Optimising Expense Approval Process
Published: 21/07/2018
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Business owners, are you aware of how much money you lose each year due to a lax or non-existent expense approval process? It is likely more than you imagine. In this blog article, we will help you improve your cost management procedures, save money, and preserve relationships.
Polling 2,500 employees across the UK, a prepaid card provider found that companies are losing a staggering £1.9 billion each year due to fraudulent expense claims. The average claim amounted to £177 per month, equating to £1,404 annually.
Citing a study, a Global Banking and Finance article explains that four in ten (38%) respondents told Soldo they had claimed expenses for items they should not have. Of the total, one-tenth admitted to doing this all the time, while 19% acknowledged doing it occasionally. Another 8% reported having filed unauthorised or inflated expense claims when they found work challenging.
The standard expense approval process includes these steps:
An employee makes a purchase. They cover business-related expenses from their personal finances. This may include work-related travel fees, treating a client to a business lunch, restocking office supplies, and more.
An employee submits receipts. Whether it’s paper, digital, or an invoice from a service provider, they must provide proof of the expense. This proof must include the amount, the name of the product or service, and the date of the transaction.
The manager assesses the claim. At this point, the claim is either accepted or denied.
An approved claim is forwarded to accounting. This department is responsible for issuing the reimbursement if applicable.
The accounting reviews the claim. It undergoes another review, this time focusing on accuracy and policy compliance.
The employee receives reimbursement. Depending on the policy, it occurs either immediately after approval or is included in the next paycheck.
Although the process is straightforward, it is quite time-consuming. This is the main reason it isn’t always carried out with due diligence, which can lead to additional reimbursements that employees are not entitled to.
The findings we shared at the beginning are deeply unsettling, especially for business owners. However, the problems do not end here. The damage caused by an unoptimized expense claim process is much greater than just the loss of money.
Naturally, fraudulent expense claims can jeopardise the trust between companies and employees. A deteriorating relationship can subsequently affect a business's efficiency. Whether intentional or not, once an employee is caught engaging in expense claim-related malpractices, they are likely to be scrutinised for a long time.
Typically, when employees are openly mistrusted, their performance often suffers. While some may attempt to redeem themselves, mistakes related to expenses are difficult for employers to overcome. In simple terms, these errors lead to financial losses, prompting most business owners to be wary of potential recurrence and future costs. This can lead employers to begin micromanaging the employee at fault. Unsurprisingly, this only adds additional strain to their relationship.
In the worst-case scenario, mismanagement of expense claims can lead to permanent damage, resulting in the employee either being terminated or leaving of their own accord. Ending on a sour note can then lead to many other consequences, such as negative word-of-mouth, immediate mistrust of new hires, and changes in company culture, to name a few.
In other words, while poor expense management can lead to significant financial issues, it can also serve as the foundation for long-term reputation and internal communication challenges.
To prevent these issues from affecting your business, review and optimise your company’s expense approval process. Don’t worry if you’re uncertain about where to begin - we've prepared some helpful pointers.
Before starting to work on a solution, you need to identify the root of the problem. For example, in Soldo’s research, four out of ten workers reported that they would spend more responsibly if their company implemented stricter spending rules or a monthly expense limit. The issue here is being too lenient with the rules.
Meanwhile, just under a third (32%) indicated they would be more mindful of their spending if their expenses were made visible to colleagues. Another 30% expressed the same sentiment if their boss was notified with each purchase they made. The underlying issue is a lack of accountability, creating the perfect environment for malpractice.
While what has been described above certainly isn’t true for every organisation, it remains a good place to start. By fostering an environment of full transparency and expense visibility, you will hold your employees accountable for their expenditures without being overbearing.
You can promote greater transparency by using expense claims-oriented tools like Timesheet Portal. Our platform features an expense management module that enables your full-time employees and contractors to submit expenses via desktop or mobile devices. You and your clients can then approve these with a single click directly from your email.
Expenses create hassles for every party involved at every stage of the process. This is often the reason they are prone to errors. Automating the workflow minimises the number of steps required. This reduces the potential for human error and streamlines the process.
By investing in software that facilitates expense automation, like Timesheet Portal, you will save more money than you spend. As we have already discussed, businesses lose significant amounts of money mainly due to inefficient expense approval processes.
When using the Timesheet Portal, workers can submit online expense claims as soon as they arise, whether the receipts are physical or digital. The assigned approver will be notified upon submission and can review it without leaving their email inbox. You can easily implement a multistage approval process, which grants more individuals visibility over claims before approval. The tool also includes features that provide a more detailed and accurate approach to expenses without requiring extra effort, such as a mileage calculator based on postcodes the employee has visited.
The lack of an effective expense approval process can damage businesses in multiple ways. Ranging from financial losses to bad publicity and changes in the office environment, it poses a lot of risks if left unoptimised.
The good news is that avoiding these dangers is relatively simple. In the age of modern technology, simply trusting the process to automation software can save you significantly more than the solution's cost.
Are you tired of losing money through expense claims? Contact us for help.