Cutting and issuing a check always is a lengthy, multistep process. One must match a supplier invoice to a purchase order and receiving document, enter the invoice to the computer, wait for the deadline, and then print the check, own it signed, and mail it to the supplier. For small payments where in actuality the supplier turns up at the company offices, there is a less complicated way. It is much simpler to pay for a supplier from the petty-cash box. This method eliminates the whole process had a need to cut a check. However, there are some severe limitations on the use of petty cash that limit its effectiveness to a few situations. First, because the intention is to bypass the most common checks and balances of the accounts payable process, it must only affect those payments that are so small that no one cares if the system is bypassed. In many companies, the amount which can be paid with minimal controls is normally below $100. For amounts larger than this, the typical check-paying process might be better, since it needs tighter control over payment approvals. Another problem is that it makes little sense to stuff money into a package and mail it to the supplier, since the amount of money can be intercepted and removed at many points on the way, leading to no payment. Consequently, it is much better to hand the cash directly to a supplier representative, who ought to be on the organization premises to sign for the money. By limiting the use of petty cash to small amounts and on-site payments, you can effectively reduce this option to a small percentage of the sum total amount that many companies pay out. Nonetheless, it is really a simple and effective approach that can lead to some reduction in the quantity of transactions flowing through the conventional accounts payable system.
Some control is required if petty cash can be used as a typical form of payment. One key item would be to demand a signed receipt for all moneys passed out, preferably having an accompanying invoice from the supplier. This allows sufficient proof why an expense was incurred and covers the company if the supplier claims that it was never paid. Also, there must be a monthly reconciliation of the petty-cash box to ensure all expenditures and replenishments are accounted for. It is very important if you have a high volume of payments going out from the petty-cash box, while there is a possibility of tens and thousands of dollars to disappear with time when there is not a consistent reconciliation. Finally, given the high volume of usage, it is essential to offer control of the petty-cash box to just one individual who need responsibility for the money. When associated with storage in a closed container, these measures present an effective set of controls over continual petty-cash disbursements.