By: Rich Mitchell September 19, 2023
Employee expenses are unavoidable in the workplace. Whether it be for travel, software, lodging, client visits, or something else, expenses are a fundamental component of every organization’s cash flow.
But what happens when expenses get out of hand? It can become a nightmare for finance and accounting teams. Without proper expense management, organizations can experience a multitude of challenges.
In this post, we’ll explore what expense management involves; what the challenges and benefits are; and how partnering with an expert can help organizations maximize their expense management systems.
What is Expense Management?
So, what exactly is expense management? Expense management refers to the optimization process that companies use to track, control, analyze, and report employee expense reimbursements.
By integrating an expense management solution with your enterprise resource planning (ERP) system or financial management software, you can automate employee expense processing, check requests, and travel permissions. As a result of these, organizations can realize greater efficiencies, and streamline the process for managing travel and expense spend.
Key Components for Establishing a Modern Expense Management System
There are four crucial concepts to keep in mind when evaluating any expense management system:
- Expense tracking. Tracking expenses is necessary for helping companies remain compliant with financial regulations and making better-informed business decisions. And to some degree, most expenses are recorded and categorized. Modern expense management systems, like Infor’s Expense Management, also provide automation that follows accounting intelligence business rules, which eliminates the need to carry out repetitive processes. This can streamline routine tasks, reduce labor costs, and drive greater efficiency.
- Expense control. If you want to keep a handle on business related expenses, you’ll need a written expense policy for your organization, explaining in clear detail your spending policies. It’s also recommended that you set a maximum budget for each expense category, and provide flexible, secure payment methods, such as a company credit card.
- Expense analysis. Advanced expense management systems not only provide visibility into expenses, but they can also drill down and display detailed views into how much your business teams are spending, and with which vendors. This will allow you to create general categories for expenses for analysis. By doing so, you’ll likely find recurring spending that’s not useful, and possibly uncover impropriety.
- Expense reporting. It’s one thing to analyze your organizations’ expenses, it’s another to make sense of them in the context of actionable reporting. Expense reporting enables organizations not only to review the expenditures employees incur on their behalf, but it also helps leadership uncover insights into risk management, pinpoint trends in company spending, bring to light compliance with the expense management policy, and discover opportunities to save money.
What Challenges Do Organizations Face with Expense Management?
When it comes to efficient, cost-effective expense management, organizations face a variety of challenges. Here are five to watch out for:
- Lack of data transparency. When an organization doesn’t know how its employees are spending money, it’s virtually impossible to manage company finances. Without this visibility, an organization’s finance team has to deal with, at best, duplicate reports, missed receipts, and other errors. At worst, there’s the possibility that employees are committing expense fraud.
- Inefficient technology. Roughly 43% of organizations use manual processes to manage their expenses, according to a Tallie Travel & Expense Management Trends Report. Businesses that rely on manual processes, without the use of technology, often experience process failure. For example, accounting departments become overwhelmed with manual reviews and can miss unauthorized entries.
- Difficult expense reporting and management. Tallie also notes that only 27% of organizations have systems in place to flag out-of-pocket spending. When employees have to “monitor and enforce policy compliance manually,” it slows down the approval process. Also, a complex approval workflow can cause delays, due to an overload of approvals or multi-level approvals.
- Compliance with expense policies. Unclear policies and a lack of communication are some of the major obstacles for ensuring compliance with expense policies. Risk Management Magazine notes that “about 70% of employees spend within compliance” while “another 25% spend outside of policy but generally do so with good intentions.” Having under-compensated employees can also lead to non-compliance; RMM adds that “the last 5% are the repeat offenders.” Whether well-intentioned or not, violations result in accounting teams facing a heavier burden and increased errors in the reporting stage.
- Complicated process infrastructure. Manual expense management processes, with paperwork, spreadsheets, and email, are difficult and time-consuming. This leads to inefficiencies such as higher costs for processing transactions and time lost to perform said tasks. And these inefficient processes typically harm quality, so complicated processes can result in underreported or inaccurate expense tracking.
What Are the Benefits of Expense Management in The Digital Age?
- Reduced costs. Businesses can save money by identifying where they can reduce expenses. Sophisticated software can automate expense tracking and processing, as well as reduce the headcount needed to review reports. By automating these tasks, organizations can reduce labor costs associated with reviewing expense reports, decrease expense processing time, and expedite spending practices reporting. With these benefits, organizations can realize a boosted bottom line and higher profitability. Such software, like Infor Expense Management, may have an upfront cost. However, that cost can be completely offset by the time saved by your accounting and finance teams. And with a streamlined process for reporting expenses and receiving reimbursement, your entire workforce will help generate greater cost savings. Tallie’s report noted that 50% of enterprise companies that added an automated expense management system realized a positive ROI in just one year.
- Improved financial control. Expense management can improve organizations’ visibility into how much they’re spending and where. Maintaining employee spending limits, reducing payments made out of compliance with the organizations policy as well as duplicate payments, will increase a company’s efficiency, specifically by allowing the organization to budget and forecast more accurately. Infor’s Expense Management software also makes it easier for your organization to remain in compliance, reducing the likelihood of costly penalties associated with, for example, the “Sunshine Act” section of the Patient Protection and Affordable Care Act. You’ll also get Payment Card Industry (PCI) compliance, to protect sensitive employee credit card data and meet PCI data security standard, as well as tools to maintain ISO and SOC 1 compliance.
- Enhanced decision-making. With the data generated by expense management software and greater visibility into business-related costs, your company can make better business decisions. For example, use your data to negotiate down your vendor spending. Having more data at your fingertips empowers you to plan more strategically and allocate resources more effectively.
What Are Some Best Practices for Effective Expense Management?
- Establish clear expense policies and guidelines. Your expense management policy should make it clear to employees what company expenses can, and cannot, be reimbursed. It needs to provide helpful, easy-to-understand guidance, including definitions of what’s allowable and not allowable, with specific dollar-amount limits for specific categories. The policy should also include what receipts are required, and deadlines/instructions for submitting expense claims. It’s best if employees can see an obvious correlation between your company’s vision/mission and your expense policy.
- Implement effective technology solutions. You can reduce your finance and accounting team’s workload by automating the expense management process. There are many benefits of adding expense management software into your ERP architecture. These include being able to automate data entry and approval processes; ensuring data quality and data security; taking advantage of the convenience of mobile devices; and more. Plus, some systems offer spending controls and the ability to set pre-approved vendors.
- Educate and train employees on policy. Why do expense policy violations occur? Most of the time, it’s simply because employees don’t have a clear understanding of your organization’s expense policy in the first place. So to start, Forbes recommends creating “a policy that’s readily accessible to employees not just during their first week of employment but as they are making real spend decisions.” One tip for creating a simple, concise policy is to show real-world examples of proper and improper company spending. Also, write it in a friendly approachable style, not like a jargon-heavy legal treatise. And use guidelines rather than long lists with every possible example. A good time to educate staff on your expense management is during employee onboarding, but as Forbes noted, should also occur when employees begin making expenses.
- Review and update processes and tools. Companies should periodically and proactively review their expense management efforts. Whether it’s adapting new processes or tools, staying up to date with industry trends often results in greater cost savings. An experienced vendor such as RPI Consultants can help your organization develop or refine your expense management strategy, and assist you in implementing ERP applications like Infor’s Expense Management.
Getting Started with Expense Management
Businesses of every size and in every industry can benefit from an increased focus on expense management, which can be defined as the process of tracking, controlling, analyzing, and reporting expenses within an organization. All with an eye toward optimizing not just the spend, but all the steps required to do so.
Challenges that organizations face regarding expense management include lack of data transparency; inefficient technology; the difficulty of reporting expenses; compliance by employees; and over-complicated processes. But the benefits to be gained from a robust expense management solution are huge: reduced costs, better financial control, and better decision-making capabilities.
RPI Consultants has more than 20 years’ experience helping businesses implement and optimize their ERP solutions. We can help your organization develop and implement an expense management system that aligns with your goals, budget, and overarching strategy—and drives greater financial success.
To find out more about expense management, including best practices and how to get started with implementing a solution, contact us below.