Petty Cash and Employee Advances: Organising Daily Cash Spending Without the Mess
An employee buys an urgent spare part, a driver fills up on fuel, an office manager pays a delivery fee. Small amounts happen daily and none of them justify a full procurement cycle, yet by month end they add up to a number nobody can break down.
This is the world of petty cash and employee advances. The usual problem is not fraud, it is the missing trail: cash left, the receipt was lost, settlement was postponed, and an employee balance stayed open for months. This guide covers how to organise daily cash spending so it stays fast for staff and clear in your books.
Why cash spending becomes a weak point
Cash spending normally happens outside any system: a quick transfer, or a note from the drawer, followed by a promise to send the receipt later. Every step depends on someone's memory, and that is enough to create three recurring problems.
- Expenses recorded late or never recorded, making profit look better than it is.
- Open employee balances nobody knows the size of until that person leaves.
- Incomplete receipts, or receipts in a person's name rather than the company's, which do not work as supporting documents.
Three terms you should never mix
Confusing these three causes most of the mess in this area, because each is recorded differently.
| Term | What it is | How it is recorded |
|---|---|---|
| Petty cash float | A fixed amount held by a custodian for small items | An asset, cash held by custodian; not an expense until settled |
| Petty cash expense | The actual item the money was spent on | An expense on its cost centre once the document is submitted |
| Employee advance | A personal amount recovered from salary or settled later | A receivable from the employee, not an expense |
The imprest system: the clearest method
Instead of releasing a new amount whenever the cash runs out, the float is fixed at a single ceiling. Say five thousand riyals with the office manager. Spending happens from it, and when it nears empty the receipts are submitted and the float is topped up by exactly what was spent, returning the balance to the same ceiling.
The advantage is that the equation can be checked at any moment: cash actually on hand plus unsettled receipts must equal the float ceiling. Any difference shows up immediately instead of waiting for month end.
The cycle from request to settlement
- A written request stating the purpose, estimated amount and cost centre, even if it is only a documented short message.
- Approval from whoever holds authority at that amount.
- Release of funds, preferably by bank transfer rather than cash, because transfers leave an automatic trail.
- Submission of the document within a set window, three working days for example.
- Settlement: classify the expense, return any surplus, close the balance.
- Post the expense to the correct period before the monthly close.
Step five matters most. Most businesses handle the payout well and neglect the settlement, so balances pile up unclosed. Make settlement a condition for issuing a new advance to the same person.
What makes a document acceptable
- An invoice in the company name rather than the employee's, with its number and date.
- A clear description of the item, not a generic word like purchases.
- The cost centre, branch or project the expense belongs to.
- Documented approval obtained before the spend, not after.
The tax side
A tax invoice issued in the company name is what may allow input VAT to be deducted, while a receipt in an individual's name does not serve as a valid document. Tax invoice requirements and record retention periods are published by the Zakat, Tax and Customs Authority at zatca.gov.sa, which is the official reference; details can change, so review it before deciding on any accounting treatment.
Approval limits
The figures below are an illustration you should set for your own size. What matters is that they are written down and known to everyone, instead of being decided case by case.
| Amount | Approver | Document required |
|---|---|---|
| Up to 200 SAR | Petty cash custodian | Receipt |
| Up to 2,000 SAR | Department manager | Invoice in the company name |
| Above that | Finance | Purchase order and full procurement cycle |
Signals that something is wrong
- Employee balances older than thirty days with no settlement.
- Repeated top-up requests before the previous batch of receipts is submitted.
- A high share of spending classified as other or miscellaneous.
- Repeated amounts sitting just under an approval limit, a pattern worth a question.
Common mistakes
- Recording the float release as a direct expense, so the expense appears twice at settlement.
- Using an employee's personal account as a parallel company cash box.
- Leaving classification to year end, so large amounts get spread across categories by guesswork.
- Letting the same person spend, approve and settle with nobody reviewing.
- Accepting a photo of a receipt in a chat without filing it with company records.
In short: small expenses hurt your business through their missing trail, not their size. Fix the float ceiling, separate float from expense from advance, tie every top-up to submitted documents, and write your approval limits once instead of deciding them daily.