MAKNA SUBSTITUTE PETTY CASH FOR CHECKS

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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 in to the computer, watch for the due date, and then print the check, contain it signed, and mail it to the supplier. For small payments where the supplier shows up at the company offices, there’s a simpler way. It’s much easier to pay a supplier from the petty-cash box. This approach eliminates the entire process needed seriously to cut a check. However, there are several severe limitations on the usage of petty cash that limit its effectiveness to a small number of situations. First, because the intention is always to bypass the usual checks and balances of the accounts payable process, it must only connect with those payments which can be so small that nobody cares if the system is bypassed. In many companies, the amount that may be paid with minimal controls is usually below $100. For amounts larger than this, the typical check-paying process might be better, since it requires tighter control over payment approvals. Another problem is so it makes little sense to stuff money into a bag and mail it to the supplier, since the amount of money can be intercepted and removed at many points on the way, causing no payment. Consequently, it is better to hand the amount of money right to a supplier representative, who must be on the company premises to sign for the money. By limiting the usage of petty cash to small amounts and on-site payments, one can effectively reduce this choice to a tiny percentage of the full total amount that most companies pay out. Nonetheless, it is a simple and effective approach that will result in some decline in the quantity of transactions flowing through the conventional accounts payable system.

Some control will become necessary if petty cash can be used as a typical kind of payment. One key item would be to require a signed receipt for all moneys handed out, preferably by having an accompanying invoice from the supplier. This provides sufficient proof why an expense was incurred and covers the company if the supplier claims that it was never paid. Also, there should be a regular reconciliation of the petty-cash box to make sure that all expenditures and replenishments are accounted for. It is very important if you have a higher volume of payments going out from the petty-cash box, since there is a potential for thousands of dollars to disappear over time if there is not a consistent reconciliation. Finally, given the high volume of usage, it is important to give control of the petty-cash box to an individual person who need responsibility for the money. When followed closely by storage in a locked container, these measures present a fruitful group of controls over continual petty-cash disbursements.

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