Cutting and issuing an always check is a lengthy, multistep process. One must match a supplier invoice to a purchase order and receiving document, enter the invoice into the computer, watch for the deadline, and then print the check, have 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 is much easier to pay for a supplier from the petty-cash box. This process eliminates the whole process had a need 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, considering that the intention would be to bypass the most common checks and balances of the accounts payable process, it must only affect those payments which can be so small that no body cares if the machine is bypassed. In many companies, the quantity that may be paid with minimal controls is generally below $100. For amounts bigger than this, the most common check-paying process is probably better, since it needs 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 cash can be intercepted and removed at many points on the way, causing no payment. Consequently, it is better to hand the money straight to a supplier representative, who must certanly be on the organization premises to sign for the money. By limiting the use of petty cash to small amounts and on-site payments, it’s possible to effectively reduce this method to a small percentage of the total amount that many companies pay out. Nonetheless, it is really a simple and effective approach that can lead to some decrease 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 is to require a signed receipt for all moneys given out, preferably having an accompanying invoice from the supplier. This provides sufficient proof why an expense was incurred and covers the business 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 find a high level of payments going out from the petty-cash box, since there is a potential for a large number of dollars to disappear with time if there is not a constant reconciliation. Finally, given the high level of usage, it is essential to provide control of the petty-cash box to a single person who need responsibility for the money. When combined with storage in a closed container, these measures present a powerful pair of controls over continual petty-cash disbursements.