount and frequency of use. Without this information, your petty cash float is more likely to be misused, unaccounted for and not utilised to its full potential.
Taking the proper steps when setting up your petty cash float helps you protect the cash and ensure it’s used correctly. QuickBooks can help you track your petty cash and other financial aspects of your business. Keep your books accurate and up to date automatically. Change the way you manage your finances now.