How Businesses Can Manage Petty Cash Smartly In 2024

Businesses, big and small, are meticulous about managing their finances. Every Dirham counts, and businesses have strict policies to track and account for their money. However, one aspect that is often overlooked is petty cash management. Many businesses still cling to outdated manual methods to manage their petty cash, unaware of the burden it places on their financial processes.

This guide will give you a better approach to managing petty cash, all without the need for tedious counting of coins and endless collection of receipts. Read on!

What is Petty Cash?

Petty cash refers to a small amount of money that a company keeps on hand to cover minor payments. This fund is typically used for business expenses where writing a check or initiating a formal reimbursement process would be impractical and time-consuming. 

What Are Examples of Petty Cash? 

Businesses use petty cash to cover miscellaneous expenses such as: 

• Office Supplies 
• Postage Stamps, shipping labels 
• First aid kit for the office
• Office cleaning supplies 
• Birthday gifts and cakes for employees 
• Short travel expenses like bus tickets and parking 
• Refreshments like tea and coffee for employees 
• Occasional gifts for clients, etc.

While these may appear as minor expenses, managing them on pen and paper can become a struggle as your business expands. That's where digital solutions like Alaan come into play.

Alaan’s Corporate Cards & Spend Management Platform, lets you take full control of your business expenses, including petty cash, by automating the whole process.

With Alaan,  organizations don’t have to spend hours chasing employees for receipts or manually reconciling all ad hoc expenses. All spends are automatically updated on the dashboard in real-time for the custodian and finance team to approve, analyze, and take action. It also keeps organizations compliant and audit-ready always.

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How Have Businesses Traditionally Managed Petty Cash? 

Traditionally, to manage petty cash transactions, custodians often rely on either of these petty cash book systems:

• Imprest petty cash book: It involves maintaining a fixed amount of cash in the fund at all times. The custodian will receive a fixed amount at the beginning of the financial period and will have to reconcile and replenish the petty cash fund to its original amount after the expense.
• Columnar or Analytical petty cash book: It is a detailed way of managing petty cash transitions, where each expense is recorded under an assigned category based on the general ledger code. For example, 'parking tickets' are recorded under transportation, whereas 'stationary' may fall under the office-supply category. Whenever an expense happens, the custodian will record the purpose of spending and assign the category and GL code. 

Under traditional settings, custodians managing petty cash books have to make all entries by hand, which can lead to errors like typos, miscalculations, and missing information. These errors often go unnoticed until someone from the accounting department raises an issue. Without a digital audit trail, identifying where the money went becomes difficult. 

Not just this, even the whole petty cash disbursement process is manual and time-consuming as seen below

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Challenges of Manual Petty Cash Management 

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Prone to Fraud and Mismanagement

Manual petty cash management does not give you the control and security software solutions offer. For example, without a vigilant custodian, some employees might misuse company money for personal use and submit fake receipts to cover it up. 

Additionally, since the cash is physically stored in a petty cash box, anyone can access the cash at any time, and there are higher chances of theft. Finding where the money went would be extremely difficult without a digital trail. 

Unorganized Receipt Management 

Physical receipts are prone to wear and tear, loss, or accidental damage, leading to potential difficulties in tracking expenses accurately. 

Moreover, when dealing with a large volume of receipts, the manual handling can become overwhelming, making it challenging for your accounting team to organize, manage, and verify each expense. As physical receipts are often lost in the process, businesses lose the opportunity of getting tax refunds in cases where tax exemptions are applied.

Potential for Manual Errors

In manual petty cash management, the room for error is quite significant. Also, human oversight and manual processes increase the likelihood of mistakes going unnoticed. This can be anything from recording incorrect petty cash transaction details to miscalculating the amount.

Such inaccuracies can lead to overspending, unauthorized disbursements, or misallocation of funds, compromising the cash flow and financial integrity of the organization. 

Lack of Visibility Leading to Cash Leakage

As manual petty cash reconciliations are done at the end of the month or sometimes later, there is no real-time visibility on how and where the money is being spent. 

Without centralized management, it's tough to spot trends, enforce spending limits, and track where money is going. This lack of oversight can lead to spending more than needed and struggling to fix mistakes quickly. As a result, organizations often lose money due to inefficient petty cash practices.

Manual Processes Are Not Scalable

Manual petty cash management becomes increasingly time-consuming and expensive as companies grow. Managing multiple petty cash boxes across different locations, reconciling records, and ensuring compliance can quickly become overwhelming for your employees and finance team. 

This is why forward-thinking businesses in the Middle East are shifting towards digital solutions like Alaan.

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How to Manage Petty Cash Smartly with Alaan 

As UAE’s leading Corporate Cards & Spend Management Platform, Alaan has all the necessary features to streamline your petty cash management. Here is how: 

Budget-Control Corporate Cards

Alaan offers unlimited Corporate Cards to businesses like yours for better petty cash management, supported with robust expense management software. This eliminates the need to keep cash in the office. Simply fund the card and allocate the spending budget, and employees can conveniently use the card for all types of expenses.

Every expense made using Alaan’s card will trigger an approval flow, ensuring only authorized transactions are approved. You can even set limits for corporate cards for each employee, ensuring the expenses never go over the budget

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Eliminate Receipt Management Hassle 

With Alaan's petty cash management software, manual receipt handling will no longer be a problem. This platform uses advanced Optical Character Recognition (OCR) technology to convert paper receipts into digital format.

Employees who need to record an expense can capture a photo of the receipt using their mobile or upload a scanned image through the software interface. OCR technology can extract essential information such as date, amount, vendor details, and itemized expenses from the receipt and convert it into a digital copy. 

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Software automates the whole receipt management process, saves time in manual entries, and eliminates any human errors. This means your finance and accounting teams can now spend less time on manual data entry and more on financial planning for the next quarter.

Streamline Approvals and Workflows

Manual approvals may require multiple back-and-forth emails, phone calls, and messages between the employee, manager, and the finance team. Alaan's expense management system eliminates all this hassle by automating the approval process. 

The system triggers an approval workflow as soon as the expense is made on the corporate card, analyzing if the spend is authorized as per the company's expense policy. Only the justified expenses can be made on the card. Every department can set its own approval flow, as the software is highly configurable. Each expense has its own audit trail, so you don't have to worry about any fraudulent and unnecessary spend. 

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Real-Time Visibility on Spend

Alaan simplifies expense tracking by offering instant access to real-time spending data. This feature allows businesses to promptly monitor spending patterns, promoting heightened transparency for better financial control. 

With Alaan, business owners and decision-makers can have a bird-eye view of all expenses at all times, helping them make timely decisions and prevent potential overspending. 

Faster Book Closing

The whole process of petty cash management is automated with digital solutions. With robust features like digital receipt management, automatic expense reports, and one-click accounting, expense management software saves manual data entry and account reconciliation hours. This leads to faster book closure and happier employees. 

Ready to transition to digital - the better way of petty cash management? Book a free demo with our product specialists today! 

As the No. 1 corporate card and spend management platform in the UAE, we are committed to making your transition effortless!