Petty cash controls: keep small cash spending from becoming invisible

Petty cash is useful for genuinely small business expenses, but it is also easy to lose control of because the bank statement stops at the cash withdrawal. A good petty-cash process keeps a fixed float, records every payment, requires evidence and reconciles physical cash to the ledger before the float is replenished.

Set a fixed petty-cash float and an owner

Choose a maximum float appropriate to the business, for example £200 for a small office or a larger amount for a site that regularly needs small local purchases. Nominate one custodian or a defined team responsible for the cash box and records.

The float should not grow every time someone adds spare cash. Replenishment should bring it back to the approved level after recorded spending. A fixed float makes shortages visible because cash plus vouchers should equal the authorised amount.

Require a voucher and receipt for every payment

HMRC expects businesses to keep records and supporting evidence for business transactions. For petty cash, that means recording date, amount, payee, purpose and employee receiving the money, supported by a receipt or other evidence where available.

Do not accept "miscellaneous" as the normal description. A £14.80 purchase should say whether it was stationery, parking or another legitimate cost. Small amounts become material when hundreds of undocumented transactions accumulate through the year.

Set transaction limits below the size of ordinary supplier payments

Petty cash should not become a way to bypass procurement or bank approval. Set a maximum amount per transaction and require higher-value purchases to use a business card, bank transfer or approved expense process.

If staff repeatedly split one £180 purchase into three £60 petty-cash claims to stay below a limit, treat that as a control failure. Limits only work when finance reviews patterns rather than individual vouchers in isolation.

Replenish from the bank only after reconciliation

Before withdrawing more cash, count the physical money and total the vouchers. If the approved float is £500 and the box contains £120, the supporting vouchers should explain the other £380. Replenishment should normally equal supported expenditure.

Do not top up the box simply because it looks low. Unexplained shortages should be investigated and approved as losses where appropriate. Otherwise each replenishment hides the prior difference and the cash control deteriorates over time.

Keep access and storage proportionate to the amount held

Store petty cash securely and restrict keys or access codes. Record handovers when the custodian is absent. For larger floats, consider whether cash is still the right tool or whether named employee cards would create a stronger audit trail.

Do not leave the cash box in an unlocked drawer simply because individual transactions are small. Repeated theft of £20 or £30 can exceed the cost of implementing a better payment method.

Review whether recurring petty-cash spending should move to another payment route

If the same shop, courier or supplier is paid from petty cash every week, consider a business card, account or bank transfer. Electronic payment creates a named counterparty and can reduce the physical-cash workload.

Use quarterly analysis to identify categories that no longer belong in petty cash. The float should remain a tool for exceptions and low-value immediate needs, not a parallel payment system outside ordinary finance controls.

Use numbered petty-cash vouchers and cancel unused or voided numbers. That makes it harder for payments to disappear between the cash box and the accounting system. If voucher 104 is missing between 103 and 105, the custodian should explain it before the next replenishment.

Require personal reimbursement rather than allowing employees to "borrow" from the float. Petty cash is company money and temporary personal loans create payroll, tax and control problems. An employee who needs an advance for travel should use the company's formal expense-advance process instead.

Perform occasional surprise counts by someone other than the custodian. The purpose is not suspicion of staff; it confirms that the recorded float exists outside the normal month-end routine. A strong petty-cash system should reconcile on any day, not only when everyone has time to prepare it.

Worked example: a £300 float starts the week with £300 cash. Staff spend £42.50 on postage, £18.20 on parking and £61.30 on emergency supplies. The box should contain £178 and vouchers totalling £122. If it contains £168, the £10 shortage must be recorded before replenishment rather than hidden inside the next £132 withdrawal.

Review tax treatment as well as custody. Some petty-cash items can include VAT, employee-related costs or personal elements that need different bookkeeping. A receipt and business purpose should be enough for the accountant to classify the transaction without asking the employee months later what the cash was for.