Without an efficient expense management system in place, your organization’s expenses can become difficult to monitor and control. Unfortunately, the byproduct of this type of system is waste, burdening the entire organization’s financial state.
In this comprehensive guide we’ll walk you through many of the most common challenges facing expense management teams to help you identify the weak points in your own system. We’ll then work through some of the most effective ways to improve your expense management system, restore order, and streamline the entire process to reduce the resources required to maintain it.
Top Challenges to Effective Expense Management
The greatest challenge facing the majority of expense management teams is operating with outdated systems and inefficient processes. If you’re still entering information into a spreadsheet, we’d recommend paying close attention here.
Manual processes make staying on top of incoming costs more difficult, especially in organizations where hundreds or thousands of submissions are being handled on a regular basis. If you’re still operating with paper, your processes are likely even more difficult to maintain. After all, paper receipts can be difficult to read or not fully identify the cost of the associated expense.
Common complaints about manual spreadsheet (and especially paper-based) systems all have to do with the sheer amount of time involved in processing. The submission process and entry can be time-consuming, which leads to delayed reimbursement.
In the digital age, operating with a mix of filing cabinets and spreadsheets no longer makes sense.
Poorly Defined Expense Policies
Another common expense management issue is the policies used to enforce company expenses. Without a clearly defined expense policy, employees may have a difficult time understanding which payments are accepted and which are not.
Furthermore, poorly defined policies also make it difficult for your team to enforce misspending, exaggeration, and the general regulation of employee expenses.
The unfortunate truth is that expense abuse is a very common occurrence. Without a clearly defined policy that sets limits to what can be expensed, how much will be covered, and how often that expense can be used, your organization will likely be paying far more than it should. This leads us into our next challenge—visibility.
Limited Visibility into Expense Data
Identifying insights about employee spending is one of the most important aspects of effective expense management, but few teams have proper visibility into this kind of data.
For example, by identifying daily averages for food expenses you would be able to more accurately establish an effective per diem for these costs. Without a clear way to access and interpret this data it will be difficult to perform effective audits and optimize your policies accordingly.
In a scenario where you’re only privy to limited reports, you may find that important insights go unnoticed. For example, if your current accounting system is unable to integrate with other business applications you may waste time identifying otherwise unimportant discrepancies while letting other inaccuracies slip through the cracks based on lack of information.
The difficulty associated with operating within a cumbersome manual or semi-electronic system means the time required to reimburse employees can extend further than it should.
Employees don’t want to wait weeks (or longer) to see their money returned. You may find that these situations lead to resentment of business trips, external expensing, or the organization as a whole.
This reimbursement delay is typically caused by operating within an outdated expense management system. It leads to excessive time spent processing reports and the opportunity for key information to go missing or need to be tracked down.
Excessive Travel Costs
Some expense management challenges are outside of your control. For example, travel costs are increasing as a whole. Reducing business trips by conducting activities online can help to reduce the number of trips, but reducing the actual costs of each trip is another issue.
One study found the average difference in the cost of tickets to be $312 depending on the time they were purchased. However, employees typically don’t shop smart when it comes to expenses they know the company will be covering.
Furthermore, unauthorized upgrades to better seats and more expensive hotel rooms are commonplace, especially without a clearly defined expense policy.
Data Entry Errors
Data entry errors into spreadsheets or other semi-electronic systems can lead to costly mistakes. Furthermore, without proper systems in place to catch these mistakes they may go unnoticed or not be caught until it’s too late.
This certainly is not an exhaustive list. These are simply some of the most common errors your team might be experiencing. You can probably identify several of your own internal issues not found here, which is why you need a plan to remedy them.
How to Optimize Your Expense Management System
Develop a Strategy
Proper planning is a foundational element for any successful business system. Investing in creating your expense management strategy can help you identify weak points and work to cover those gaps.
By carefully evaluating your current expense management system, you’ll be able to determine what aspects are working well and should be kept in place, those that can be improved, as well as those that will need to be completely overhauled and replaced.
Say you determine that reimbursements aren’t the most effective way to cover employee expenses. In this scenario you may determine that you need to identify an appropriate per diem amount or use corporate expense cards to cover the entire cost of a business trip.
Define Your Policy
With a strategy in place you’ll be able to more accurately optimize your existing expense policy in order to provide employees with clear expectations around business expenses. Define specific criteria for what qualifies as an accepted travel, food, or lodging cost and set explicit limitations to avoid any misunderstanding or abuse.
For example, if you have amounts that are always approved for specific items like food or lodging, you can automate those reviews so that time can be better spent reviewing any outliers or exceptions.
Another example of a clearly defined expense policy is creating a list of fast approval expenses, or items that will be approved and reimbursed within a more rapid timeframe. The more that people know, the more likely they will be to make decisions that fall within your framework and streamline your processing
Furthermore, provide employees with an electronically documented reference sheet so they have quick access to answers to their questions. More specifically, if your organization has partnered with specific chains or have a prefered vendor relationship, you’ll be able to clearly define those benefits in this document. It will save employees time and your company money.
Get Feedback on Your Policy
Your team may be able to identify insights that allow for the creation of what you think is a highly effective expense management policy, but other departments may not share those feelings.
In order to ensure your policy works well for all of the people that will be using it, identify key stakeholders to represent the various departments in your organization. Get them to provide you with feedback on how that policy will play out before you implement it. This will help you avoid many of the potential hurdles inherent in deploying a new policy company-wide.
Furthermore, keep them involved after implementation in order to give feedback about how it’s playing out in the real world. If their people are encountering problems or sticking points, be sure to identify whether it’s something that can be fixed by adjusting the policy or training people on your new procedures.
Automating for Optimum Expense Management Efficiency
When all is said and done, streamlining a manual expense management system can only take your efficiency so far. Manual systems require far more manpower and are significantly more prone to errors, all the while requiring far more processing time.
Automating your expense management system may sound like an expensive investment in technology or a headache to implement, but the truth is that implementation can be dramatically simpler than most organizations realize and actually save money.
Most organizations don’t fully understand the level of resources being invested in expense management and therefore do not fully recognize the benefits of automation. By the time costs in time and reduced productivity for employees is accounted for, a technology investment is very likely able to pay for itself and improve internal operations significantly.
Furthermore, identifying powerful cost-saving opportunities that were hidden by your manual processes can help optimize your expense policy, further increasing the value of your investment. The automation solution can even help your team enforce the rules you outline in your policy.
Expense management isn’t exactly a joy for most of the people involved in the process. More often it’s an additional task required to complete an already busy business trip.
By using an automated application from their smartphone you can provide employees with the tools to record their expenses as they incur them, saving them the hassle of filling out a manual report upon their return to the office. Enabling employees to submit expense lines at the time the expense occurs is not only efficient, it reduces or eliminates the possibility for errors or out of compliance problems.
Today this is the kind of convenience people expect from technology, even at work. By providing this level of simplicity you’ll improve their ability and willingness to help you streamline your expense management system.
You’re now equipped with powerful ways to optimize the performance of your expense management system. Whether you choose to remain in the paper age, make do with your semi-electronic spreadsheet solution, or automate is up to you.
To further understand the benefits of automation, be sure to read this recent article on automating business processes. If you have any questions at all, be sure to reach out. Our team is here to help!