Expense management is the process by which businesses reimburse employees for money spent on business-related matters. It is most often associated with travel-related expenses but to truly benefit the business, expense management should encompass everything an employee may seek reimbursement for, which can get blurry—from home office supplies to software subscriptions.
Expense management presents many challenges for a small business. Done manually, it can require a significant investment in money and time. It takes $58, on average, to submit and process an expense report, and an additional $52 to correct it, according to the Global Business Travel Association (GBTA).
Proper expense management allows small businesses to gain insight into employee expenses and categorize spend. It ensures tax compliance and complete, easily accessible reporting for audits. It makes clear to employees what the guidelines are and empowers them to comply. Expense management done right means finance doesn’t have to dispute expenses with an employee or explain why they haven’t been reimbursed in a timely manner.
Spending time and money on unwieldy expense management processes serves no one. Automating them lays the groundwork for growth: You’ll have happier employees with more time to do what you hired them for and more accurate and accessible data with which to make business decisions.
10 Ways Expense Management Software Can Grow Small Businesses
Control travel expenses.
Travel expenses comprise 10-12% of a business’s annual budget and represent about 1% of its revenue, according to benchmark data from Accenture. And small businesses tend to spend more on travel than enterprises, in some part because they lack buying and negotiating power with travel partners and are understandably trying their hardest to get in front of customers and bring their staff together. Rules that establish limits in spending can help control costs. With expense management software systems, leadership can identify and set those limits.
Ensure expense management policy compliance.
Those rules should be the product of good expense management policies. Some two-thirds of people surveyed by Allstar Business Solutions said they haven’t read their company’s expense policy. That proportion is larger among employees at smaller companies. One-tenth of these employees never seek reimbursement as a result. Meanwhile, some 56% of CFOs in a recent Robert Half Management Resources survey said they have seen an increase in the number of “inappropriate reimbursement submissions” from workers over a three-year period.
Expense management systems work at both ends of that spectrum. They flag improper or questionable expenses and make it easier for hesitant employees to file for reimbursement.
Ease management and tracking of paper receipts.
Most policies will call for employees to log receipts. But paper receipt loss is one of the biggest challenges for small business expense management. A good expense management system starts with easing this part of the process, which is onerous for employees submitting expenses and the accountants processing them. Expense management software can include optical character recognition technology, in which a photograph taken on a mobile phone automatically maps to the proper expense report fields.
Reduce data errors that lead to overpaying.
On average, 19% of expense reports have errors, according to the GBTA. Manual expense management requires a sort of dance between the employee, their manager and the accounting department whereby expenses are logged, reviewed, questioned, re-reviewed, denied, disputed and so on. Along the way, many errors can make their way into the reimbursement. By automating receipt capture and report filing, and flagging questionable claims, expense management software can reduce data errors significantly.
One of those common errors is overpaying the employee. Certain areas are rife for these types of offenses—including manual mileage tracking or qualified expenses that don’t require the employee to submit paper receipts. One survey estimated expense fraud costs U.S. businesses $2.8 billion a year. That’s not even accounting for the additional cost of processing the reports, which expense management software greatly reduces. Companies that use expense report software cut that processing cost by one-fourth, according to Aberdeen Group, a B2B industry analyst firm.
Ensure tax compliance by providing easily accessible reporting.
Ensuring internal compliance with your expense policy can also ensure compliance with IRS regulations when filing and paying taxes. For public companies that need to comply with Sarbanes-Oxley (SOX) regulations, expense management software provides customizable controls and the tools to self-audit for SOX. IRS rules require companies to store data for seven years. Expense management software logs all information related to employee-initiated expenses and makes reports easy to pull for auditing purposes—whether internal or required by investors, lenders or regulatory agencies.
Speed reimbursement by integration with accounts payable and payroll systems.
The time from when an employee makes a business-related purchase to the time they are reimbursed can be as long as four weeks, according to a study by Allstar Business Solutions. Integrating expense software with a payroll system speeds the process. Best-in-class companies turn employee expense reports into reimbursement in 3 1/2 days, according to Aberdeen.
Integration with the general ledger system is also crucial so that data is posted to the company’s chart of accounts. The integration with accounting and payroll systems makes it easier to break out employee spend by category and compare expenses over time to identify outliers, trends and opportunities for savings.
Shorten workflows for business efficiency gains.
According to data from Aberdeen, businesses see on average 1 1/2 expense reports per employee per month. The GBTA says it takes 18 minutes for finance to correct each report on average. Taken together, that means in a business with 50 employees, finance teams spend nearly 23 hours a month correcting reports.Automating the process of submitting a report, flagging inappropriate expenses or errors, notifying approvers and integrating into payroll can cut that time down significantly.
Ease of use ensures engagement and compliance.
The biggest complaint about manual expense management—on the employee and finance sides—is that it is clunky and not at all user friendly. An easy-to-use product that includes mobile receipt capture capabilities, automatically alerts users to possible errors and makes sure they get reimbursed quickly greatly increases the odds that employees will comply with expense policies.
Centralized data enhances spend analysis.
Expense management systems also allow for the integration of corporate credit cards to ease reconciliation. They rationalize data in different formats and log it all in a common database. With a complete view of employee-initiated expenses, finance can more easily identify outliers in spend and drill down into the reasons behind them—to see if they are borne of economics or fraud. Departmental spend becomes easy to see as well. Data can be used to identify or negotiate rates with preferred travel partners or providers. Businesses can factor these costs into determining true customer acquisition costs.
Intuitive tools boost employee engagement.
One of the biggest challenges a small business faces is finding and retaining good employees. Poor employee-facing processes will quickly sour the employee experience, and perhaps nothing is more important than ensuring proper, timely payment for the often-onerous process of business travel. Providing intuitive tools for employees that ease the parts of their job that don’t add value, like submitting and processing expenses, is one of the many ways to build a quality employee experience.
Cloud-based software is a great choice for small business expense management. Small businesses don’t have a lot of people to throw at software projects. Migration to an expense management system can’t take staff away from their jobs for weeks or months at a time. A good software implementation partner will provide best practices for defining roles and responsibilities, assessing the impact on different stakeholders, and robust data migration tools and practices when implementing an expense management system.
The best expense management processes anticipate changes in the economy and the environment. Likewise, cloud-based expense management systems can be easily updated and upgraded, as well as scale when the business grows and needs multi-currency and multi-language support. Most importantly, employees can access cloud-based software wherever they are, which in the case of expense reporting is often away from their desk.