Expense Management 101: Your Guide to Expense Reporting

November 13, 2020

expenses

Expense management is a process that is often described as time-consuming, laborious, error-prone, and frustrating. Yet it plays a crucial role in maintaining your company's bottom line.

By definition, expense management is a system of organization deployed for processing expense reports, approvals, and employee reimbursements.

However, further into the read, you will see how the nitty grits of expense management could make or break businesses of any size if left unattended. This article talks about why companies must pay closer heed to expense management and its benefits.

Why is expense management important?

Expense management has different implications for different stakeholders. For finance teams, the main focus is to maintain accurate records and financial planning. For employees, it is to get reimbursed faster and with minimal friction. For owners or management, it is about growth, productivity, risk management, cost-saving, and employee satisfaction.

Here are some perks of paying heed to expense management:

  • When the expense management process flows smoothly, it gives accurate insights into the organization’s financial health. This helps management identify cost-saving opportunities and potential risks.
  • Next, when expense employee reimbursement cycles are shorter, it results in higher employee satisfaction and trust. This plays a crucial role in determining your employee and financial productivity.
  • Lastly, when you put in the effort to stay compliant and maintain detailed records, you are rewarded with tax benefits. A well thought out and implemented expense management system, hence, has benefits both tangible and intangible.

What does the expense management process look like?

The expense management process involves the following:

Here’s a flowchart to help you visualize the process:

expense mgmt

It looks quite simple, but in reality, there are challenges at each step of the process that pose severe threats to the business’s stability and growth if not done right. Thus, it is essential to understand these challenges to build an efficient expense management system.

Challenges in the travel and expense management process

Added to being time-consuming and labor-intensive, the expense management process is riddled with challenges right from when you set up policies till reimbursements are processed. And then some more. Here are the three most common challenges in expense management.

1. Unclear travel and expense policies

The cycle of expense reporting starts from the employees, and with unclear expense policies, the first step is where the trouble begins. Especially because expense reporting is always a last-minute job, and it is dreaded by all.

Problems employees face with unclear travel and expense policies:

  • It becomes difficult to remember expense policies and categories.
  • This results in employees claiming for out-of-policy expenses.
  • Reports are sent back to employees for resubmission, resulting in delayed payouts.
  • Non-compliant expenses, if reimbursed, count as expense report fraud.
  • Employees might try repeating unchecked violations as they might not be fully aware of the repercussions of committing expense report fraud.

2. Ineffective expense approval workflows

As in the case of travel and expense policies, if the approval workflow is not well defined, the expense report might just not reach the right person and in the right time frame. This causes frustration, confusion, and delays in reimbursing employees for the money they spent from their pockets for your business.

Problems employees and finance teams face with inefficient approval workflows:

  • Employees and approvers aren’t aware of the entire reimbursement process.
  • They waste productive hours in understanding which reports go to whom.
  • There is a high chance that an approver misses an expense report email.
  • Fraudulent or out-of-policy claims might go unchecked.
  • As a result of the constant and long back and forths, reimbursements are delayed.
  • There is no one place where all activity on an expense report is tracked.
  • It becomes difficult for Finance teams to keep track of bottlenecks and compliance.
  • Inevitably, without a detailed audit trail, the business opens itself up to audits.

3. Delayed employee expense reimbursements

Expense reimbursements are a lengthy and tiresome process. Be it the multiple back and forths between employees and finance teams or the colossal amount of manual data entry, verification, and processing – nobody likes expense reporting.

Additionally, delayed employee expense reimbursements lead to:

  • Employee dissatisfaction and reduced morale.
  • Employees lose out on the money that they spent on the company.
  • Don't have enough time to focus on things that are actually important.
  • Last-minute approvals might result in out-of-policy claims being approved.
  • Finance teams cannot close books on time.

Delays, errors, frauds, and painful audits are characteristic of traditional expense management. This is businesses, small and large, turn to more effective methods of managing expenses.

What is traditional expense management?

Traditional expense management processes rely on paper-based receipts and records. To paint a picture, this is what a traditional expense management system looks like:

  • Employees are tasked with keeping all business receipts safe to claim expense reimbursements at the beginning of every reimbursement cycle.
  • Approvers need to manually verify expense claims and ensure they comply with the company’s travel and expense policy.
  • Finance teams are tasked with auditing all approved expense receipts with paper trails before processing.
  • Finance teams then have to save all receipts and records in an organized manner for future internal/external audits.

Challenges with traditional expense management

An upgrade from paper-based accounting was Excel-based accounting. However, both systems are time and labor-intensive, relying solely on manual data entry and verification. Here are some challenges and limitations of traditional expense management:

  • High probability of data entry errors: Traditional expense management relies on manual data entry for expense reporting, approvals, and even record-keeping. An additional zero or a missing one could skew your books and open you up to audits.
  • High risk of expense report frauds: It is very much possible for policy nuances to slip through the cracks and create expense report frauds. This costs businesses a lot of money and may block your calendars for an unpleasant inquiry with tax authorities.
  • Lack of visibility into employee spending: Finance teams have no way to know how much employees are spending on different projects until they’ve turned in expense reports at the end of the month. This handicaps financial productivity and can cause a serious threat to your company’s bottom line.

What is automated expense management?

Automated expense management software use features designed specially to eliminate all mundane tasks involved in financial reporting. This helps remove the frustration behind manual expense reporting.

Besides making expense reporting and tracking a breeze, here are some other benefits automated expense management brings with it:

  • Offers easy ways for employees to track and report expenses from any device of their choice.
  • Runs real-time policy checks on every expense claim even before it is reported to ensure policy compliance.
  • Enables customization and automation of approval workflows and bank and corporate credit card reconciliations.
  • Integrates with other accounting, ERP, and HRMS software to ensure all employee and travel and expense management data are centralized.

Benefits of switching to automated expense management

A switch from paper and Excel-based expense reporting to digital can be a significant transformation for businesses. Here are a few benefits automated expense management offers over traditional expense management.

  • Employees spend less time compiling and submitting expense reports.
  • Approvers spend less time verifying and approving expense reports.
  • Compliance is taken care of by the expense management software.
  • Audit-readiness is ensured without any extra manual effort.
  • Finance teams get continuous visibility into employee expenses.

Switching to automated expense management takes over manual, error-prone, and time-consuming tasks and helps businesses boost financial performance, employee productivity, and optimize their budget management.

What is expense management software?

Expense management software is designed to automate travel and expense management-related processes, including expense reporting, approvals, reimbursements, and travel bookings. An automated expense management process minimizes risks that are usually characteristic of traditional expense management. Here are a few advantages of using an expense management software organized by stakeholders.

For employees, it offers:

Efficient receipt tracking and reporting

Most expense management software offer easy business receipt tracking options to reduce the time and effort employees invest in expense reporting. The most salient expense reporting feature is the Optical Character Recognition (OCR) scanner found in almost all expense management mobile applications.

This feature allows employees to simply take a picture of the paper receipt using the OCR scanner. The software then auto-populates expenses details from the captured image, all ready to report. This ensures that a truly one-click experience replaces the otherwise tedious manual expense reporting process.

Faster expense reimbursements

An automated travel and expense management software makes it easy for employees to submit compliant expense reports. It also eliminates the need for constant back and forths between stakeholders to ensure timely expense report submissions, approvals, and employee expense reimbursements.

For approvers, it offers:

Custom automated approval workflows

With an expense management software, there’s no need for managers or approvers to respond to “could you please point me to the right person” emails. Once the workflow is fed into the system and policies set, you could even set automatic report submission reminders and auto-approve reports and eliminate bottlenecks in the expense approval process altogether.

Effective expense policy enforcement

As managers, department heads, or the finance department, there are better and more important things you have to do than verifying expense claims against policies. An expense management software automates policy checks and alerts you about any violations. This enables you to take appropriate action and without wasting productive hours on verification.

For finance teams, it offers:

Automatic corporate credit card reconciliation

A while ago, when corporate cards were all the rage, they felt like the ultimate solution to managing business expenses. Only finance teams know the pain of matching credit card statements to bills and then auditing them for compliance.

An expense management software can be a real boon when it comes to credit card reconciliation. The software automatically matches expenses, receipts, and transactions, erasing manual intervention from the equation. It also integrates with credit card providers to get direct feeds on the expense management dashboard. This helps finance teams get real-time insight into where exactly the spend is happening instead of just the information that spend is happening.

Digital audit trails for continuous compliance

Expense management software maintains detailed digital audit trails for each expense and all stakeholders’ corresponding actions. This makes it easy for Finance teams to audit expense reports before processing reimbursements. This also eliminates the need for storing stacks of paper receipts and worrying about their safekeeping.

Faster payment processing

An expense management software integrates your existing ERP, accounting, HRMS system, and bank portals. This allows you to bring all employee and expense data to a single platform and initiate payments right from your expense management dashboard. Further, it will enable you to track payment progress, ensuring you are always in-the-know of things.

Secure cloud storage for expense receipts

All expense receipts attached to expense claims are stored in a secure and searchable cloud. This makes it easy for finance teams to search for any expense, receipt, or report using filters. The next time you sit for an audit, there won’t be an hour of awkward silence between you and the auditor while you sort through heaps of reports to find the one the auditor asked for.

Real-time insight into expense data analytics

An expense management software offers real-time visibility and insight into employee spending across the organization or multiple organizations. These insights are made available on your expense management dashboard, where you can view spend by departments, projects, categories, and more.

Real-time expense data insights will help you optimize spends whenever and wherever necessary. It also ensures you’re sticking to the predicted/allocated budgets. Additionally, insight into historical data enables you to analyze your organization’s financial needs better to make data-driven decisions.

Data security

Data security is a massive concern with anything that involves software. A good business expense management software adheres to industry-standard security measures to ensure your data is always safe. They also offer features like role-based access, IP based access, and auditor-access to ensure different stakeholders with different roles only have access to data you decide to let them see.

An expense management software helps you automate the entire expense management system, save time and costs. It also helps reduce risks and frauds while boosting employee morale and overall profitability. If you’d like to check, strictly in terms of money, the RoI of an expense management software, here’s a free ROI calculator you can use.

How to pick expense management software for your business

If you used the ROI calculator we were just talking about, you’re probably convinced that an expense management software is worth the investment.

But automating your expense reporting is more than just ROI. You must pick an expense report software that suits your business needs. To help you through the process, we've compiled a handy checklist to help you select the best expense software options for your business:

Check for must-have expense management features

Your chosen expense management software vendor should offer the following capabilities to ensure that you can automate every single step of the expense management process:

  • A mobile app with easy expense tracking options for employees.
  • Fully customizable expense approval workflows.
  • A robust business rules engine (travel and expense policy automation.)
  • Automatic bank and credit card reconciliation capability.
  • In-depth and real-time expense data analytics.
  • A comprehensive expense management dashboard.
  • Integrations with travel desks, ERP, accounting, and HRMS software.
  • Powerful and easy to implement ERP systems with API integrations.

Understand your customer support requirements

You must understand your organization's customer support requirements before you shortlist vendors. If you have frequent traveling employees, you might need a highly rated vendor with quick responses, active live chats, and timely customer support.

If you prefer having detailed how-to videos, documents, and other resources, ensure that your vendor can make such resources easily accessible for your team. This ensures quicker and easier adoption of newer technology.

Check for user reviews on trusted platforms

Reviews from customers who use a software provide insight into their experiences post-implementation. These reviews play a crucial role in understanding whether a particular software is a viable product or not for your business.

Software review platforms like G2 simplify and fasten the process by rating software based on real user reviews across various platforms. They rate software based on different criteria such as ease of use, quality of support, ease of implementation, and more. This provides a trusted shortcut to getting your hands on the best expense report software to achieve your desired business goals.

Future-proof your bottom line

The main ingredients for an organization's success are a seamless collaboration between teams with a constant rise in financial and employee productivity. This can be achieved by streamlining your expense management process to save time, effort, ensure accuracy and security, and provide valuable expense data insights.

Expense Management 101: Your Guide to Expense Reporting Expense management refers to the system of processing, approving, and reimbursing employee expenses. Learn the A to Z of expense management here. https://learn.g2.com/hubfs/iStock-1129810557.jpg
Manaswini Rao Kaki Manaswini Rao Kaki is a Content Marketer at Fyle, a B2B expense management software company. When she’s not building brands, she’s off exploring pretty places and vibrant cultures or brewing a perfect cup of coffee. Reach her at manaswini.kaki@fylehq.com https://learn.g2.com/hubfs/Google%20Drive%20Integration/Fyle%20x%20G2%20Guest%20Post%20Outline%20Brief%20-%20Expense%20management.jpeg

Never miss a post.

Subscribe to keep your fingers on the tech pulse.

By submitting this form, you are agreeing to receive marketing communications from G2.