Effective financial systems are crucial for nonprofit banking at organizations of any size. Clear and organized processes can ensure your records are accurate and up to date, avoiding costly mistakes down the road.
And while these things are essential for any business, they’re especially so when it comes to nonprofit banking. After all, donations and grants fund the work—and you need to show your donors (and the IRS!) that you’re using those funds appropriately.
In this blog, we’ll discuss some simple steps you can take to set up and manage your nonprofit's financial systems, including:
- Managing expenses with debit and credit cards,
- Using petty cash for small expenses, and
- Selecting and managing a checking account.
Understanding your nonprofit banking options is the critical first step to managing your finances well.
Nonprofit Banking: Managing Expenses with Debit and Credit Cards
Cards will almost certainly be part of your financial management strategy. After all, so much of our normal routines now include ordering things online or even paying vendors over the phone!
Debit and credit cards are valuable tools for managing your nonprofit's expenses. But to figure out which is most appropriate for your organization, you'll need to understand the differences between them.
Debit cards can be useful for managing expenses in a small nonprofit. You can make purchases online or over the phone and withdraw cash for expenses too small for a credit card.
Debit cards generally don't offer the same rewards or cash-back options as credit cards, however. And they may not provide the same level of fraud protection. Your debit card might also have daily limits on spending or withdrawals, which can be restrictive for larger purchases–Like around event time!
Credit cards, on the other hand, can offer rewards points or cash-back options, more robust fraud protection than debit cards, and a higher spending limit.
But they do carry high-interest rates, are subject to fees, and can be a temptation to overspend or incur unnecessary expenses.
Selecting a credit card with rewards points or cash-back options can be beneficial, but it's essential to use the card responsibly and record expenses right away.
To successfully use any card for your nonprofit, you'll need to establish clear guidelines for card usage. Invest in training for appropriate staff or volunteers. Review and reconcile card expenses regularly to ensure they align with your nonprofit's budget.
You should also keep an eye out for fraudulent charges. Hire a bookkeeper to review and reconcile expenses against the monthly card statement or use an outside accounting firm.
Using Petty Cash for Small Expenses
Petty cash is a small amount of cash kept on hand to cover small expenses. It's a convenient way to manage small expenses in a nonprofit, but it carries a higher risk of theft or fraud.
With any petty cash system, establish clear guidelines. You might have a single staff member dedicated to monitoring the funds and keeping a log of who takes what. This person can enforce guidelines and keep track of how the petty cash is being spent.
Petty cash should be replenished regularly and checked against receipts to maintain accountability.
Selecting and Managing a Checking Account for Your Nonprofit
Choosing a checking account for a nonprofit requires research to find the right bank and account type that suits your needs. You should consider factors such as fees, interest rates, and online banking features. It's important to determine which features are essential for your nonprofit's banking needs vs. which ones you can do without. This will help you avoid unnecessary costs.
Some banks offer fee waivers or lower fees for nonprofits, so it's worth exploring those options. Additionally, consider whether the bank has a good reputation for customer service. Think about its accessibility, branch, ATM locations, and any other services that may be valuable to your organization.
Once you have selected a bank and account type, establish clear processes for managing the checking account. This includes recording all deposits and withdrawals accurately, reconciling the account regularly, and maintaining a record of all income and expenses.
You can also consider utilizing online banking features such as bill pay or direct deposit to streamline your financial processes.
Keep Your Nonprofit Banking Organized
Ultimately, it's important to ensure your financial records are properly maintained and organized. Keep copies of receipts and invoices and maintain a record of all income and expenses.