Cash Advances: What Are They and How Do They Work?
Most companies authorize employees to carry a company credit card to pay for business-related purchases. Other companies provide their employees with an easy way to make employee expense claims. However, what do you do when neither option is accessible to your business?
Cash advances or expense advances are money that a business gives to its employees upfront to pay for a known cost, such as utilities, rent, and other services. It’s not a widely-known concept; however, it’s a great way to help employees cover company expenses without it impacting their personal finances.
Nevertheless, cash advances do come with their own little caveats. This article takes you through the intricacies of processing cash advances in the Philippines. It also answers some of the most frequently asked questions about cash advances from business leaders.
What Is a Cash Advance?
As mentioned earlier, a cash advance is a money you give an employee to pay for company-related purchases. It’s a great alternative to company credit cards and employee expense claims because:
- Credit card expenses are hard to monitor. Especially if you’re a large organization, it can be tough for managers and supervisors to keep track of all the transactions coming in and out of your company. Cash advances present an easier way for companies to track cash flow and costs.
- Asking your employee to pay hundreds – possibly thousands – of pesos for company purchases is unethical. To avoid misunderstandings and legal repercussions, the safest option is to always keep business expenses within the business.
Salary vs Expense Cash Advance: What’s the Difference?
It’s easy to confuse salary advances with expense cash advances. However, they’re completely different things.
A salary advance is taken out of an employee’s payroll and given to them ahead of its actual release date. The employee can use this to pay for personal expenses and emergencies, such as medical bills, rent, and other costs.
Expense advances are taken out of the company’s funds. It’s given to an employee to pay for company-related purchases. It doesn’t personally benefit the employee at all. It’s simply a way for the company to pay for services ahead of receiving them.
How to Ask for a Cash Advance
Each company has a unique set of policies and procedures when it comes to cash advances.
Generally, you’ll be asked to type your request in a document that you submit to a manager or supervisor.
This document should clearly state your intentions for getting the cash advance. Furthermore, it should state how much money you need, as well as where the money will be used.
When submitting a request for a cash advance, it’s important to be flexible with your expectations. Depending on the company’s policies and budget, you might get more or less than what you’re asking for.
Recurring vs One-Time Cash Advances
There are two main types of expense cash advances: recurring and one-time.
Recurring cash advances mean that a budget is set aside each month to pay for company purchases. This amount is given to an employee ahead, to avoid delays and setbacks.
In this situation, an employee needs to make accurate monthly estimates to submit to the accounting department before receiving the amount. Examples of recurring cash advances are rent, insurance policies, and utilities.
One-time expense advances are exactly what their name suggests – a one-time cash advance. An example of when an employee might receive this is on a long work trip where costs can get expensive.
This amount is sent directly to the employee’s personal bank account. An expense report will still be required and should be submitted to the accounting department.
Get Accurate Expense Reports with Olivia
For your cash advance request to get approved, you will need to have an expense report prepared to show your company’s accounting department. While it’s completely possible to do everything by hand, you don’t want to risk making any type of error.
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