A cash advance policy sets the rules for company money that leaves the bank before the spending happens. It tells staff how to ask, how much they can get and when they must account for it. Without one, every advance becomes a private arrangement between an employee and a manager.
Search for this topic and you will mostly find payroll templates. Those cover salary advances, where an employee borrows against pay. That is a different thing. This guide covers the business expense advance policy. That means money given to staff for company costs, then retired with receipts.
Finance directors usually write or revise this document before they choose any tool or process. You will get a clause checklist, sample wording and a six-step method for writing your own. The examples use naira and suit finance teams in Nigeria and across English-speaking Africa.
What a cash advance policy covers
A cash advance is company money handed to an employee before a business cost is paid. A procurement officer might need cash for a vendor who takes no transfers. A driver might need fuel and tolls for a Lagos to Abuja run.
Your cash advance policy should say what these advances are for and who may receive them. It should also say how they are closed. Until an advance is accounted for, it sits on your books as a receivable. It is not an expense yet.
People often mix this up with other payments. The table shows how a business expense advance differs from the three it is usually confused with.
| Type | Whose money goes first | What it pays for | How it closes |
|---|---|---|---|
| Business expense advance | The company’s | Company costs | Receipts, plus cash returned or an extra claim |
| Salary advance | The company’s | The employee’s personal needs | Deductions from future pay |
| Reimbursement | The employee’s | Company costs | Company repays after approval |
| Petty cash float | The company’s | Small recurring costs | Top-up against vouchers |
A staff advance policy that blends these four will confuse everyone. Keep each one in its own document, or at least its own section.
Why write a staff advance policy before choosing a process
Finance directors often inherit habits, not rules. One manager allows two weeks. Another allows two months. Nobody knows which advances are still open.
Auditors ask for the rule first and the evidence second. A written staff advance policy gives you the rule. It also gives employees a fair standard they can follow without asking permission.
A Nigerian example shows what a tight version looks like. BEDC Electricity PLC published a 2022 policy on cash advance, retirements and expenses. It requires retirement within 24 hours of the trip or expense. It blocks new advances while an old one is open, except with executive approval.
It also applies the WREN test. Spending must be wholly, reasonably, exclusively and necessarily incurred for the business. Your own rules can be gentler. They cannot be missing.
Cash advance policy clauses: the checklist
Use these nine clauses as your structure. Each one answers a question that an employee or an auditor will eventually ask.
1. Purpose, scope and definitions
State why the cash advance policy exists and who it covers. Define a cash advance, a retirement and a settlement. Use the words your team already uses. In Nigeria, finance teams usually say retire. Some say settle. Say once that both mean the same thing.
2. Eligibility and allowed uses
List who may request an advance. Confirm whether contractors and new hires qualify. Then list what the money may pay for, such as transport, lodging, field purchases and cash-only vendors. Add the WREN test as the rule for every item. Name what is banned. Personal spending, salary top-ups and fixed asset purchases are common exclusions.
3. Request form, amount and approval limits
Every request needs a business purpose, an itemised estimate and a date of need. Tie each amount band to an approver. The table gives an example you can adjust.
| Advance amount | Approver | Settlement due date | Extra condition |
|---|---|---|---|
| Up to ₦100,000 | Line manager | 7 days after the task ends | Receipt needed for any item above ₦20,000 |
| ₦100,001 to ₦500,000 | Line manager, then finance director | 14 days after the task ends | Written breakdown by cost type |
| Above ₦500,000 | Finance director, then managing director | 14 days after the task ends | Weekly status update to Finance |
These figures are examples. Set yours from the size of your typical advance. Approval limits only work when something enforces them. The BORDExpense features check each limit at submission, so a request never reaches someone who cannot approve it.
4. Payment method and recording
Say how the money leaves the company. A bank transfer to the staff account leaves a better audit trail than physical cash. Finance records the pay-out against the employee’s name, with the date and amount. Post it to an employee advances receivable account, not to expense. Read the cash advance accounting entry guide for the exact journals.
5. Settlement due date
The settlement due date is the clause people argue about most. Set it in days, not in vague terms like soon. Count from the pay-out date or from the task end date. Pick one and say which.
Short trips need short windows. Long projects need staged retirement, such as every 14 days. Published policies range from 24 hours to 30 days. A strict window that nobody meets teaches staff to ignore the whole policy.
Some expense tools use settlement due date as the field label and send a reminder when it passes. Your policy should say the same thing in plain words.
6. Proof of spending
Say what counts as proof. Original receipts, invoices and transport tickets are the base. Set a receipt threshold, and say what replaces a missing receipt. A signed note from the vendor, approved by the manager, is a common fallback. Ask staff to photograph receipts on the day, because thermal paper fades.
7. Unspent cash and overspending
Spell out all three outcomes. If spending is lower, the employee returns the difference. Finance records the transfer reference. If spending equals the advance, nothing moves. If spending is higher, the extra becomes a normal claim with normal approval.
Ban carrying unspent cash into the next trip. Our guide on how to retire a cash advance works through each outcome in naira.
8. Consequences of late retirement
Describe the steps in order. A reminder goes out first. Then the line manager is told. Then new advances are blocked. Salary recovery comes last, and only with written consent from the employee.
Check any deduction against the employment contract and Nigerian labour law first. Some employers go further. BEDC Electricity PLC withholds salary for unretired advances. Whatever you choose, apply it to everyone, including directors.
9. Roles, exceptions and review
Name who approves, who pays, who reviews open advances and who handles exceptions. One person in Finance should own the weekly open list. Allow exceptions only in writing, with a reason and a senior approver. End with an effective date, a review date and an acknowledgement line the employee signs.
How to write your cash advance policy in six steps
Writing a policy on cash advance and retirement is easier when you start from what already happens. Follow this order.
- List every advance paid in the last six months. Note the amount, the purpose and how long each took to close.
- Find the pattern. Which advances closed late, and why? Those delays decide your clauses.
- Pick numbers you can enforce. Set the limits, the settlement due date and the receipt threshold.
- Draft in plain language. Use short sentences and the words your staff use.
- Test it on real cases. Run last quarter’s advances through the draft and see what breaks.
- Publish it with the request form. Get a signed acknowledgement from everyone who can request an advance.
Then ask HR or a lawyer to read the final draft. The late retirement clause needs the closest look.
Sample wording for a policy on cash advance and retirement
Copy and adapt these four clauses.
- An employee may hold one open advance at a time. No new advance is paid until the previous one is fully retired.
- Retirement is due by the settlement due date stated in the approval message. Retirement means submitting receipts and returning any unspent cash.
- Spending above the advance is claimed as a normal expense. It follows the usual approval route.
- An advance not retired by the due date blocks new requests. The balance may be recovered from salary, with the employee’s written consent.
Mistakes that weaken a business expense advance policy
- Copying a payroll template. It covers salary deductions, not receipts, retirement or overspending.
- Leaving the settlement due date open. As soon as possible is not a date.
- Writing rules nobody can meet. A 24 hour window fails on a two week field trip.
- Skipping the exception route. Staff invent their own when none exists.
- Keeping the policy in a drawer. Attach it to the request form instead.
- Skipping the weekly review of open advances. Late balances then surface at year end.
Putting your cash advance policy to work
A good cash advance policy is short, specific and enforced. Once it is written, the next job is tracking what staff do with it. Spreadsheets cope with a few advances. They struggle with dozens, because nobody sees what is overdue.
BORDExpense is built for this stage. Finance records each pay-out, staff retire advances on expense reports, and anything past its deadline comes to Finance. You can read more finance control guides on the BORDExpense insights page.
Ready to see your policy running on real screens? Request a demo and bring your draft. Or visit BORDExpense to see how expense and cash advance approvals work.
Cash advance policy FAQ
What should a cash advance policy include?
A cash advance policy should cover purpose, eligibility, allowed uses and approval limits. It also needs a settlement due date, proof rules, and handling for unspent or extra cash. Finish with late penalties, roles and a review date.
What is the difference between a cash advance and a salary advance?
A cash advance is company money for business costs, closed with receipts. A salary advance is early pay for personal needs, repaid through payroll. The first is a business expense advance. The second is a loan against wages. Keep them in separate policies.
How long should staff have to retire a cash advance?
Company policy sets the period, not a universal rule. Published policies range from 24 hours to 30 days. Many finance teams pick seven to 14 days after the task ends. Choose a settlement due date your staff can realistically meet. Then apply it to everyone.
Can an employer deduct an unretired advance from salary?
Some employers do, where the employee agreed in writing. Put that consent on the request form. Check the clause against the employment contract and Nigerian labour law first. Ask HR or a lawyer to review it.
Should a new advance be allowed while an old one is open?
Usually no. Blocking a second advance until the first is retired stops many late retirements. If you allow exceptions, require a written reason and a senior approver. BEDC Electricity PLC takes this approach in its published policy.
Who should approve a cash advance?
The line manager approves first. Add a finance director step above an amount you choose, such as ₦500,000. Approvers should check the purpose and the estimate. Keep approval and payment with different people.
What is the accounting entry for a cash advance to an employee?
Debit employee advances receivable and credit the bank. The advance is an asset until receipts arrive. At retirement, debit the expense accounts and credit the receivable. Cash returned debits the bank and credits the receivable.