Cutting and issuing a check 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 due date, and then print the check, contain it signed, and mail it to the supplier. For small payments where in actuality the supplier shows up at the organization offices, there is a simpler way. It is easier to cover a supplier from the petty-cash box. This method eliminates the entire 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 small number of situations. First, considering that the intention is to bypass the usual checks and balances of the accounts payable process, it must only apply to those payments that are so small that no-one cares if the device is bypassed. Generally in most companies, the amount that may be paid with minimal controls is generally below $100. For amounts larger than this, the typical check-paying process is probably better, since it requires tighter control over payment approvals. Another problem is so it makes little sense to stuff money into a package and mail it to the supplier, since the amount of money could be intercepted and removed at many points along the way, leading to no payment. Consequently, it is better to hand the amount of money directly to a supplier representative, who ought to be on the company premises to sign for the money. By limiting the usage of petty cash to small amounts and on-site payments, it’s possible to effectively reduce this approach to a small percentage of the sum total amount that a lot of companies pay out. Nonetheless, it is really a simple and effective approach that will result in some decrease in the quantity of transactions flowing through the normal accounts payable system.
Some control will become necessary if petty cash can be used as a regular type 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 gives sufficient evidence of why an expense was incurred and covers the company if the supplier claims so it was never paid. Also, there should be a regular reconciliation of the petty-cash box to ensure that all expenditures and replenishments are accounted for. It is specially important if you find a high level of payments going out of the petty-cash box, while there is a potential for tens and thousands of dollars to disappear over time if you have not a continuing reconciliation. Finally, given the high volume of usage, it is essential to give control of the petty-cash box to just one person who encourage responsibility for the money. When combined with storage in a closed container, these measures present a highly effective set of controls over continual petty-cash disbursements.