Expense management for SMBs. A better way
Chapter 1: What is expense management and why does it matter?
Expense management is the systems and processes you use to pay and report on expense claims, from train tickets to stationery to (allowable!) drinks bills.
Many small businesses are surprised at the sheer effort involved in tracking and auditing this constant stream of small but significant payments, which is why many don’t do it well. It gets particularly complex when you also have staff to worry about.
But thanks to technology, there are ways to make the process of managing all the payments your business needs to make significantly easier, more cost effective and way more time efficient.
In this guide we will look at the common challenges of expense management, the opportunities that smart record-keeping can offer, and explain why expense management software for small business is becoming an essential accountancy tool.
Why does expense management matter?
Expense management matters for two reasons:
- Expenses are a sizeable business cost. One survey found that companies spend on average between 6-12% of their total annual budget on travel and entertainment. The same research found that the cost of processing these expense claims or extracting useful value from the data can vary wildly. Achieving a single actionable expense report can range from just under $7 for automated systems to over $26 for manual/Excel-based processes.
Also, companies that lose track of expenses risk losing money. A survey by Soldo of 2,500 employees revealed that over a third claimed for things they shouldn’t, averaging out at £117 in fraudulent claims each month. Even when fraud is not a factor, smaller businesses consider controlling company spending as one of the biggest challenges they face.
- Expense claims have to be lawful. To claim back tax on employee expenses you have to be able to prove to HMRC that they are genuine, meet all criteria for employee business expenses, and that the cost is reasonable and appropriate. A robust expense management process – especially one linked to accountancy software for small business – can ensure you always remain compliant.
Optimistic employees have claimed for everything from haircuts and family trips to personal parking fines and alcohol
Expense management the old way: petty cash, petty problems
Businesses typically handle expenses in one of three ways…
- Petty cash: Many small businesses still operate a petty cash fund, which employees dip into for small value purchases, replacing cash with the relevant receipts. Expenses are recorded in a general ledger when the petty cash fund is topped up at the end of each accounting period. Even though there are plenty of alternatives to the petty cash system, they continue to be popular, despite the complexities of administering them: endless scraps of paper or plain theft!
- Cash advances: Cash advances are commonly used for travel costs and subsistence during business trips. This means handing over a cash sum that is unlikely to match the exact amount spent. Surplus cash is collected and banked after the trip, or the individual reimbursed for any money spent out of their own pocket. Employees submit receipts and an expense report, which have to be painstakingly reconciled to avoid either the business or the individual losing out.
- Traditional credit cards: Company credit cards for small business avoid the risks associated with employees carrying large amounts of company cash. Similarly, employees are not left frustrated by being forced to pay for company items out of personal funds. But giving out traditional company credit cards presents a potential fraud risk and, with high credit limits, spending can be difficult to control. It can be weeks before unauthorised spending gets spotted.
Chapter 2: Analog to digital: escaping the expenses trap
The challenges of traditional expense management
It’s frustrating for staff
Traditional expense management is fiddly and time consuming. Employees have to be trusted to collect and store paper receipts – they won’t. Then they have to fill out tedious expense reports accurately and on time – they won’t. According to Soldo research, over half of employees say they have not been reimbursed for work items bought with their own money. Particularly in the modern digital era, where we can manage everything from taxi bookings to our bank accounts without matching bits of paper, these sorts of archaic processes can actually alienate and demotivate employees.
It’s frustrating for business
Submitting expense claims is a chore. Details are typed into an expense management spreadsheet, where they are reconciled, reviewed and approved. Each individual expense must be manually checked. It’s a long-winded process, and prone to error. Receipts go missing, mistakes are made, and figures refuse to add up. Over a third of finance directors say they spend valuable time every month doing financial detective work to find out who spent what, and when. Not only is this a waste of time, it means that FDs lose visibility over their businesses. They are stuck with management data that can be several weeks out of date.
Traditional expense management is archaic, inefficient and a burden on business
It hides fraudulent claims
On top of everything, paper-only trails make fraud easier. Let’s say an employee who regularly travels for work buys a train ticket to a conference for £100. The conference is cancelled, and he claims most of the money back from the train company. Three weeks later, he enters an expenses claim using the original £100 purchase receipt, which is quickly approved by a hard-pressed line manager with neither the time or inclination to make thorough checks.
Far-fetched? Research by the US-based Association of Certified Fraud Examiners, reported by Forbes, found that expense reimbursement fraud accounts for 15% to 17% of all business fraud.
Making Tax Digital and expense management
You’ve probably heard of Making Tax Digital (MTD), a government initiative to take the entire process of tax for businesses online; but you may not be prepared for it. If that’s the case, you are not alone.
The first part of the initiative – Making Tax Digital for VAT – comes into force in April 2019.
It means that, even if you rely on a paper trail for expense management at the moment, you won’t be able to for long. Right now, MTD for VAT only requires that you use software to actually file your VAT return online – and there are some ultra-lightweight options on the market which really do achieve no more than a jazzed-up email. But the next step is clearly digital recordkeeping across the enterprise, which will make life for HMRC’s auditors much simpler, and make retrospective inspections less burdensome for business owners, too.
MTD can’t be avoided, and it’s likely going to involve changing the way you work. So you might as well use it as an opportunity to make life simpler. Invest in cloud accounting software for your small business and you can save valuable time and money.
The benefits of expense management software for small business
How? Well, in brief, digitising expense management means:
- Better information: Have all your spending data at your fingertips. Use it to improve the way you run your business.
- A clearer view. Track your expenses in real time. Spot waste, overspend, cheeky employees etc…
- Happier staff. Being digital-first cuts paperwork and improves accuracy. Everybody wins.
- Simplified processes. By cutting the time required, expense management can be a line-of-business activity, instead of something complex that ends up happening in evenings and weekends.
- Easy delegation, frictionless working. When you can transfer money instantly to company credit cards for your business, you’re giving employees the freedom to get on with their jobs without a complex approval process.
- More time. Do what you do best. Let software deal with the tedious expense management admin.
- Simple accounting. The best expense management tools integrate with accounting software for small business. Which means no copying data (which is not just achingly boring, it’s how errors creep in).
Chapter 3: Making expense management simple
Modern expense management software for small businesses gives you options not available with traditional paper-and-spreadsheet alternatives.
They add real business value to what’s otherwise always been a mundane, time-consuming and costly process.
Expense management policies
By adopting expense management software linked to prepaid credit cards, companies can exert a new level of control over who spends what, how much, and where, on behalf of the business; making expense policies a reality for every individual.
You can create rules for different kinds of user by entering a few simple details into an app. For example:
- Senior manager: An employee who travels widely on behalf of the business and regularly entertains clients may need to draw on significant sums regularly. In just a few clicks you allow automatic transfers to a prepaid company credit card so that she never runs out of cash; and set generous budget and spending rules. Her credit card is always available.
- Junior sales executive: A junior employee who spends less time away from the office requires smaller, more occasional sums. You can manually transfer cash on an as-and-when basis, set strict transaction limits and restrict the categories of allowable expense to travel and subsistence. You can even turn off the card between business trips, for fraud and security reasons.
- Marketing manager: The marketing manager rarely works away from the office but needs to spend regularly on social media pay-per-click campaigns. You can create a dedicated marketing expense centre, connected to a virtual card, to allow him to work quickly, efficiently and independently.
Visibility and control across whole teams
Digitisation of expense management puts you in control. With a solution like Soldo, you can reduce the possibility of overspend by enabling or disabling cash withdrawals, and limiting spend by amount, category and geography.
For example, an employee attending a conference needs to spend sensibly on accommodation, food, and travel. Enable these categories and set appropriate daily spending limits, while disabling all others, and thus keep control of company spending.
When he returns to the office, digital expense management tools can integrate with your accounting software, helping ensure that expenses incurred are categorised correctly for tax purposes.
Soldo is powerful expense management software for small business
Soldo is a digital expense management solution that combines prepaid company cards for small business with an easy-to-use web and mobile app and intuitive admin tools. It automates, simplifies and improves the expense management process for small businesses.
Soldo can help you…
- Spend what you actually have. Load hard money into accounts and onto cards, to prevent unnecessary debt or unpredictable spend, no matter what your team get up to.
Soldo can start working for you…
- Tomorrow. With no credit checks required, Soldo can have you and your team up and running in one business day. Compare that to the weeks it can take to get hold of traditional company credit cards for small business (and also how frustrating it is for new businesses, which are often refused).
Your staff win, too.
Digital expense management is good for your business, but it’s also good for your staff. With prepaid company credit cards for small business, employees never have to spend their own money, fill in forms and wait weeks for reimbursement, or carry around a wallet stuffed with paper receipts.
Implementing Soldo for your staff is simple:
- Transfer funds instantly from the company digital wallet to staff digital wallets. Choose whether to top up funds automatically or on an as-and-when basis.
- Supply real or virtual prepaid small business credit cards to every member of staff who spends company money. Then set budgets on a monthly, weekly or daily basis, and/or limit the value of individual transactions.
- Set spending rules for any individual or group, on any criteria: transaction type (online, contactless, cash withdrawals etc.), countries and categories.
Digitisation of expense management puts you in control – and it’s good for your staff too
Chapter 4: From burden to business enhancer – expense management in the data-driven age
Company spending has to be processed and audited in a compliant way. And like so many compliance activities, we tend to think of them as a burden – something that doesn’t contribute to the business and from which there can be no further value.
Instead, services like Soldo make it easy to identify patterns and trends in expense spending and collate that data into valuable insight. A purely operational function becomes something that can add real business value. It allows business leaders to challenge, question and review staff spending in a way that was previously impossible – and therefore make intelligent decisions on the back of this knowledge.
Track spending in real time
With manual expense management systems, data is usually weeks out of date before anyone gets round to checking it. With digital expense management, you can see what staff are spending in real time, quickly alerting you to costs that are unnecessary or extravagant.
Link expense data to business decision-making
Digital expense management allows you to collect and analyse useful data on the who, what, when and where of your company spending. With basic filters, you can create reports that show trends, highlight exceptions and identify problems; helping you to make better decisions and policies ongoing. For example:
- Manage employee policies better, not only for patterns of suspicious activity, but also to identify unnecessary spending or areas where more cost-effective alternatives might exist.
- Monitor business performance. Set targets to reduce expense spending and track progress. Identify departments or individuals who regularly overspend and set limits. Equally, use experience to spot where you’ve been too overzealous: if fuel usage is up dramatically because you’ve cracked the whip too hard on train travel, now you’ll know!
- Identify better spending opportunities. Data might suggest that certain activities, individuals or events justify increased spending, because the return on investment is higher. At the other end of the scale, others will need to be culled.
Digital expense management drives staff engagement
As we’ve already noted, employees appreciate digital expense management. It makes life easier, reduces the likelihood of mistakes and creates clarity around what can and can’t be purchased on company business.
More fundamentally, it is the kind of innovation employees have come to expect. Millennials and digital natives shop, bank and book appointments online. They are familiar with the automation of manual tasks, and understand that accounting software for small business already takes much of the legwork out of day-to-day financial administration. They don’t want to spend an hour on a job that could take a few minutes.
Why collect reams of receipts when smartphone photos present the same information and don’t go missing? Digital expense management offers a better employee experience, helping you recruit and retain the talent your company needs.
Chapter 5: Expense management for your business
Expenses are a significant business spend, and some costs are expected to rise. Until recently expenses were an area over which businesses exerted little control. The management process was cumbersome and prone to error, and employees had little incentive to seek out more cost-effective alternatives. Minor acts of fraud and careless acts of extravagance were commonplace.
Expense management software makes tracking, processing and controlling expense spending simple. It automates mundane tasks, helps ensure legal compliance and gives businesses the power to analyse the way they spend money, shine a light on trends and so bring it under control. At the same time, staff appreciate the convenience and clarity digital expense management brings.
Minor acts of fraud – and careless acts of extravagance – are commonplace with manual expense management processes
Implementing expense management software: 5 top tips
- Start small. Soldo’s Start plan, for example, carries no monthly card fees, giving you time to fine tune its digital expense management solution to suit your business. And you can start with just one card, scaling up from there to beta-test with a small team, and then across your whole business.
- Start by saving time. There are time-saving automations across the expense process, from setting policies to capturing receipts to reconciling expenses.
- Maximise the value. Data is useful. Deploy it to trim costs, benchmark teams or point to improved processes.
- Develop a real-time finance function. Help your finance team to foster a real-time mentality, with automations to link expenses, accountancy, projects and other digital resources. They are the future of useful information in the business.
- Be fair, be clear. Expense management affects everyone. It requires individuals to take new responsibilities and unlocks new freedoms. You need to be seen to be fair to everyone to get the most out of the process. Set a clear expenses policy so that employees know what they can and cannot put on expenses; and remember that you may be giving people this responsibility for the first time.
Soldo: your 60 second guide
Soldo is a powerful expense management solution that, unlike many others, combines prepaid company credit cards for small business with a smart, intuitive app and admin tools. Here’s what you need to know:
- Soldo Mastercard Cards connect directly to the Soldo app. In-app receipt capture makes it easy for cardholders to upload important paperwork from anywhere, at any time.
- Everything is centrally managed via the web console, which shows spending in real time and offers automated reporting and advanced analysis, so you always know who’s spending what, when and where.
- Soldo prepaid Mastercard Cards give your team the freedom they need to do their jobs without the delays or frustrations associated with traditional expense solutions. Staff never have to use their own money and wait for reimbursement. Soldo takes away the burden of manual expense administration.
- You retain complete control of expense spending. A wealth of options let you set budgets and spending rules that precisely meet the needs of individual cardholders, wider teams and your business.
- Soldo integrates seamlessly with accountancy software for small business, for example Xero.
For more information on what Soldo can do for your small business, visit our website.