Petty Cash Problems: Why Does Your Petty Cash Need Attention?

Even though petty cash offers flexibility, ease, and speed for making payments, it becomes challenging to manage as your team grows. With fewer employees, getting money, approvals, and maintaining receipts are straightforward. However, getting a centralized overview becomes difficult as teams grow with new employees, departments, and branches. 

Employees spend hours filling out vouchers and approval forms and maintaining receipts. Similarly, finance teams manually review each receipt and voucher, ensure approval and compliance, enter data into ERPs, and reconcile. These steps, without real-time visibility into where the money is going, expose teams to significant blind spots. 

This article will explore petty cash problems in depth and help you focus on the areas that need the most attention. After all, petty cash is not just about a few diems; if not properly managed, it can lead to larger cash leakages.

Common Petty Cash Problems Faced by Each Stakeholder

Petty cash is not only problematic for your finance team to reconcile but also a burden for each stakeholder involved. Especially if you have multiple vendors who deal in cash payments or numerous small expenses, your petty cash needs grow faster, meaning the chances of errors also increase.  

And if you rely on a traditional petty cash management approach, each stakeholder faces various challenges. 

Petty Cash Problems For Employees

Traditional petty cash management system requires employees to fill out vouchers, secure receipts, and run from one manager to another to get approvals, even for the smallest expenses. For example, an employee who buys office supplies for AED 20 has to:

1. Fill out a voucher detailing the expense.
2. Attach the receipt to the voucher.
3. Seek approval from their direct manager.
4. Sometimes, get additional approval from the finance department.

If the employee misses any step or loses the receipt, they risk being penalized. This process is prone to error and impacts employees’ productivity. 

Even when companies deploy dedicated tools for petty cash management, the approval process requires manually filling out forms. And while this digital process is more streamlined, it still consumes valuable time and is as frustrating as the traditional method.

Petty Cash Problem For Managers

With traditional petty cash management methods, employees approach managers with the required documentation for approvals, causing managers to spend more time on approvals than on productive tasks. 

Imagine a manager who oversees a team of 20 people gets over 100 petty cash requests for various expenses such as office supplies, travel reimbursements, and minor repairs. They review each request, check the receipts, ensure compliance with company policies, and approve them.

This process not only takes time but also makes it tricky to ensure compliance with so many requests. As the number of requests increases, the likelihood of compliance overrides or mistakes grows, leading to potential financial discrepancies and audit issues.  

Petty Cash Problems For Finance Teams (Or Custodians)

Whether you assign a dedicated custodian or your finance team manages petty cash, their job involves reviewing each expense, ensuring compliance with company policies, and entering them into the ERP for a centralized overview. However, the real challenge lies in the lack of real-time visibility.

When all the vouchers are submitted at the end of the week or month, tracking down faulty expenses and chasing employees for missing receipts becomes difficult. Not only is it hard to maintain complete documentation, but it also leads to delays in closing books. This process often results in compliance overrides and incomplete audit trails.

Imagine a company where employees frequently use petty cash for minor expenses like office supplies or travel reimbursements. At the end of the month, the finance team receives a stack of receipts and vouchers. They notice a discrepancy in one employee's expenses but must spend hours tracking down the person and verifying each receipt. This delay causes the month-end close to extend by several days, impacting financial reporting and budget planning.

These issues prevent finance teams from getting a complete picture of expenses and effectively planning budgets. They get bogged down in mundane data entry and verification tasks, causing strategic tasks to take a backseat.

How Petty Cash Problems Worsen in Enterprises? 

While every growing company faces issues with traditional petty cash management, large enterprises encounter even greater challenges, especially those with multiple branches, offices, retail stores, or global setups.

In large enterprises, managing small amounts of cash at individual branches becomes tricky due to separate petty cash systems for different departments. The lack of centralized oversight leads to employees misusing or stealing funds. Moreover, without real-time visibility into how money is being spent, custodians remain unaware of the fund's current status, delaying financial decision-making. For instance, it can take weeks before realizing the petty cash fund is running low, potentially causing temporary cash shortages for essential expenses.

Furthermore, even small expenses require approvals from various departments and stakeholders, complicating and slowing down the approval workflow. This delays fund release, disrupts the workflow and reimbursement process, and creates tension between the finance team and other departments as employees wait for the approval. 

For instance, an employee wanting to buy a subscription for less than $300 might need approval from the manager, IT, finance, and legal departments, significantly slowing things down.

Additionally, as the transactions and expenses are recorded on paper, it complicates the identification of problems and reconciliation of cash. For example, when an employee uses petty cash to buy office supplies, the expense might not be recorded immediately, making it harder to track and reconcile in real time. This lack of transparency also enables misuse of petty cash for personal expenses, forcing finance teams to chase branches for complete information and leaving loopholes for further misuse.

In a nutshell, all the petty cash management issues magnify in large enterprises, complicating strategic budgeting and vital decision-making.   

Is There a Better Petty Cash Alternative?

There are two ways to address these petty cash problems—eliminate petty cash or digitize petty cash. 

Option 1: Eliminating Petty Cash

Eliminating petty cash involves shifting to either corporate cards or reimbursement models.  This method replaces cash with cards for settling payments, making the process easier to track with a complete audit trail. You provide dedicated cards to your employees or have them use personal cards for payments.

However, this approach is not always viable, especially for companies with vendors who only accept cash payments. In such cases, eliminating petty cash is not possible. 

Option 2: Digitizing Petty Cash 

Digitizing petty cash means using a petty cash management solution that digitizes the entire petty cash process, functioning like a digital cash register. This centralized portal is accessible to everyone, allowing employees to upload receipts, managers to approve expenses, and finance teams to reconcile accounts.

However, companies that want to digitize a portion of their expenses and streamline the rest of the process with cards face difficulties. Off-the-shelf solutions typically either help eliminate petty cash or fully digitize the process. As a result, these companies struggle to balance multiple tools while effectively managing petty cash. 

Get Pluto—A Hybrid Solution to All Your Petty Cash Problems

At Pluto, we understand that it is not always viable to eliminate petty cash, especially when many vendors in the UAE still accept only cash payments. That's why Pluto offers a flexible, self-serve petty cash management solution.

Whether you want to digitize or eliminate petty cash, Pluto allows you to customize and use the app according to your needs. You get unlimited corporate virtual and physical cards and the ability to record all petty cash transactions digitally.

With Pluto, each employee gets a dedicated profile where custodians can enter the money given to them. From there, it’s the employee’s responsibility to add relevant receipts and account for the money. 

Employees can submit receipts directly through WhatsApp or the mobile app, where OCR-based receipt retrieval automatically captures all the data. Managers, custodians, or finance teams don’t need to chase employees for receipt submissions. They simply review the receipts on the app and close books 10X faster.

Book a demo to learn more about how Pluto can streamline your petty cash management.