Why You Should Rethink How You Manage Company Expenses
As the pressure to perform gets more and more demanding, many SMBs are setting their focus on immediate company goals like profits and sales. However, this myopic view creates a festering problem in a critical business process - expense management. Although it may seem small, traditional ways of claiming expenses are hurting businesses more than they realise.
There’s a saying by entrepreneur Peter Baskerville that goes, ‘The ignorant are ignorant of their ignorance.’
It sums up traditional expense management in a nutshell. Unfortunately, many business owners stick to their old methods of claiming expenses not because they want to, but because they simply are unaware that a better way exists.
Most SMBs (or even corporations) would be familiar with using these usual methods in managing company expenses.
1. Petty Cash
Employees use a company’s pre-existing cash fund for small purchases and produce the relevant receipts after purchase. While this seems straightforward, employees are only limited to smaller purchases, and there’s also the endless manual work in claiming for the purchase and the risk of petty cash theft.
2. Cash Advances
Employees are given cash in advance and the expenses must be accounted for after the transaction occurs. Besides the tedious work of reconciling the exact transaction amount, employees are often dealt with either a surplus which they will have to return to the company, or a shortage in cash advance which they will have to pay out-of-pocket.
3. Employee Reimbursement
Perhaps one of the worst ways of handling expense management, employees would have to pay for company expenses using their own money and be reimbursed for it later. Not only is it frustrating for staff to use their own money, but it’s also prone to loss of receipts and unnecessary manual work in submitting claims.
4. Corporate or Business cards
Employees use corporate or business cards for business-related expenses and do not have to claim or use their own money. While this may seem like the ‘gold standard’ in expense management, it really isn’t. Businesses need to meet revenue requirements to qualify for corporate credit cards, and business cards do not give much budgeting control to the business owner. Plus, banks will only provide a limited number of cards, resulting in a messy card-sharing system for many SMBs.
Sticking to what we know may seem harmless; after all, why fix what’s not broken? But usually, it’s the small inefficiencies that can cause the most damage in the long run. Let’s look at the indirect effects that these methods may have on your business.
Things to Consider About Your SMB’s Expense Management Process:
Process and Efficiency
The traditional ways of managing company expenses is like fire-fighting. They are highly prone to error, i.e. losing receipts, reaching the business’s credit limit, wrongly keying in costs on the company ledger. Employees are often trying to right wrongs and put out fires instead of working effectively.
Isn’t this process unnecessary? You bet. 56% of companies report that their most significant pain point in expense management is losing expense receipts. An expense management process is supposed to be efficient, safe, and doesn’t require much effort to put in place.
There’s a reason why automation is so popular in the business world. Besides saving time, it also saves the company money, and it costs less than you think. Most businesses that embraced finance automation have managed to save almost 70% of finance operation costs, and it’s not hard to see why.
Indirect costs usually include the cost of inefficiencies stemming from loss of receipts, loss of time spent on manual work, and loss of money from expense fraud. In fact, only 27% of businesses have systems in place to flag out-of-company expenses, which gives way to a multitude of expense fraud from employees.
Most companies are hesitant to automate because they believe that their employees might not welcome the change. But this is rarely the case, as current statistics show that 26% of finance teams feel overburdened with manual work, and 97% of employees believe that automation can help their organisation.
Minimising manual workload for staff decreases their burden and allows them to focus on higher thinking work such as budgeting and forecasting. It also empowers and motivates them in their jobs. So most of these fears are usually unfounded.
Expense Management - Doing More with Less
For SMBs, the right expense management system should be able to achieve the following goals:
- Eliminate all expenses paperwork
- Capture receipts so that it never gets lost
- Reconcile all transactions with banks
- Set and allocate budgets
- Easily track where money is being spent
- Synchronise with accounting software
- Eliminate hours of manual tasks and no firefighting involved
A prepaid corporate card does that and more. For example, Budgetly’s software and prepaid corporate card automatically reconciles the transaction as it happens, eliminating the need for manual accounting of expenses. Besides that, the Budgetly app also allows employees to capture and store receipts for each transaction, ensuring that receipts are never lost again.
By simply making small changes to the way expenses are handled, businesses would immediately see its positive effects on processes, costs, and employee morale. Some things may not be broken, but it doesn’t mean that they can’t be improved.