Expense management is an essential component in a company’s finance department. For large businesses, travelling to meet clients, business meeting or other corporate appointments is very often. Parts of these business affiliated activities are costs involved. As a business person, it is important for you to know all the expenses made out of these activities. You need to ensure the ROI (return on investment) of your company. However, because of overwhelming business related tasks, you often forget to keep track of your expenses. It’s a common scenario for every busy business man to forget in keeping receipts.
Through technology advancement and new software innovations, people can now keep an eye on their expenses. Expense management software was introduced in the market as an alternative to manual expense management. It is well renowned for the benefits it can give to company’s financial management. This system is basically a system used in businesses to do tasks such as paying, processing and auditing employee expenses.
Read through the end of this article to know more about expense management and be ready to choose your top expense management software. You will also be able to pick up insights about the advantages and disadvantages of this medium and gain tips on how to choose the right software.
What Is Expense Management?
Expense management from the word itself is the management of company-related expenses initiated by employees, executives or even the owner. It is a continuing process wherein employees are required to take part in reviewing expenses from time to time through the aid of a budgeting process. There are three types of expense management which is common in most large firms:
Telecom Expense Management – is the management of telecommunication services (wired or wireless) expenses. This is the most common expense that a company makes. Employees, executives and officers in a firm use a phone every day.
Travel Expense Management – is the management and organization of costs incurred from an employee travel. These travel expense may include plane ticket fee and other miscellaneous associated with traveling.
Technology Expense Management – is the management of technology incurred costs such as computers equipments, software licenses, applications and more. Technology expenses are seldom to inflate on a monthly basis, since most companies purchase technology related equipment on a one time basis.
Accurate expense management is essential especially among larger firms; speed and accuracy of expense reports and oversight can greatly affect a company’s efficiency and profit. Therefore the need for automation is highly required.
Importance of Expense Management
Expense management is a primary responsibility of every finance department in an organization or company. In order to keep a good ROI (return on investment), one must always keep track of every single expenses and make a record. Costs incurred from business-related facilities such as telecom expenses, technology expenses or business activities such as travel should be documented on an expense record.
However, among most companies; not every single expense is recorded. Instances happen where employees forget or overlook of other spending they have made which is quite normal for a typical busy firm. All these little or big unrecorded expenses could tantamount into big amount and may lead to company loss. These have been one of the biggest concerns in the industry, until technology took part in the scenario and introduced expense management automation.
How Does Expense Management Software Work?
Expense management systems have been a staple to every finance department in many companies and organization nowadays. It is basically software that helps provide a real-time expense report every time needed. Good news is this software does not require sophisticated and expensive servers to be used when running it. It gives you the benefit of securely storing or retrieving your transaction details conveniently.
Automated expenditure management offers features that can be used for analytics and tools to oversight which is helpful in finding alternative solutions on how to reduce overall costs which is something often neglected in manual expense management.
According to study, companies who uses manual expense management spends an average of $41 in processing a single expense report with a compliance rate of as low as 50%. While those companies using expense management software spends as little as $7 in very single report with compliance rate of 87%. See the difference?
It is important to keep in mind that company’s income can’t be tallied properly if there is not a clear documentation of expenses. You will never know if the company is gaining or losing if you don’t have a grasp on where is the money spent. Hence why, expense regulation is very important.
Advantages of Automation
Using an automated expense processing correlated with the traditional manual process is indeed a lot more convenient end efficient. It is highly beneficial for companies in terms of increasing corporate policy compliance, cutting back errors and ensuring the proper use of company resources. But wait, if you think that’s all what this medium can offer, then you’re not done reading yet. Below are the major benefits of using expense management software according to study:
- Faster Reimbursement – in manual expense processes, human review is required with multiple steps which literally take up a lot of time. As an outcome, employees needed to wait for a long time in order to get reimbursements which could potentially result to financial and operational problems for both the company and the employee. However, in using automated expense management tool, reimbursement concerns could have a turnaround time for as fast as 24 hours or no more than a week as compared to manual which will eventually fall from 2-3 weeks.
- Improved Expense Awareness – automation keeps real time record of expenses made and how budget is disseminated in the organization. It shows clear and concise records of all transactions made by employees and managers, thus, giving the benefit to allow better deal negotiation, plan predictable costs and save some as needed. This one is definitely better than making predictions of past expenses through inaccurate reports.
- Eliminate Performance Issues – numerous issues related to performance can be eliminated with the aid of automation in a company’s expense management. Issues in terms of compliance, too much time spent on working with expense reports and improper use of company resources can all be distressed with the help of an automated expense system, thus, leading to a more productive workforce.
Disadvantages of Manual Expense Management
Costs incurred through time spent by employees in preparing expense reports, account processing, approval of reports and the perpetual issue of corporate policy compliance contributes to income loss of the company as a whole. According to study, the largest downsides of using Manual expense management are the following:
- 47% of employees are losing their receipts or are submitting expense reports without receipt.
- It takes 46% time to conform, audit and approve expense reports.
- 42% of employees fail to submit reports on time.
The same study also highlighted the four main problems with using manual expense processing:
- High Error Rates – as opposed to automated expense system, companies are committing much error, not only in data recording but also in the processing of reports using the manual method. This includes misapplication in excel and improper written records.
- Not Easy to Review – it is quite tricky or impossible to monitor expenses prior to it being recorded. It is only after expenses have been recorded, accountability rises, thus greatly reducing compliance rate which makes it difficult to establish policies without it being disobeyed.
- Slow Reimbursement Time – as mentioned a while ago; reimbursement goes through multiple steps being approved and typically takes a couple of weeks.
- Papers Everywhere – the fact that this method is manual; records and files are paper based. Managers and employees are required to make a printed copy of their expense reports along with receipts and send it to the finance department. Since receipts are paper based, manager and employees will have to wait much time to get reimbursed.
Due to these drawbacks, more and more people are switching to the automatic way. Tons of expense management software reviews online are evident feedbacks from people who have taken the advantage of a paper free expense management. Companies and organizations are making significant cost saving the moment they decided to invest in this system.
Expense management if done right could contribute a lot to company profitability. It is therefore important to have a good expense management tool to ensure that even the littlest amount does not get overlooked in making the expense reports. Investing in the automated system might require fee, but you can assure yourself of benefits it can give back. You will save time, effort and especially save money.
Seeking for the right expense management service? See a list from CrowdReviews.com to get the latest expense management software reviews. Additionally, get to know all the ones which are currently ranked as the top expense management software.
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