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October 2023

Financial Control: Credit Cards and Petty Cash Management

Running a business requires a firm grasp of financial management. Two essential tools that can streamline your financial operations are credit cards and petty cash. In this blog post, we will explore how businesses can effectively use credit cards and manage petty cash to maintain financial control and make informed decisions.

Credit Cards in Business

Credit cards are a powerful financial tool for businesses, offering numerous benefits when used cautiously. Here's how they work and how they can benefit your business:

Types of Business Credit Cards
  1. Standard Business Credit Cards: These cards provide a revolving line of credit that allows businesses to make purchases up to a predetermined limit. Businesses can choose to pay the balance in full each month or make minimum payments.
  2. Business Reward Credit Cards: These cards offer rewards such as cashback, travel miles, or loyalty points for every pound spent. They are ideal for businesses looking to maximise rewards while covering their expenses.
  3. Business Balance Transfer Cards: If your business carries existing credit card balances, these cards enable you to transfer those debts to a new card with a lower interest rate, helping you save on interest charges and streamline debt management.
  4. 0% Purchase Cards for Business: These cards allow your business to make purchases without incurring interest charges for a predetermined introductory period, typically up to 18 months. They are beneficial for financing larger expenses without immediate repayment.
Responsible Business Credit Card Use

For businesses, responsible credit card use is crucial to maintaining financial stability and maximising benefits:

  1. Timely Payments: Ensure that your business pays at least the minimum monthly payment to avoid late fees and preserve your business's creditworthiness.
  2. Full Balance Payment: Whenever possible, pay off your business credit card balances in full each month to avoid accumulating costly interest charges.
  3. Credit Utilisation: Be mindful of your business's credit utilisation ratio (credit card balances versus credit limits), as it significantly impacts your credit score and financial standing.
  4. Credit Monitoring: Regularly review your business's credit report to identify and rectify any inaccuracies promptly.

Petty Cash Management for Businesses

Petty cash is a small amount of physical currency that businesses keep on hand for minor, everyday expenses. Proper management is essential to ensure transparency and accountability:

Establishing a Petty Cash Fund
  1. Determine the Amount: Decide on the appropriate amount of cash to maintain for daily expenses. The sum typically ranges from £50 to £200, depending on the business's size and needs.
  2. Secure Storage: Keep the petty cash in a secure location, such as a locked drawer or a small safe, to prevent unauthorised access and ensure it is readily available when needed.
Recording Petty Cash Transactions
  1. Create a Ledger: Develop a ledger to record all petty cash transactions. Each entry should include the date, a brief description of the expense, and the amount spent.
  2. Regular Reconciliation: Periodically reconcile the petty cash fund by comparing the ledger with the actual cash on hand. This ensures that your records accurately reflect the fund's balance.

Setting Spending Limits and Accountability

  1. Define Expense Categories: Establish spending limits for various expense categories, such as office supplies, office snacks or transportation. This helps prevent overspending and misuse of petty cash.
  2. Assign Responsibility: Appoint a specific individual or team responsible for managing the petty cash fund. This fosters accountability and ensures the fund is used appropriately.
Replenishing the Fund
  1. Refill When Depleted: As petty cash is spent, make sure to replenish it with the same amount to maintain a consistent fund level for future expenses.
  2. Documentation: Require that all petty cash expenditures are supported by receipts or documentation. This practice enhances transparency and accountability within your business.

Conclusion

Effective financial management is the cornerstone of a successful business. Credit cards and petty cash are indispensable tools that can help businesses maintain control over their finances.

By understanding the nuances of business credit cards and using them responsibly, you can maximise benefits while maintaining financial stability. Moreover, implementing sound petty cash management practices ensures transparency and accountability in daily expenditure.

With these tools at your disposal, your business can navigate the complexities of financial management with confidence and ease. Whether you're making everyday purchases, covering business expenses, or managing your company's financial health, credit cards and petty cash are valuable resources that can contribute to your business's success.