Expense management is the way that a business makes, tracks and audits the spending that is needed to make a business run. It covers everything from travel expenses through to software subscriptions, and is an essential part of every company – no matter its size.
Every company has its own methods for tracking expenses that is tailored to the way that particular business operates. Since no two companies’ spending needs will be identical, neither will their expense management process.
Expense management can be a difficult process, especially when relying on older (more analogue) methods of bookkeeping. Historically, expense management has been a patchwork of different, often inefficient, methods of logging spend, through a combination of spreadsheets, scanned receipts and paper invoices.
The more employees you have – and the more geographically spread out they are – the more operationally difficult this process becomes. This can lead to a long and time-consuming paper trail, with small mistakes cascading into much bigger issues.
This is why having a reliable expense management system is essential.
Even though there are countless ways that businesses manage their expenses, all of these methods essentially break down into two categories: Manual and Automated.
Manual expense reporting is the way expenses have traditionally been done, and it refers to expense management techniques that are mostly processed by hand through repetitive work. This includes using outdated or low-level software that does little more than move things from paper to the screen.
Automated expense reporting, on the other hand, is when the routine and menial aspects of expense management are processed automatically, via an application. This increases the efficiency of expense management greatly, freeing up accountants’ time to work on more productive and critical roles. Automated expense reporting also reduces the risk of error and fraud as there is less opportunity for data to be affected by a person.
While most companies nowadays are already seeing massive benefits from automated expense management, there are many businesses that are yet to make to transition.
Many businesses, particularly those with a smaller budget, opt to stick with a manual expense management system rather than upgrading to an automated one. This is generally out of apprehension of changing old business practices, or even the fear that the company can’t afford the cost of quality expense automation.
While these concerns are understandable, businesses that choose not to upgrade to automated solutions are incurring huge hidden costs that manual expense methods systems carry.
Pleo recently commissioned research to determine the true cost of manual expense reporting, and the results were staggering. According to the research, the cost of a single, properly filed manual expense report comes in at around $21 (£16). That may not sound so bad, but remember, that’s a single, properly filed report. The cost of an error – which happens on one in every five manual reports – is an additional $52 (£41) and 18 minutes worth of work.
This means that even a small company with just 100 employees is spending, on average, almost $40,000 (£32,000) per year just to process manual expenses.
That’s money that’s not being put towards more business critical tasks, and doesn’t include the indirect costs associated with employee dissatisfaction, interest rates and expense fraud.
If you’ve been considering upgrading to an automated expense management system, then data shows that you’re on course to relieve a lot of unnecessary overhead and time commitment surrounding your expense reporting. Transitioning to any new system as a business can be daunting at first, so here are a few ways to know if your company is really ready to ditch old ways and embrace the new.
The first and most obvious way to tell if it’s time to upgrade is by considering the impact of how much manual paperwork is involved in your expense reporting process.
If your financial managers are constantly hunting down receipts trying to keep up with a paper trail, then it’s high time to look for an alternative.
In fact, according to our research, businesses are on average spending a whopping 3000 hours every year either chasing or correcting expense paper trails. When even a small element of automation is worked into the expense management process, data suggests that it’s possible to reduce this inefficiency and cost for finance managers by up to 64%.
Speaking of your finance team, how do they feel about the way your expenses are managed?
The value of employee satisfaction simply cannot be understated. Research conducted by The University of Warwick has shown evidence of a direct correlation between happiness and productivity. According to the study, happier people are 12% more productive.
So if your staff are worn out, frustrated, and dreading every employee purchase, that’s a pretty good sign that you might need a more efficient system in place for them to use.
There’s a reason that automated expense management systems are quickly becoming the norm. They provide businesses with a plethora of benefits while streamlining a process that all companies partake in. Listed below are just a few of the benefits of switching to an automated set-up.
The most obvious benefit is how much time and money you’ll save by automating your business’s expenses.
Financial tasks – more than just about any other kind of work – are largely able to be automated by the right tech solution. This means that the tedious, time-consuming work that would typically be done by hand could be done automatically in a fraction of the time.
Automation saves time and money in two major ways.
First, it reduces the amount of time your employees spend doing repetitive, simple tasks – like data entry, transfer, and tracking. Rather than paying employees to do work that could easily be done by a computer, you can pay them to perform a more meaningful and critical role in your expense management.
Secondly, automation vastly reduces the risk of errors occurring. Human beings are naturally prone to making mistakes, which can add up fast.
In fact, a Fairfax study found that most businesses could save thousands a year in accidentally duplicated paperwork. These kinds of errors are completely avoidable through automated processes, which have a significantly lower error rate than their human counterparts.
Another benefit of letting computers handle most of your company’s numbers is security.
While the majority of employees are perfectly responsible, there are those that attempt to work the system – namely through fraud. In fact, according to one US study by the Association of Certified Fraud Examiners, 13% of corporate fraud occurs due to false expense reimbursement.
Automated systems not only prevent fraud and other security risks by handling portions of the work outside of human influence, but also by utilizing fraud detection services. These kinds of features can detect fraud before and as it’s happening, preventing it from having the costly effects it would have in the past.
Thanks to modern technology, we are living in an increasingly mobile age, where “the office” can be just about anywhere. This allows your employees greater flexibility within their roles, letting workers accomplish tasks while on the road, away from work, or from multiple devices.
In order to get the most out of the possibilities of modern technology, look for cloud-first software solutions.
This kind of innovation in expense management helps keep your team agile and able to incur essential business expenses wherever in the world they might be, without having to then send paper receipts across borders.
If modern technology has taught us anything, it’s that data is king.
The more data you have, the better you’ll understand your business and better you’ll be able to make decisions on its behalf. Automated expense management software can not only track and manage your company’s expenses, but also learn from them and distill that information back to your business budgeting.
The advanced data analytics integrated into most automated solutions can provide you with resources that your company has never had before. You can instantly look at how much your company is spending, what it is spending it on, what sorts of trends your business tends to fall into and even look at predictions of what your expenses will look like in the future.
This allows you to make smarter, more forward-thinking decisions that are based on facts and statistics. In turn, this will help your business avoid pitfalls and cut costs in areas you were previously unaware of.
Moving from a manual expense management system to an automated one can be a daunting endeavor, and many companies and individuals may be tempted to stick to their traditional methods of operation.
However, the benefits of automated expense reporting tools are backed by research and the hands-on experience of businesses around the world. If you feel like your business is ready for an upgrade, you can start looking for the right expense management solution now – and you could be just weeks away from huge savings and a more empowered, secure team.