Advancements in payment technology, business processes, employee behaviour and compliance requirements are changing how company spending is done. As a result, we are seeing a massive shift towards the elimination of expense reports.
It’s that day of the month again… expense reports are due.
By now, we all know the (boring) drill: Gather all your physical receipts, fill out the expense report form, get it approved by your manager and then, one day, maybe… get your money reimbursed.
All of this in an era where it’s common practice to video chat with someone on the other side of the world (for free); or where amazing apps like Google Photos recognise any kind of object in our photos. Yet here we are, filling out expense report forms in 2018…
I felt this pain for years as CFO of Tradeshift. As the company grew faster and faster, so did everyone’s frustration and time lost compiling expense reports, as well as the number of people sharing company cards. Our employees hated the process, and my finance team shared their frustration. It was clear that collectively, we all spent too much time chasing missing receipts and trying to understand where each transaction came from.
I thought there had to be a better way.
Analysing the problem, we realised that before anyone could successfully solve the expense reporting and spending problem, there were two major prerequisites that needed to be fulfilled:
Having a simple, widely accepted payment method for everyone, everywhere: Employees need to be equipped with a simple payment method that is accepted everywhere in the world. It would make them much more productive, and get rid of shared cards, helping finance teams better understand the origin of each transaction.
Enabling a real-time transaction overview: To guarantee peace of mind when giving more cards to employees, managers and finance departments should be able to control each employee’s spending and see company-related expenses in real-time. This would enable them to have a good overview of company and employee spend, be compliant and drive responsible spending cultures.
Luckily, we’ve seen a wave of technology and societal developments in the past few years that are finally enabling our dream to come true. And that’s the reason Niccolo and I eventually founded Pleo three years ago.
Below, I’ve outlined the top 7 trends that are the big enablers for the inevitable expense report extinction event:
1. Technology advancements now make real-time company spending overview possible
Wide acceptance of card payments (see more below) coupled with modern web technologies powered by fintech companies is finally enabling the long promised creation of real-time transaction overviews. Let’s compare the following two scenarios in connection to real-time spending:
Scenario 1: When I was CFO at Tradeshift we had two common problems related to delayed overview of expenses. Firstly, it was extremely cumbersome to reconcile expenses made with shared company cards (who bought what? who has the receipt? etc.). By the time the credit card statement arrived, nobody knew the context of the purchases.
The second, and perhaps even bigger problem, was with all other expenses originating from personal payment cards. These purchases resulted in the dreaded process of collecting receipts, expense report forms, endless approvals and delayed reimbursements. And it was just unfair to ask the employees to bank our business.
Scenario 2: Now at Pleo, our managers see every transaction our team does, in real-time. This improve the process of matching receipts: employees get a mobile notification after a purchase asking them to take a picture of the receipt, matching receipts to transactions on the spot. It also greatly improves the sense of control and context around transactions for managers.
Seeing an employee who’s visiting clients buy lunch on the day makes perfect sense. In the old scenario, some 20-30 days later, I simply wouldn’t have this context any more. I’d have to either rely on Alan to make a long note about the purchase or bother him again to figure it out.
2. Ubiquitous acceptance of card payments
We see a growing and fast-paced trend in business merchants accepting payment cards. The payment card was built 40 years ago to support us when travelling. Today, businesses are using cards for just about anything from buying advertising, to ordering software subscriptions and even paying for their shared office space, such as the likes of WeWork.
In fact, ECB research shows that payment card transactions grew from 12B EUR in 2000 to 60B EUR in 2016.
Why is this important in relation to the elimination of expense reports?
Well, it finally enables the second point from our initial thesis – that you can’t possibly eliminate expense reports without providing a reliable payment method for employees. In other words, offering a payment method that can be easily distributed and controlled. We’ve reached this point with Pleo, by offering business payment cards through Mastercard, which is a global, widely accepted payment network.
Our own estimates show that modern companies now do up to 75% of all their spending via company payment cards, and this trend will continue to grow with the acceleration of e-commerce spend. This is great news and an enabler for speed, delegation and traceability of business payments.
3. Employees are demanding efficient and modern work processes
Recent study by Deloitte shows that only 28% of millennials feel that their current organizations are making “full use” of their skills.
Moreover, research shows that revenue is up by 150% for companies with engaged employees versus competitors with low engagement levels. And to an educated millennial used to fast-paced, instantly gratifying experiences on platforms like Instagram and Snapchat, what could be more boring than filling out expense forms or waiting for their boss to share their company card.
The rise of cloud based SaaS applications and b2b e-commerce means that employees are now responsible for a much wider spectrum of company purchases. So without a streamlined process for company spending, they feel trapped and extremely inefficient.
Case in point: here are two tweets I found from the CEOs of Clearbit and Product Hunt – both clearly showing the value of employee empowerment through modern company spending solutions:
4. Increased need for transparency and trust in a modern workplace
The data proves it: a recent study by TINYpulse found that management transparency is actually the top factor when determining employee happiness.
In the video below you can see an example of how a seemingly tiny change in internal financial processes helped Planday’s employees save a huge amount of time and effort. They went from traditional expense reporting to using a modern company spending solution:
5. Modern cloud-based business software enables higher degree of interoperability and automation
Nowadays, practically almost every major cloud based business software provides an open API, according to this research by Deloitte. Why does this matter?
Well, it matters because when you use a cloud based accounting solution with a widely adopted open API (Xero for example), you’re setting your business up for success and future growth.
The reason is simple: the more interoperable the services you use are, the more accurate and timely the information at your disposal will be. No more error-prone manual data entry, no more CSVs data transfers, manual uploading of receipts and so on… And the more you can rely on those services to help you do work that is really important, the more you trust and adopt them. It’s a virtuous cycle that keeps generating value.
A relevant example of this interoperability of services is a new UK based company called Flux. It promises to connect merchants and forward-thinking fintech services to automatically fetch receipts after purchases, and automatically deliver them in banking and company spending applications.
6. Smartphones in every pocket enable timely notifications and simple capture and storage of receipts
Providing proof of purchases for business expenses has traditionally been a frustrating process. Collecting physical receipts, scanning them, matching them with transactions…
On top of being a very cumbersome process, it is also extremely error prone. Statistics suggest that around 19% of traditional expense reports contain errors. This can result in internal fraud cases or even fines from the tax authorities.
Luckily, the smartphone revolution can change this, forever. Nowadays, practically everyone in the developed world owns a smartphone. It finally enables real-time purchase notifications and subsequent quality receipt capture moments.
7. HMRC acceptance of digital storage of receipts
This is the last, but by no means least point. Without smart and fast acceptance of digitally stored receipts by tax authorities, all of the trends listed above wouldn’t matter that much.
Luckily, HMRC have been fast followers of the technology curve in this case. HMRC have been accepting digital copies of receipts for over a decade (confirmed in this bulletin from 1998), paving the way for true technology disruption.
The perfect storm is here – say goodbye to expense reports!
So here we are. All the crucial elements are in place to completely get rid of the legacy expense reporting process once and for all. Even more, all of this is possible today.
We’re about to witness a massive shift towards the elimination of expense reports in the next 5 years. Early adopters will reap great rewards, enabling them to make fast, business-critical purchases, and in the process allowing them to attract and retain top talent by empowering employees.
In addition, finance departments will be able to connect the new company spending solutions to the accounting systems and eliminate huge amounts of error-prone and manual work.
I’m personally hugely excited about this!
Here is an example of a business that has been a first mover – GenieBelt. In the video below, the Head of Accounting, Christian, shares their experiences with the new wave of company spending tools: