Why is expense management automation important in 2021? As a small business owner, you are often trying to find the best way to secure your company’s growth and financials. You have to make sure that something like expense report fraud doesn’t put a dent in your business while you are busy innovating.
Protecting and streamlining finance operations to optimize spending and keeping fraud in check is more crucial for a startup than an enterprise-level company. This is especially important because startups have to keep track of every penny and optimize spending to achieve higher financial productivity. This not only helps startups protect their bottom line but also helps plan efficiently for the future.
Why is expense management automation important in 2021?
Finance operations are challenging as it is. More so in uncertain times like the one, the COVID-19 pandemic has put businesses in. In such times, small business owners need greater control and insight into organizational spending. This insight and control help in planning more efficiently for the future.
The best way for SMB owners to achieve this is to automate their expense management systems. With automated expense management software in place, SMB owners stick to defined budgets, identify overheads, or overspends beforehand. Further, expense management software offers in-depth analytics that helps businesses make highly data-driven financial decisions.
While expense management automation might not be necessary for small teams, say with employee size 5-10, it is no longer optional for larger teams. Here are the top reasons why startups should consider expense management automation:
An expense management software helps eliminate expense report fraud
Expense management is a very time and labor-intensive process. The sheer amount of manual data entry and verification involved at each step leaves businesses exposed to fraud. This is because, be it deliberate or by mistake, data entry errors will be considered fraud by tax authorities.
For instance, take a look at all the mandatory fields in expense reports:
- Date: The date of spend is vital to verify the validity of employee expense claims. If the claim was made on weekends/holidays, approvers need to ensure that the expense was necessary to conduct business. This should then be documented in an audit trail.
- Trip duration: Trip duration helps calculate the per diems or travel allowances per employee per day for the trip’s entire duration. This is important for businesses as it helps define spending limits for future trips. It also helps managers understand the actual costs associated with every trip.
- Business purpose: Purpose of expense helps define the nature/intent of expense – which is important if the employee wants to claim reimbursement. According to the IRS, a business expense should be both ordinary and necessary for conducting business. Unless a claim meets these criteria, the expense cannot be written off as a tax deduction by the company.
- Employee details: Employee details include information such as the employee’s name, designation, department/project.
- Expense type: Some common expense categories are travel, food, per diems, mileage, accommodation, cash advances, etc. Expense categories help businesses get an immediate sense of where most spend is happening and optimize accordingly.
- Project/client: This field helps Finance teams correlate business expenses with respective clients. It also helps define a trip’s or project’s real cost. This ensures that individual budgets are maintained and comply with set expense policies.
- Merchant name: Merchant or vendor details play a vital role in ascertaining the validity of an employee’s expense claim. It also helps prove the legitimacy of an expense and allows businesses to form strategic partnerships with vendors.
- Amount: The expense amount is a mandatory field for every individual expense claim. The amount that the employee inputs in this field is the amount that s/he seeks to have reimbursed. It is not always necessary that this amount be the same as the bill total on the receipt attached. So care needs to be taken by approvers while verifying and validating these expenses.
An employee needs to ensure all expenses are well documented in the expense report while also complying with its travel and expense policy.
It is easy and very probable that the employee makes data entry errors. Besides, they could also try to slip in non-compliant expenses for reimbursement, which, if processed, calls for a painful audit.
As a startup, both you and your employees have better things to do than commit or catch expense report fraud. This was never a part of your job description, was it?
An expense management software helps eliminate the need for manual intervention from the expense tracking and reporting process. Here’s how expense management works with.
- First, you will need to feed your travel and expense policies into the software business rules engine.
- The software then automatically extracts data from expense receipts and auto-fills all necessary fields in the expense report.
- It performs a thorough policy check, flags any non-compliant claims, and alerts all important stakeholders.
- This way, businesses can stop fraudulent claims in their tracks even before the report reaches Finance for processing reimbursements.
An expense management software helps employees and approvers communicate better
A well-defined expense approval workflow guides your employees through the process of reimbursement. An approval workflow defines the “who” needs to approve the “what” type of business expense. Unless this is clearly communicated with both employees and approvers, there might be multiple back and forths to verify and process claims.
Additionally, there is always a danger of claims going missing amidst all the confusion or just getting buried in the approver’s inbox. Thus, it becomes crucial to set a process to streamline expense reporting and expense tracking for all startups looking to scale.
To create a seamless expense report approval workflow, you’ll need to define:
- “Which” approvers need to approve “what” type of expense reports (department-wise, project-wise, policy-violation-wise, etc.)
- “Which” additional approver needs to verify “what” type of expense, if and where necessary.
An expense approval workflow guides your employees through the process of reimbursement. No matter what conditions you have for approvals, an expense management software can automate it as it is, without compromising. Additionally, depending on the workflows you’ve set, the software automatically forwards reports to the right approver with a detailed audit trail attached to every claim.
The software also auto-checks for policy compliance, notifies the approver of any violations, and forwards reports to the appropriate approver. This eliminates the need for employees, approvers, and Finance teams to exchange 56 emails for processing a single expense report!
An expense management software helps boost employee productivity and trust
There is a strong consensus in the T&E professionals community that reimbursements shouldn’t take more than 30 days to go through. This is because a credit card billing cycle is traditionally 30 days. This means if an employee uses his/her personal credit card for business, the reimbursement for those expenses should enter the next billing cycle.
Therefore, companies often turn to corporate credit cards, so employees do not have to spend from their pockets, and all transactions are billed directly to the company. This way, businesses also have more control over employee spending. However, reconciling credit card statements and verifying them against receipts is a very time-consuming and labor-intensive process. Hence, corporate credit cards might not be suitable for all businesses.
Either way, ensuring a quick turnaround time (TAT) for reimbursing employee expenses becomes crucial. Businesses need to streamline and automate their expense management process to achieve shorter TAT for reimbursements.
When employees get reimbursed on time, their trust in your startup also increases. Additionally, when employees are assured that their organization will do right by them, they can focus more on developing the business.
Employee trust and satisfaction are incredibly crucial for startups as a startup is only as good as its employees. Every knowledge worker brings something unique to the table that is invaluable to the growth of the business. Hence, they should be able to spend billable hours working on building your company, not worrying about expense reports or reimbursements.
Protect your bottom line with an expense management software
In 2021, businesses big and small are future-proofing their expense management systems to ensure they have complete control over their finances, no matter what. An expense management software brings all things expenses to a unified expense management dashboard. This helps a business get an immediate picture of their financial health, save costs, and identify any risks and opportunities – in real-time.
Additionally, expense management software eliminates the need for manual intervention in the expense reporting process. This saves employees from the frustrations of manual expense reporting. It also makes the process a truly one-click affair.
Want to understand how much expense management software can help you save? Use this RoI calculator to understand the value of T&E management software for your startup. It practically pays for itself and allows you and your employees more time to focus on what really matters – business growth.