As your company grows, expenses tend to grow just as fast, if not faster. Having a strong expense management process ensures that you can sustain a healthy growth year after year.
But have you considered what it is costing you to organize business expenses?
When performed manually, expense management can distract your accounting team from more meaningful tasks, invite human error, and increase the likelihood of fraud. These costs hurt your bottom line and, to make matters worse, can go virtually undetected.
So, how do you address this problem? Read on to discover the hidden costs of manual expense tracking and how automation is the solution.
How manual expense management costs you
The burden of manual expense management goes beyond the excess labor costs associated with this time-intensive process. It also stacks up indirect costs from these main culprits:
- Human error and inefficiency
- Employee dissatisfaction
- Expense report fraud
- Poor visibility on company expenses
Human error and inefficiency in expense management
Managing and tracking business expenses involves several phases. Each one introduces new opportunities for mistakes or delays. These errors and time lags can amount to hundreds of thousands of dollars wasted or inefficiently spent.
Some of the common problems include:
- Lost receipts and delayed receipt matching
- Improperly filled or incomplete expense reports
- Delayed expense report submission
- Clerical errors and time wasted in manual data entry
- Duplicate expense reports
- Time wasted approving expense requests and validating expense reports
While it’s true that everyone makes mistakes, even the smallest errors in expense management are far from trivial. In fact, they can add up rapidly, hurting your bottom line and wasting the valuable time of skilled employees.
According to the Global Business Travel Association, each year, companies process an average of 51,000 expense reports, adding up to:
- About half a million dollars spent on expense report processing
- Approximately 3,000 hours correcting expense reports each year
- With each expense report costing an additional $52 to correct
About 19% of expense reports are delivered with errors or omissions. As a business owner, you know that if any other process showed a one-in-five chance of failing, you would replace or improve it immediately.
That’s why expense management needs an upgrade.
Furthermore, a report by the Aberdeen Group states that:
- It takes 7.3 days on average for a small business to approve an expense report for reimbursement after it has been submitted.
- 24% of expense reports are not under compliance with corporate travel and entertainment (T&E) policies.
- 47% of small businesses have no defined protocol for out-of-policy expense submissions.
This means that small business expense management is not only often inefficient and ineffective, but small businesses are also underprepared to deal with issues of noncompliance and abnormal expense submissions.
While a diligent accounting team will do their best to mitigate these issues, such tasks are often a misuse of their skill set. For this reason, companies should be switching to an expense management solution.
A hidden cost that often goes overlooked is employee dissatisfaction, stemming from many aspects of manual expense management. The reasons include:
- The sheer need to pay out-of-pocket for business expenses
- Delays in receiving reimbursements
- The tedium of the expense reporting process
- The frustration and tedium of manual data entry
According to the results of a study on worker attitude toward expense reports:
- More than 33% of employees don’t report expenses because they feel the return is too small to warrant the effort.
- Another third of workers feel financially unstable when forced to take on unexpected or large expenses on behalf of the company.
- About one-quarter of workers surveyed reported canceling or postponing meetings to avoid paying those costs out of pocket.
- 62% of employees view the experience as frustrating and slow.
These numbers indicate that employees faced with manual expense management not only feel dissatisfied, but they also purposefully avoid certain aspects of the job to avoid having to pay out of pocket.
Automating your expense management process not only saves you money on labor and error mitigation, it enhances employee experience, thus contributing to a happier, more productive workforce—even if just by removing one headache each month.
Expense report fraud
Manual expense management makes it far too easy to commit expense report fraud. Whether it’s intentional or simply an accident, fraud is needlessly costing you money.
Data shows that businesses rack up enormous bills due to fraud and compliance violations. Just look at the numbers:
- 5% – The average percentage of a business’s revenue lost to fraud annually.
- $154,000 – The median loss due to asset misappropriation.
- 83% – Percentage of fraud cases that involve padded T&E claims.
- $2,448 – Average reimbursement requested by employees committing fraud.
- 37% – Percentage of business travelers that submitted T&E reports with at least one exception.
These results make it clear that fraud is as common as it is costly. But not all fraud is quite the same. The most common types of expense report fraud are:
- Inflated expense claims – Some employees alter a receipt or invoice to receive a reimbursement that is larger than what they actually paid out of pocket.
- Mischaracterized expenses – When employees claim personal expenses as business expenses, such as date nights or vacations on the company’s dime.
- Multiple claims – The exact same expense report may be submitted various times under the nose of approvers.
- Falsified claims – Employees will either make a claim using someone else’s receipt or falsify documents (like receipts, invoices, checks, etc.) in order to claim a reimbursement for money they did not spend.
Fortunately, all of these occurrences are avoidable through expense automation.
While expense automation doesn’t zap fraud out of existence entirely, a robust expense management software will reduce it significantly.
According to the Association of Certified Fraud Examiners, losses due to fraud can decrease by as much as 54% when anti-fraud controls are put in place, and fraud detection becomes 50% faster.
Here are just some of the reasons why:
- Expense automation software can instantly prompt an employee to submit a receipt after a purchase has been made.
- Automatically match purchases with receipts, preventing falsified or inflated claims.
- Have immediate visibility on reimbursement history to detect duplicate expense reports.
These benefits can be maximized when your spend management platform is directly built into your corporate card.
Poor visibility on company expenses
Manual expense management, which can range from paper files to hard-coded spreadsheets, offers very little visibility into your company spend. This low visibility could be costing you thousands of dollars, because:
- Employees that submit fraudulent or noncompliant expense reports can go undetected for long periods of time, even committing multiple infringements under your nose.
- Lack of controls and swift approval processes can result in overpaying vendors, which can add up rapidly.
- Redundant SaaS expenses may go unnoticed, costing you money on services you don’t even use.
- Potential savings opportunities may get lost in the fold.
- Tax season can become chaotic, putting you at risk for potentially damaging audits, and preventing you from identifying possible business write offs.
When you automate your expense management with a software solution, you gain access to valuable spending data that could increase your savings and improve your bottom line.
Avoid hidden costs with Ramp
The key to improving your business’s expense management is to ditch the manual processes and invest in a best-in-class expense management solution. Better yet, get one that is synced directly to your corporate card, like with Ramp.
With Ramp’s robust spend management platform and corporate card program, you can automate your expense management process by offering physical and virtual cards to employees with specific controls on how to spend, automatically categorizing and accounting these transactions, and notifying and collecting receipts for audit purposes.
Re-invigorate your accounting team by taking manual data entry out of their hands and replacing it with more valuable tasks. Improve employee morale by making expense reporting a breeze. With an expense management solution in place, you can streamline your accounts payable process to avoid tedious back-and-forths.
Ramp’s spend management platform allows you to:
- Enable employees to request and get approved to spend to streamline the process.
- Give employees a business card with dynamic spend controls to avoid out-of-pocket spending and reduce fraudulent expense reports.
- Automatically notify employees of receipts needed to eliminate manual follow ups.
- Quickly identify savings opportunities and redundancies in company expenses.
- Integrate with existing accounting platforms like Xero, Quickbooks, etc.
- Speed up your month-end close process by 5.4 days.
And with 1.5% cash back guaranteed for all purchases, Ramp makes managing company expenses as fruitful as it is simple. Learn how we can help strengthen your finances today with our expense report software.
Download our ebook to learn how you can create digital expense policies that automatically block out-of-policy spend: