The Definitive Guide to Expense Management
The world of expense management has emerged from the shadows in recent years. But what exactly is expense management and why is it growing at such pace? This short paper looks to answer these questions and more.
Rather than rehash the reasons why people need to ‘move to the cloud’ we will instead focus on the more practical elements. Once you are clear on why you should embrace a modern expense management solution we will outline the next steps you need to take to see it become a reality.
Like any change though, there will likely be resistance. However, as we will endeavour to outline, the impact on the wider company is pretty minimal. For the most part, employees willingly embrace expense management solutions given that they themselves are usually the chief beneficiaries from the modernisation.
As we’ll illustrate below, one of the key reasons that companies persist with out-dated solutions is the lack of appreciation as to the actual cost of in house solutions. Hence, once the decision to switch has been made, the return on investment tends to be significant.
You have taken the first step to modernising your expense management process by downloading this paper. We hope that we can help you complete the journey by finally modernising your approach to how you manage your business expenses.
What is Expense Management?
Expense management relates to the management of expenses incurred in the course of your work. For example, you may need to travel overseas on a business trip. During the trip you will likely incur expenses related solely and exclusively to the trip. These expenses will need to be reported, processed and in many instances reimbursed (when paid for personally).
Payment will typically vary with cash, personal credit cards and company cards representing the most popular forms. Regardless of the payment type, these expenses need to be accounted for, and expense management encapsulates the various activities that surround the ‘management’ of the expense.
Many expense management systems will typically follow a process based loosely on the following.
• Receipt is generated in the course of a transaction (physical receipt needs to be retained)
• On return to the office, an expense report will need to be filled out (manually)
• At the end of the month, the physical receipt may need to be shipped somewhere (or photocopied / scanned before being submitted digitally)
• A back office team will then need to process the expenses (this will range from ensuring no breaches of company policy, to reconciling with credit card statements and to detecting fraudulent submissions).
Assuming all of the above is completed correctly, the employee can then expect to receive a reimbursement for any out of pocket expenses i.e. expenses paid for themselves (and not using a company card).
If only it was that easy, the reality is often very different however!
• The number of expense reports that are rejected is significant (reasons for rejection can vary from duplicate entries, to breaches of company policy).
• The time lag between trips, and expense report submissions, can be significant, leading to lost receipts and errors.
• Throw foreign currencies into the mix, and the process becomes just a little more complicated.
• Finally, we all lead busy lives and processing receipts tends to be low priority for most hence the end of month batch processing of expenses we are all familiar with.
Why does Expense Management need an upgrade?
Is it any wonder that so many are ditching legacy processes and solutions for modern ‘fit for purpose’ ones?
So why is it worth considering a change? After all, expense management is typically a low priority for senior managers with other more pressing demands on their time.
The reasons are quite simple.
1. The costs of running inefficient expense management processes are significant. When we are all under pressure to make savings, this represents an area that is often overlooked. (In terms of the magnitude of savings, it will vary depending on the number of employees generating business expenses and the quantity of savings).
2. Advances in technology mean that there are a range of different expense management solutions that are extremely cost effective and easy to use. Hence a decision to adopt a new system has minimal disruptive impact.
3. Managing expenses is a big time suck. There is almost universal hatred for the concept, and the time burden is often considerable, time that could be better served focusing on more productive activities.
4. Digitizing expenses transforms the expense process; removes the need for manual entry, reduces the incentive for employees to batch process, but also creates the opportunity to gain insights which can he used to shape behaviour. In short, it is the hidden costs of expense management in aggregate that ultimately lead to people considering alternatives.
The Hidden Costs of Expense Management
For the minority (or lucky ones amongst us), we get to hand a wad of receipts to our unfortunate secretary’s who have to process them on our behalf. For the majority however, the expense management process is something we need to do impacting us personally. Mapping out the user journey of the average business receipt would simply astound you.
So what does a typical journey look like?
Once a transaction gets completed, most receipts get stuffed into purses and wallets. Eventually they see the light of day, before they are temporarily consigned to an envelope or desk drawer. When the ‘owner’ (of the expense) finally gets a few minutes of downtime, Excel gets fired up and the receipt gets inputted into ‘the system’. A trip to the photocopier or scanner may then be needed, before the receipts are sent on their merry way.
If this was where the journey ends it would be bad enough, however it is only a part of the tale. The recipient of said receipt is often residing in accounts, or finance. For them, they need to battle with everything from illegible handwriting, to dismembered receipts to expense reports that do not match the expenses submitted. This is before they even attempt to reconcile the expenses with company cards. Other issues to factor in include:
• Duplicate entries
• Need to assess expense against company policies
• Need to be in the look out for fraudulent entries
• Need to remedy errors
The notion that the existing internal approach is free is nonsense. Try assigning a cost to the following:
• Postage Costs
• Costs Associated with Duplication of Effort
• Paper Report Costs
• Office Supplies
• Lost Productivity
Is it any wonder that expense management is finally growing in importance as greater numbers realise the scale of the hidden costs? All these people, all this time. Surely there has to be a better way?
How do Expense Management Solutions Work?
Modern expense management solutions are typically cloud based/ Software as a Service (SaaS) offerings that utilise Smartphone apps to manage the process seamlessly.
A typical user journey looks like this:
• Download an iOS or Android app e.g. Rydoo
• Take a picture of a receipt using the App
• Select some custom data fields where relevant e.g. category of expense, purchase account etc.
• Upload the receipt in the App (or forward a photo via email direct to your online account by circumventing the app)
• Log in to your online account to review/ edit or to submit an expense for reimbursement.
While there are a plethora of solutions to choose from, most follow the above journey. Once the receipt is submitted, users can typically edit receipt data (verify OCR data), reconcile receipts with company card statements, submit for sign off, as well as link with bank accounts for reimbursement.
Administrators of expense management accounts can typically run reports, obtain real time overviews of company expenses as well as process the receipts i.e. review and reimburse as necessary.
Modern solutions also typically connect directly with most leading accounting software solutions, again removing the need for duplication of effort, manual data entry etc.
In many ways it has been the emergence (and indeed ubiquity) of the smartphone that has really accelerated the growth of SaaS based solutions. Modern smartphones have powerful cameras, and the ‘always on’ access to Internet enables users to process expenses as they occur in real time. This change more than any, has meant that the days of relying on Excel, or paper based solutions are finally coming to an end.
Given the power of the above it is clear that persisting with time consuming and costly alternatives is no longer tenable for most. So what are some of the key benefits of modern solutions, and what factors do you need to consider when evaluating your options?
What are the Key Benefits?
The benefits from upgrading from a legacy system are numerous. Of course, the extent of the benefit will depend on the number of employees, and the quantity of receipts that they are typically generating. If your company has a large sales team that is traveling internationally, the scale of the pain will be significant. Given that most SaaS based expense management solutions are in the region of $10/ user / month (with the majority subject to ‘fair use policies’), it is evident that the return on investment will be considerable.
So what are some of the key benefits?
• Time Saving
The sheer time saving to be gained from consigning legacy solutions to history is the most compelling benefit.
• Ease of Use
Modern SaaS based solutions are typically well designed (particularly when viewed in the context of their predecessors) and are for the most part ‘easy to use’. The majority offer free trials so it makes it easy to evaluate in advance of any purchase decision. Regardless, when pitched against legacy processes there is no contest.