UAE businesses are moving away from manual petty cash management, but why?

However, is the existence of petty cash funds justified in the age of digital banking? This blog explores the rationale behind having a petty cash fund, its uses, and potential alternatives. With this knowledge, you can make a more informed decision on whether to initiate or persist with this business practice.

So, what is a petty cash fund?

Petty cash is a small amount of money that a business keeps for little expenses. In big companies, they might divide the petty cash for each department, so each team manages their own money.

Unlike regular bills, petty cash is used for occasional things like taxi rides, coffee, office supplies, gifts for clients, or lunch for employees.

It's important to know that having a petty cash fund isn't the same as having a cash register or another system for handling a lot of money. In general, petty cash funds don't involve a large amount of the company's spending.

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Why do businesses keep petty cash funds?

Businesses often maintain petty cash funds as a tradition from a time when small transactions weren't commonly done with corporate cards. This practice allows for immediate cash availability for unplanned expenses, like buying a birthday card for a client. The petty cash custodian manages this fund, ensuring it's used appropriately, maintaining the cash box, and keeping the cash log updated.

While this was once common, it's now more prevalent in brick-and-mortar businesses or those dealing with frequent cash transactions. Many modern businesses, especially those with remote teams, find automating accounting simpler and choose not to use petty cash funds. To establish a petty cash account, a business writes a check to the custodian, who handles cashing it and managing the fund.

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5 reasons businesses are moving away from petty cash

Credit cards and online transactions are prevalent these days, and maintaining petty cash funds is an outdated practice that poses more risks than benefits, especially for businesses operating primarily online. Here are five compelling reasons to avoid having a petty cash fund:

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1. Record-keeping challenges

Managing a petty cash fund is hard as cash transactions are essentially untraceable. Maintaining accurate records requires dedicated time and attention, making it prone to human errors. Team members need training on appropriate fund usage, cash management, and recording transactions in a cash log.
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2. Accumulation of small transactions

‍Despite being considered insignificant individually, small transactions quickly add up, especially in a growing team. For instance, routine expenses like daily coffee purchases for each team member can result in a substantial annual expenditure. Petty cash transactions make it challenging to discern where exactly the spending is occurring, complicating the creation of effective spend policies aligned with business goals.

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3. Vulnerability to theft and oversights

‍The difficulty in tracking cash makes petty cash funds prone to unintentional disappearance, such as when team members forget to return change to the cash drawer or neglect to record a purchase in the cash log.

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4. Wide acceptance of Cards

‍In a time when paper cash was preferred, petty cash funds made sense. However, from major retailers to small marketplaces in the UAE now widely accept and even prefer card transactions. Additionally, online shopping has become more cost-efficient for items like office supplies and coffee, which can only be purchased with cards, rendering petty cash funds obsolete.

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5. Better Alternatives Available

‍Credit cards, debit cards, and online transactions automatically generate organized summaries, providing better visibility into company spending. These alternatives eliminate the pitfalls associated with petty cash funds and offer a more streamlined approach to financial management.

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Alternatives to a petty cash fund

Alternatives to a petty cash fund are essential for businesses seeking to save both time and capital. As discussed earlier, managing petty cash is an outdated practice, and most businesses find greater advantages in adopting alternative methods.

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Physical corporate cards

A prime alternative to cash is issuing physical corporate cards which can be provided to employees for business-related expenses. The significant advantage of using a corporate card is its automatic synchronization with spend management software, eliminating the need for receipt uploads or assigning cash custodians.

With Alaan cards, spending limits can be set for specific categories, reducing the necessity for constant employee training on spend policies. This level of control allows for more precise management of expenses, preventing the accumulation of small costs over time.

While physical cards pose a risk of loss or damage, Alaan permits the issuance of unlimited cards to the team if stolen or lost. In the event of loss or theft, cards can be easily frozen, and transactions can be reviewed for potential fraud.

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Virtual corporate cards

Anti-fraud protection for company spending can be enhanced by incorporating virtual cards for online and tap-to-pay transactions. While physical cards are convenient for brick-and-mortar purchases, virtual cards provide an additional layer of security for online transactions.

Alaan enables the issuance of unlimited virtual cards, facilitating secure online transactions. By utilizing virtual cards, businesses gain precise control over team expenditures on specific categories and vendors.

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Credit Cards

Credit cards, issued by banks, also serve as a viable alternative to petty cash, providing businesses with flexibility in managing expenses. Each business card issued by a bank allows employees to make purchases within a predefined credit limit. The advantage lies in the convenience of transactions without the need for constant manual record-keeping.

However, the drawback is the absence of automatic synchronization with spend management platforms, requiring businesses to implement separate methods for expense tracking and reconciliation. While credit cards offer independence from petty cash and are widely accepted, the lack of integrated spend management features may pose challenges in maintaining organized financial records.

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Cutting-edge spend management with Alaan

Instead of relying on petty cash, your team can utilize Alaan corporate cards to handle a wide range of expenses, from recurring bills to the smallest transactions.

With real-time updates on spending and preset spending limits categorized, you can enjoy the advantages of a petty cash fund without the concerns of human error, fraud, or theft. Importantly, there's no need for a cash custodian to oversee each individual transaction.

Alaan's AI system will notify you of any spending that deviates from company policies, and your dashboard provides valuable insights into controlling unnecessary expenses.