Building a better expense management process

Jul 19, 2019

While small-business owners are always keeping an eye on the incomings, it's just as important that their out-goings are properly accounted for, as well. Darren Upton explains how SMEs can get their expense management process in order.

Expense management is a vital component of any business’ financial health. All too often, decision makers overlook the fact that it’s just as important to know how much money is going out of the business as it is to know how much is coming in. This knowledge is essential for budgeting effectively, forecasting future growth and – especially for start-ups – securing investor confidence.

Research from Soldo suggests that the average employee spends 20 minutes per week submitting expenses. A significant minority of employees (44%) claim that their company doesn’t have a formal expense management system or policy – or they don’t know whether it even has one in place.

Perhaps more worryingly, only a third (32%) of employees said they currently use technology to automate expense management and over a third (36%) said they still rely on paper records.

As an accountant, helping your clients improve their expense management habits is extremely important.

Expense management issues

Some of the main consequences of poor expense management include:

  • Cash flow issues: When expenses are filed incorrectly or inconsistently due to over-reliance on receipts and manual processes, numbers become less accurate – and a culture of misinformation results. This can adversely skew the company’s true cash flow situation and make the lives of accountants miserable.
  • Productivity problems: If employees can’t access a spending card for whatever reason, claiming expenses after using their own money can become a particularly drawn-out process – and one that hampers productivity. Using credit cards can cause issues if limits aren’t high enough for costly transactions. Productivity for accounting teams can also be sapped as a result of having to wade through piles of receipts, attempting to reconcile employee expenses. This time could be spent doing far more productive tasks.
  • HR headaches: When employees spend out of pocket instead of using a company card, they can often struggle to get reimbursed – and the manual process of claiming expenses can lead to long waits and resentment. A third of employees said they had to wait at least a week to be reimbursed, and for some (5%) it can even take over a month. With employee engagement so high on the agenda, this is unacceptable.

Solutions to expense management

It goes without saying that poor expense management processes can cause problems for accountants, too. You end up working with outdated insights and making poor decisions. So, what actions can those in the profession recommend in order to help clients build a better expense management process?

  • Digitise spend reporting: Business banking and accounting are becoming more technologically driven, and this extends to expense management as well. Encourage clients to consider software that can automatically track, categorise, and report on spending by capturing and presenting data via a mobile app (that can also flow seamlessly into accounting software). For accountants, this can provide information that you want access to instantly – and wouldn’t have had access to otherwise.
  • Eliminate credit cards: No more random array of cards. Instead, you can encourage your clients to use pre-paid cards with rules and set budget limitations. This makes it easier to give employees their own cards with pre-determined parameters to meet their needs. This removes the need for anyone to spend out of their own pocket – and therefore means no need to claim back expenses to begin with. It also means no more petty cash.
  • Create a clear spending policy: By doing so, you can help clients develop a policy that clarifies what is and isn’t acceptable spending. Many businesses don’t have a clear policy in place, so simply setting rules on what can and can’t be expensed on the company, drastically reduces the chance of misspending.

Darren Upson is the VP of Small Business Europe at Soldo.