Business owners, are you aware of how much money you lose every year due to either too 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 discovered that companies are losing a whopping £1.9bn every year due to ‘dodgy’ expense claims. The average claim worked out as £177 per month, equating to £1,404 over the course of a year.
Citing the study, a Global Banking and Finance article explains how four in ten (38%) respondents told Soldo they’d claimed expenses for things they shouldn’t have. Of the total, one-tenth confessed to doing this all of the time, while 19% said they did it occasionally. Another 8% said they had filed unauthorised or inflated expense claims when they are finding work tough.
Expense Approval Process
The standard expense approval process consists of the following steps:
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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, etc.
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An employee submits receipts. Whether it’s paper or digital, or an invoice from a service provider, they need to supply proof of the expense. It must contain the sum, the name of a product/service and the date of the transaction.
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The manager reviews the claim. At this stage, the claim is either approved or rejected.
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An approved claim is passed to accounting. This is the department responsible for issuing the reimbursement if applicable.
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The accounting reviews the claim. The claim undergoes another reviewal, this time focusing on both accuracy and policy compliance.
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The employee gets reimbursed. Depending on the policy, it is done either right after the approval or is added to the next paycheck.
While the process is pretty straightforward, it is rather time-consuming. This is the prime reason why it isn’t always followed with due diligence, therefore raking up additional reimbursement the employees were not entitled to.
More Than Financial Losses
The findings we’ve shared in the beginning are deeply unsettling, especially for business owners. However, the problems don’t end here. The damage caused by an unoptimised expense claim process is much larger than the loss of money.
Damaged Trust
Naturally, fraudulent expense claims can threaten the trust between companies and workers. A declining relationship can then reflect on a business's efficiency. Whether intentional or not, once caught engaging in expense claim-related malpractices, an employee is likely to be under the radar for a long time.
Normally, when openly mistrusted, employees tend to fall short in terms of performance. Although some try to redeem themselves, expenses-related errors are tough for employers to overcome. Simply put, they cause financial losses, and this makes most business owners alert of the potential recurrence and future costs. This may push the employer to begin micromanaging the employee at fault. Needless to say, this will only put a further strain on their relationship.
Blow to Reputation and Employee Retention
In the worst scenario, mismanagement of expense claims can lead to permanent damages resulting in the employee either being terminated or leaving on their own volition. Ending on a bad note can then lead to many other consequences. Negative word-of-mouth, instant mistrust of new hires, and changes in company culture - to name a few.
In other words, while expense mismanagement can cause big financial issues, it can also become the root of long-term reputation and internal communication problems.
Optimising Expense Approval Process
The way to prevent these things from happening to your business is to review and optimise your company’s expense approval process. Don’t worry if you’re unsure where to start - we have prepared a few pointers.
Recognise the Problem
Before you can start working on a solution, you need to identify the root of the problem. For example, in Soldo’s research, four in ten workers said that they would spend more responsibly if their company enforced more stringent spending rules, or a monthly expenses limit. The problem here is being too lax with the rules.
Meanwhile, just under a third (32%) said they would be more mindful of their spending if their outgoings were made visible to colleagues. Further 30% said the same if their boss was notified each time they made a purchase. The culprit here is lack of accountability, therefore perfect grounds for malpractice.
Start with Transparency
While the above described certainly isn’t true for every organisation, it is still a good place to start. By creating an environment of full transparency and expense visibility, you will hold your employees accountable for their expenditures without being overbearing.
You can encourage greater transparency by utilising expense claims-oriented tools like Timesheet Portal. Our platform has an expense management module which allows your full-time workers and contractors to submit expenses via a desktop or mobile devices. They can then be approved by either you or your clients with one click, right from your email.
Automation of the Expense Claim Process
Expenses are a hassle for each party involved, at each stage of the process. And this is often the reason why they are error-ridden. Automating the workflow minimises the number of steps required to take. This leaves close to no room for human error and streamlines the process.
An Investment That Saves Money
By investing in software that enables expense automation, such as Timesheet Portal, you will be saving more money than you spend. As we have already discussed, businesses lose tremendous amounts of money largely due to ineffective expense approval processes.
When using Timesheet Portal, your workers can submit online expense claims the moment they occur, whether the receipts are physical or digital. The allocated approver will be notified upon submission and be able to review without leaving their email inbox. You can easily enforce a multistage approval process too, granting more people visibility over claims before they are approved. The tool also boasts features that offer a more granular and accurate approach to expenses without extra effort. For example, a mileage calculator, based on postcodes the employee has been to.
Summary
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 averting these dangers is relatively easy. In the era of modern technology, simply entrusting the process to automation software can save you far more than the solution costs.
Tired of losing money through expense claims? Give us a shout.
