Expense Management Tools 2020: The Complete Guide
Why use expense management software?
If you still manage employee expenses with a spreadsheet, you’re not alone. According to one study, two thirds of businesses globally still use traditional expense management methods, which usually means laboriously sifting through paper receipts and reports and filling in Excel columns. That’s before you even start working out which expenses are eligible for taxation.
For most of those companies, business expense management is a significant drain on resources. It’s also an unnecessary one. Digital tools can significantly reduce the cost, effort and man hours associated with tracking and reconciling employee spending.
If you haven’t already, here’s why you should be thinking seriously about modernising your expense management process:
Company expenses can be a money black hole
Expense management is difficult, and manual processes don’t make it any easier. Small businesses are often surprised at how quickly employee expenses add up. One study found that companies spend 10% or more of their annual expenditure on employee travel expenses alone.
Then there’s subsistence, event entry, employee training, client entertainment, office expenses and more. When employees visit customers, attend conferences and improve their skills, it costs your business money. If you don’t manage employee expenses properly, they can quickly spiral, as can your tax bill.
It’s easy to overspend
Expense spending is easily wasted. When you don’t enforce spending rules, staff find it hard to separate legitimate expenses from illegitimate ones. What class of travel can they book, and what standard of accommodation? Are they allowed to put drinks on expenses? What about a parking fine picked up on a customer visit?
Without rules around expenses and ways to enforce them, employees may justifiably assume that anything spent during a business trip is a legitimate expense. In addition, claiming for things that aren’t strictly work expenses is often seen as an unofficial perk. One UK study revealed that a third of employees who over-claimed for expenses thought they were following typical practice in their company.
It’s easy to cheat
Knowingly claiming too much on expenses is fraud. And it’s endemic. The most recent (US-based) Association of Certified Fraud Examiners’ (ACFE) Reports to the Nation found that 21% of all fraud in small businesses was expense reimbursement fraud.
Types of expense fraud include:
- Mileage. A 2017 global study by Webexpenses found that 47% of business travellers admit to having falsified or exaggerated their travel costs.
- Personal spending. Alcohol, haircuts and even home improvements have all been claimed by shameless employees.
- Double dipping. Claiming twice for the same expense, by (for example) sending in claims based on both credit card and sales receipts.
And the prevalence of fraud is partly due to the fact that manual expense management tools make it temptingly easy.
It’s an admin challenge
Traditional expense management is time consuming, frustrating and prone to error. Employees have to carry around a wallet-full of receipts, and losing a receipt means losing the cash. Research has found that business travellers lose an average of £142 in unclaimed expenses on every business trip.
Meanwhile, finance staff have to manually check receipts against the amounts entered on a spreadsheet, check claims against company spending policy, check receipts against credit card statements, and so on. If anyone spots an error the whole process begins again. According to one study, nearly a quarter of UK businesses still process expenses using paper-receipts stapled to an expense form – an archaic and torturous system, despite the fact that HMRC accepts digital ones.
It’s an employee engagement issue
The mundane data entry of traditional business expense management takes staff away from more productive tasks. Modern employees are used to digital solutions – and expect them. While employees never enjoyed filling in forms and carrying receipts, today’s Millennial employee will consciously avoid working for a business with such outdated and wasteful processes.
Engage your employees with expenses software and take a significant chunk of drudgery from their lives.
The expense management landscape
The need to manage expenses properly is clear; and given the error-prone and endless nature of manual expense management, any digital solution will save you time and money. But different expense management services are better at different things.
Setting and enforcing policy
What needs to happen?
SMBs need to set – and communicate – a clear expenses policy, describing in detail what counts as a legitimate expense and what doesn’t. It should set limits for spending in different categories and specify favoured suppliers (if you use reward schemes, for example).
Only with a clear policy can staff have confidence when spending money on the company’s behalf. In addition, your finance team has a clear template for accepting or rejecting claims.
How can digital services help?
You need to house your policy somewhere, and publicise it to employees. It should be clearly signposted on the company intranet, included in any HRMS (Human Resources Management System) software (e.g. CharlieHR), and emailed to all staff.
Even better, good employee expense management software allows managers to set spending rules and limits, based on individuals, departments and categories, and have them automatically enforced.
Which digital services do what?
End-to-end expense management software (like Expensify and Certify), prepaid card solutions (like Soldo) and some company credit cards let you predetermine how much an employee is allowed to spend and on what. You can allow or prohibit different types of transaction, like cash withdrawals or online purchases. You can create unique spending rules for employees or departments.
Integrated company cards enforce your rules at point of purchase. Only prepaid cards with a management platform record purchases in real time, giving finance teams or bookkeepers a thorough and instant overview of company expense spending.
Point of purchase
What needs to happen?
Staff need to be able to pay for necessary travel, accommodation, subsistence, training, receive money transfers while overseas if need be, and more without fear. They need to keep records of purchases, and file expense reports for line managers to sign off.
How can digital services help?
Employees pay for services – online or in-person – with company credit or prepaid cards, which automatically enforce company spending rules. Mobile apps let employees capture receipts at point of purchase and create expense reports with a click. Some solutions will automatically categorise expense transactions. Managers can approve or reject expense claims in moments.
Which digital services do what?
- Payment. Prepaid business cards are available from Soldo and direct from card vendors like Mastercard. Business credit cards are widely available. Only prepaid cards give you a real time view of staff spending.
- Receipt capture. Receipt capture (and in many cases the automatic extraction of key information) is widely available via mobile app. Prepaid card solutions like Soldo, receipt scanning software like ReceiptBank and Shoeboxed, and complete expense management packages like Expensify and Rydoo, all offer it.
- Reporting expenses. Equally, most modern digital solutions allow employees to create expense reports simply and easily via a mobile app, along with one-click approval for managers.
Reimbursement, reconciliation and reporting
What needs to happen?
When staff pay expenses themselves, long reimbursement times can leave them frustrated and in financial difficulty. Reimbursement payments should be made within a few days of employees submitting an expense report.
From an accounting perspective, accurate reconciliation is essential. And businesses should collect and analyse expense data to help them identify potential savings and target spending more effectively.
How can digital services help?
Digital expense management can speed up and, in some cases, entirely automate the reimbursement procedure. Even better, prepaid card solutions ensure employees never have to spend their own money on company business in the first place.
Digital services can also provide deep insight into expense spending, without the need for manual number crunching. Expense reconciliation, meanwhile, is transformed from a time-sapping chore to work which can be closed down in moments.
Which digital services do what?
Solutions like Expensify offer automatic approval and fast reimbursement for trivial and routine expenses, while alerting finance teams to anything they consider unusual.
Prepaid card solutions like Soldo give employees controlled access to company money. Business credit cards also avoid the need for staff to spend personal cash; but offer less control.
All expense management solutions help to automate the reconciliation process, though this is more tricky when employees use their own credit or debit cards rather than a business card connected to the software. When a connected business card is used, the process can be automated in its entirety.
Most modern solutions, including Receipt Bank, integrate with accounting solutions like Xero or Quickbooks, sending transaction data directly to your accounts ledger and greatly speeding up reconciliation.
Dedicated expense management software like Expensify and Certify let admins run the most detailed management reports for analysis. Soldo also offer a reporting function, and will filter by period, category and user.
The key concepts in expense management
This can be a complex purchase decision – the right answer for you depends on the way you and your people work, and your likely future demands. When looking at expense management tools, ask relevant questions based on your specific requirements before diving in. They might include…
Rules and control
- Spending limits. Can you limit by category, individual or group/department?
- Rules. Can you customise rules, forbidding spending on weekends, for instance, or outside geographical limits? Can you ban – or allow – cash withdrawals or online purchases?
- Categories. Do pre-set categories meet your needs? If not, can you add custom categories?
- Mileage. Does the software support mileage tracking for car journeys?
- Approval. Does it allow for an approval flow (your finance team or line managers)?
- Payments. Does it come with integrated payment cards? If not, can you add them as a method of payment?
- Submitting expenses. How is it done, and is it straightforward?
- Mobile app. Is the app useful for more than just receipt capture?
- Receipt scanning. Does the software automatically extract transaction details from receipts?
- Reporting. Can you send expense reports direct from the app? Can you add notes and assign receipts to categories?
- Missing information. Does the app notify you when information is missing from a receipt or report?
- Multi-currency. Does it support multi-currency reporting (if you need it to)?
Exporting and reporting
- Exporting tools. Does the solution make it easy to export information in multiple formats – for example, pdf and csv?
- Accounting integration. Does it integrate with accounting packages like Xero or QuickBooks?
- Other integrations. Does the app integrate with HR software? Does it have an open API for further connections?
- Reporting. Does it allow for detailed management reporting, including filtering for time periods, expense types and users?
What does what?
Very generally, there are three kinds of expense management solution.
Full-featured (Example: Expensify)
Comprehensive expense management packages like Expensify offer all these features and more, including (in Expensify’s case) auto-approval and rapid reimbursement tools. They don’t come with integrated payment cards, however, so while they track and manage expenses in the most comprehensive way, they don’t offer a native way for employees to spend company money rather than their own.
Prepaid cards with expense management software (Example: Soldo)
Prepaid card solutions like Soldo offer a sophisticated tracking and management platform alongside prepaid company cards for expense spending. The two work together, letting employees spend company money, and administrators control, track and reconcile purchases. Given that, these solutions are not suitable if you only use company credit cards and/or reimburse employees for spending their own money.
Receipt scanners (Example: Receipt Bank)
Receipt scanners do the front end of expense management well. They let users capture and store receipts and help automate the expense reporting process. But they are less complete as standalone solutions than the likes of Expensify and leave much of the back-end integration and reconciliation to connected accounting software.
How to choose the best expense management solution for you
You know what expense management solutions can do, but what do you need from them? Again, there are some questions to ask!
What happens at the moment?
- How do employees submit expenses? If they spend their own money, it could be a source of frustration or resentment. If they then submit paper receipts connected to manual expense reports, even more so.
- Where are receipts stored and accounted for? By law, receipts need to be kept for at least six years. Do you store them securely, and are they easy to access?
- How do approvals work? Your approval flow should be obvious. If it isn’t, employee reimbursement may not be as fast as it should be.
- Does your current expense management solution (if you have one) integrate with other solutions? Accountancy or payroll software, for example, or credit and prepaid business cards?
What problems do you need to fix?
Over a third of UK businesses still ask employees to spend their own money on expenses. In the same study a similar number felt their expense management system placed “an unnecessary burden on employees”.
Submitting expenses is a chore. Losing receipts is common. Digitising and automating these processes is good for employee engagement and retention.
You can make employees happier still by providing tools that let them capture receipts and file expense claims via a mobile app.
Managers and finance professionals
Admins spend large amounts of time – up to 100 hours a year – chasing incomplete expense forms. Your finance team wants to spend less time on mundane tasks like expense reconciliation and accounting – and more time on creative tasks.
At the same time, getting full visibility over spending gives management the insight it needs to target expense spending more effectively and identify potential savings.
What you need to know, in summary…
|What’s wrong?||What does good look like?||What you should look out for.|
|Boards and management||Company expenses are a large drain on revenue, and you may have little idea of where the money goes and where savings might be made. Overspend and illegitimate claims often fall through the cracks||A complete view in real-time of who is spending how much on what. Insight that lets you spend more productively. Easily enforceable spending limits that make accidental overspend – and outright fraud – all but impossible.||Management reporting features. Not all packages have the level of detail you might need.|
|CFOs and finance professionals||You have no overview of expense spending. Too much time is spent chasing missing details, manually entering information and reconciling figures. You have little insight, and money regularly goes missing.||An entirely digitised and largely automated system which vastly reduces man hours and the potential for mistakes. Real management insight, and a payment system that enforces spending rules and limits.||Integration. You will save a lot of time and frustration if your solution integrates seamlessly with accounting software.|
|HR professionals||The company expenses policy either doesn’t exist, or nobody reads it. Manual expense reporting and long reimbursement times lead to staff resentment.||Happier employees who never spend their own money on company business, or who do but are reimbursed in a couple of days. Automated expense reporting that reduces drudgery and improves morale, and can be used as a recruitment tool.||Does the solution stop staff having to spend their own money?|
|Line managers||A convoluted manual approval process that means checking every figure against the accompanying receipt. Managing an approval flow via email, with no single version of the truth.||Digital expense reporting, combined with automatic extraction of transaction details. One-click approvals. One version of the truth when more than one approver is involved. The automatic flagging up of rule violations.||Line managers need an easy approval process most of all.|
|Employees||Spending their own money on behalf of the company and waiting for reimbursement as bills pile up. Spending precious time creating manual expense reports. Not knowing what is and isn’t a legitimate expense. Losing receipts and, thus, losing money.||Access to company funds (or lightning quick reimbursement) and the reassurance that comes from knowing they can’t spend more than agreed limits or spend anything outside agreed categories. Simple digital receipt capture and expense reporting.||Employees want the front end of expense management (receipt capture and reporting) to be as easy as possible.|
Soldo is a prepaid card for business that offers all these benefits. It lets you take control of company spending while simplifying expense management and reporting. It empowers employees to spend company money wisely. It offers real money-saving insight and makes bookkeeping effortless.