Traveling is one of the life’s simple, but exciting pleasure that introduce one to another experience or culture outside of his or her own home environment. It may be a way to recharge, fill one’s gastronomic quest, or as a form of adventure, which becomes part of those memories worth remembering.
However, it would be a completely different situation, when traveling for business trips.
Most employees that are granted to go on business trips may be thrilled with the experience, or have felt proud to have given to opportunity to represent the company. For some, it is a way to learn, and to meet colleagues in the same profession. Some go directly to potential business partners in order to negotiate, and for others, constant business traveling is already a part of their jobs. Whatever the situation that calls for doing business travel, there is one common headache that most business travelers experience: expense management.
Expense management is a tedious aspect of going on business trips, which deals with tracking and consolidating all expenses incurred during the trip. This could become more complicated as travels become longer, or farther, from your home town or country. Some employees become unhappy when their companies take a long time processing their reimbursements and claims, only to find out that everything they detailed are not reimbursable. Businesses also worry about tracking out of scope reimbursements, or duplicate entries.
An expense management research conducted in 2015 revealed some of the “pain” points in doing business travels. This includes both time and money wastage when doing expense management inefficiently. An approximately $500 M and 3,000 hours is spent on correcting errors in expense management alone.
On the side of the business traveler, expense management could entail more time and effort to execute. In the same research, when travelers don’t use any in house or third party software for their expense claims, 49% experience difficulty in setting up a buildable report; 54% in entering the data; and 55% goes to attaching receipts as the major part of the challenges.
The said research reflected many points for improvement, and areas that contribute inefficient use of company’s resources such as time and money, in expense management. Businesses should consider constant evaluation of their practices, in order to identify the problems early as they arise, or before it builds up to something more critical or expensive.
Traditional Expense Management
In a traditional expense management system, business travelers should be able to submit reports about their business trips including the expenses incurred alongside. This is usually tabulated in a spreadsheet, and should be attached with the corresponding receipts as expense proofs. This report is then forwarded to the immediate supervisor for verification and approval, or may go through several approving authorities. Once approved, the report will be routed to the finance department for processing and input in the business financial database.
The complexity of the expense management process goes down to the time it takes to make the first step, which is the consolidating of expenses and its corresponding proofs. Since business trips can be pressuring or tiresome, employees sometimes forget to ask for OR’s, or worst, or lost the receipts totally. Some company policies ask for the expense report within 24-48 hours after an employee returns, which can add more headaches in doing the report simultaneously as he does his usual office work.
In the finance department, the challenge starts with processing the claims and reimbursements one by one. The most basic details to look for include the following:
- Check if the expense is valid (should have an accompanying legal and official receipt).
- Check if the expense is within the budget allotted for a particular expense.
- Check if there are duplicate expense entries made.
- Associate an official receipt with the expense on the company’s financial database.
- Check if the corresponding authorities approved and signed the expense report.
- Check for, and record, tax implications.
More often than not, when these series of steps were done manually or when dealing with multiple expense reports, could be chaotic and burdensome for the finance department to deal with.
The survey on traditional expense reports mentioned above also highlighted that 88% of the companies that took part and doesn’t employ other solutions aside from resorting to manual traditional methods believe that adopting a digital and automated system will significantly improve their plight.
Main Areas of Expense Management
A strong travel expense management system is the one that overcomes the challenges in dealing with business trip finances. A business should focus on two main objectives when setting up a reliable expense management system:
- Setting up policies and regulation regarding business trip expense scope and limitations.
- Reduce and/or optimize cost in processing expense claims management.
Defining policies and regulation concerning expense reimbursements and management will increase the efficiency in reporting, as well as reduce the chances of fraud by improving visibility. Establishing limits and defined rules can provide order and consistency, which later on can better improve the processes and reap positive results long term.
Both direct and indirect savings can be achieved when using an efficient expense management system. Direct savings come from exclusive supplier negotiations, improved reporting and defined expense policies. On the other hand, indirect savings come in terms of efficiency in executing the process, and increased satisfaction from business travelers.
In order to achieve the overall effectiveness of a strong expense management system, a business should define the following areas:
- Policy
- Processes
- Systems
In developing policies for expense management, one should account the person or persons entitled to the authority of approving a certain budget or appropriation for a particular type of expense. It should also establish the roles that employees should assume in the process, and the hierarchy of steps to take in the expense approval process.
Information concerning the approval process should also be disseminated among all employees, including the parameters to observe. The finance department should also know the implications of VAT claims and reimbursements arising from each transaction defined. Auditing is also important, and must be regularly held for increased transparency and amount reconciliation responsibility.
In choosing what system to use, it is important that a business should make a careful evaluation of the company’s needs according to priority. It may be more effective to consult people who will directly use, or will be part of, the system in order to assess specific needs and take them into account before deciding.
Travel and Expense Software
Modern solutions for business entail digitizing documents and processes, which are easier to manage and execute. Automating an expense management system will significantly reduce costs – including time and resources by making an orderly process of tackling expenses arising from employee initiatives. An expense management tool, as a travel and expense software, allows businesses to establish better tracking, filtering and managing expense related aspects of business trips, which provides a systematic solution in streamlining the processes involved in expense management.
Once a business decides to a adopt an expense management software, it should set up a collaborative team that will focus on establishing the rules and regulations for expense claims and reimbursements, which should be in accordance with its scope within the business organization. These policies should effectively cover:
- Expense management best practices and compliance.
- Expense claims and approval procedures.
- Fixed payment methods.
- Real-time expense update and its access.
- Sanctions and implications for non-compliance.
Expense management tools should also enable to deal with the varying complexities of processes deployed by businesses that are expense related, and automate it effectively. Usually, an effective expense management system follow these steps in looking for an effective software and its provider:
- Designating the strategy to use regarding expense management.
- Setting a budget, and indicating its scope and specifications.
- Organizing the system in order to make or request proposals.
- Evaluation of offers and vendors.
- Supplier selection, and negotiations.
The finance department is the key decision maker concerning the selection of the right expense management system provider. It is also the deployer of the policies, and also the main processor of reimbursements. Two of the most important key considerations in choosing the top expense management tool for the job are its adaptability, and the rate of its ROI. Another thing to look for is its simplicity and the ease to deploy.
Auditing is also an important factor to deploy in order to strengthen the credibility of the processes involved in an expense management system.For a more effective approach, pre-trip and post-trip approvals should be executed before auditing commence for cross checking of pre approval versus actual expense claims.
Expense management tools can also be adopted as either a web based or a hosted solution. The web based solution’s advantages are:
- Increased accessibility across different, and even remote, locations.
- Minimal IT intervention.
- Faster and easier to set-up and implement.
- Scalable according to varying number of users.
- The software is constantly being updated.
On the other hand, a hosted solution dwell on its strengths concerning data security and higher customization. However, hosted solutions require a longer period of time to set up and implement, and also utilizes a team that focuses on its installation and maintenance. Market penetration is higher with web based solutions than the hosted ones.
Today, businesses enjoy an extension of the benefits of having an automated solution to expense management to their mobile devices. One can take a snap of the receipt, and send it directly to the expense management system remotely and in real time. Using a mobile expense management app, users can have their expense claims and reports sent and approved faster, which also reduces errors and forgotten details.
Conclusion
Businesses should be quick to address the different concerns regarding the efficiency of its processes, and in implementing the best practices for both the company and its employees’ benefit. One will never go wrong with a digital and automated solution to begin with. It allows better efficiency, transparency and process visibility of finance related processes; therefore building increased trust and productivity among the members of the organization.
Check out CrowdReviews.com’s expense management tool reviews for more actual clients’ feedback about the different expense management tool providers in the market today.
Jeev Trika
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