When discussing a company’s financial health, it’s important to consider how the business manages its expenses. It’s a process that can become convoluted if the organization still relies on things like paper receipts or other physical forms of documentation.
Not only is it easy for these types of papers to be damaged or lost, but they are particularly susceptible to fraud. The manual approval process is also lengthy, and frequently bogged down by back and forth questions between approvers and employees.
Adopting a digital tool can greatly improve the efficiency and security of the process, but companies who have long relied on traditional processes may wonder–just what is expense management software, and why do I need it?
The Standard Process
Before talking about solutions, it’s worth looking at the usual expense management workflow.
- Employees document and submit a claim
- Managers verify and validate the items listed
- Expense forms are either accepted or rejected
- Expense forms are audited for compliance by the accounting team
- Reimbursement payments are processed and issued
- Documents are stored for auditing purposes
Types of Expense Management
Broadly speaking, there are four primary ways that organizations can manage their expenses.
- Paper – For years, this was the way all companies tracked employee spend. Physical receipts were kept and submitted to the accounting department for review and approval.
- Spreadsheet – Some organizations make the mistake of believing they have automated their process simply by moving to spreadsheets to track spending. While this method offers a substantial improvement versus reliance on paper, it does not contain many of the tools and capabilities of a full automation software
- ERP/Accounting Software – Certain ERPs contain expense management features. However, they are not typically robust enough to manage mobile employees. While they are typically able to consolidate data, they are unable to manage approvals, tracking, or monitoring.
- Expense Management Software – This is the most comprehensive way for businesses to track and handle approval for employee spending. The software notifies the appropriate approver when new documents need to be viewed. They can then be approved or denied. If the expense is accepted it will then be automatically routed to accounting for reimbursement.
The Drawbacks of Manual Processing
Using a manual process or even supplementing it with spreadsheets opens the doors for errors in submitted reports. Spotting the mistakes can be labor intensive and a significant drain on time. Missing information can create bottlenecks in the process, not only tying up the approver’s schedule but causing long delays in reimbursing legitimate claims. According to reports, 19% of expense reports hold errors, and each one adds 18 minutes to the process.
Manual expense management is also vulnerable to duplicate expenses and deliberate fraud. Fake receipts, inflated costs, and out-of-policy claims are the most frequent ways that dishonest employees attempt to manipulate the system.
It’s more than just a hypothetical. 85% of employees admit to having fabricated expenses, and 5% of those surveyed indicate falsifying information on all of their reports.
What is the solution?
Expense management software aids the reimbursement process by automating many of the steps. It cuts down on paper, reduces the amount of time spent processing claims, and decreases the possibility of errors.
A quality system offers benefits like:
- Providing the ability for employees to upload receipts and create expense reports from any location
- Integrating digital payments into the workflow and allowing reimbursements to be issued online instead of with paper checks
- Removing paper documents from top to bottom, from purchase orders to payments
- Customizing approval routing based on criteria that you determine
- Allowing approvers to access necessary data no matter where they are working and instantly sign off on a claim or send follow-up questions
- Integrating with systems such as ERP or accounting systems and eliminating data entry work
- Providing analytical tools that allow companies to make informed decisions about future spending
Adopting an accounts payable system that provides an organization the ability to fully automate its expense process is essential to eliminating fraud and ensuring approved payments adhere to the company’s policy. It also reduces the cost and time spent on the process.