Company spending: why the way we pay for things at work is broken
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Published on September 21, 2020
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The last decade has seen radical boosts in the efficiency and simplicity of workplace tasks. Technologies like cloud storage and online collaboration empower teams to work quickly and conveniently, and with minimal compliance and hassle.
And yet, most businesses’ expense management processes are still stuck in the 19th Century. Storing paper receipts, stacking reimbursement forms for managers and finance to review and approve, waiting four to eight weeks for reimbursement: it’s all a huge drag.
Why don’t we demand the same speed and convenience when managing business expenses? Why do we continue to put up with these outdated, time-consuming processes?
In this post, we’ll show you how your expense management processes are broken - even if you don’t know it. We'll focus on three main problem areas:
Expense claims
Company credit cards
Supplier invoices
We’ll also show you how to solve these problems with smart, responsive tools, saving time for your team and freeing you up to do better things.
Table of contents
Classic spending systems: clunky, slow, & generally hated
Companies typically rely on the same finance system to handle business expenses. E****mployees pay for expenses and submit claims to a manager, along with supporting documentation.
Once approved, reports then go to a finance team for processing and payment, usually in the next pay cycle.
[Note: "System" here doesn't necessarily mean anything formal. In fact, a lot of businesses don't have a serious company spending policy or process in place. And even if they do, not everyone knows what it is or how it works.]
Or perhaps the employee has access to a company credit card. If so, every purchase details and proofs of payment still need to go to finance, who then have to manually verify and reconcile each.
The same goes for supplier invoices. Even if the marketing team (for example) handles the communication side, finance or procurement still needs to process every invoice and ensure that suppliers get paid.
That means every single company expense has to run through the finance team. And if done manually, this puts a huge burden on them.
Let's see what that generally looks like.
How companies process expense claims
Here's how most businesses handle expense claims:
A team member pays for something with their own money. Hopefully they know the company policy and are confident they will be reimbursed.
They save the receipt. Fingers crossed.
They return to the office, and wait until the end of the week or month to submit an expense claim.
This claim goes to finance. Possibly by email or Slack, or maybe into a physical in-tray.
In some cases, finance needs to check with a manager that this spending is approved. Another manual step.
The financial controller enters all data into a spreadsheet or ERP tool, and schedules a reimbursement for the team member.
They also enter these details into their accounting software (or send it to external accountants).
The team member receives the money in their next payslip. This often takes months.
It’s easy to think of this sort of system as the default way to manage expenses. It's just the way that things are done.
But as commonplace as these processes may be, they are intolerably time-consuming and inconvenient for everyone, especially managers and finance team members. And the initial team member has to go out of pocket for as long as it takes.
For this reason, many businesses rely on company cards. But as we'll see, these come with their own problems.
How businesses use company cards
Unless you give every staff member their own credit card, the situation usually looks like this:
A team member asks for permission to make a purchase. Perhaps to a manager or directly with the CEO.
Once granted, they need to find a company card. This is not always as easy as you'd hope.
They make the payment.
The team member saves a receipt or other proof of payment. Again, fingers crossed.
They send the proof of payment to the finance team. The controller needs to match this to the credit card statement.
The proof of purchase is stored securely, and the payment is added to company spending records.
The financial controller copies all of this data to the company's accounting tools, or sends it to external accountants.
There are two big issues here. First, there's a huge lack of oversight. Most of the communication will be done verbally or via email, and the financial controller doesn't know what's been approved and by whom.
And second, it's even more manual work for the finance team. They have to check approvals manually, process receipts manually, and enter all this data manually.
Starting to see a pattern? We still have one more process to examine.
How companies process invoices
This one can be particularly challenging, because many businesses actually have a robust system for managing invoices. The problem is that not everyone understands it.
A team member engages a supplier or freelancer. This is good - you want your frontline staff to work with people they like.
They seek approval to pay the supplier for their services. This is again usually given verbally or by email.
The supplier sends their invoice to the person they work with (the original team member).
The team member forwards the invoice on to their finance or procurement team for processing.
The financial controller has to check to make sure this amount is approved. If there's no record of approval, they have to hunt.
Invoice details are copied into spreadsheets or an ERP. More manual work for the finance team.
The controller then schedules the invoice for payment in line with company policy. This may not match what was agreed with the supplier, who now has to wait for payment.
Once paid, they update accounting tools or send the details to an external accountant.
This is tricky for a few reasons. First, everyone is operating on their own timeline. Your team member needs the work done (or supplies delivered) as soon as possible, and they want the invoice off the hands immediately.
The financial controller probably has a set day of the month for invoice processing. Which is a problem, because the supplier is expecting payment within 14 days. And they're happy to charge you interest.
But this is also tricky because not everyone knows how the invoice process should go. If it's a team member's first time handling it, they're going to have to pester everyone (including the busy finance team) with questions. And when they make a mistake, that just costs everyone more time.
So those are three crucial company spending processes that most businesses have to slog through.
What makes company spending processes painful?
Consider this cautionary tale: Sales rep Simone is travelling for a pitch, and stops in to buy some backup presentation supplies, let’s say whiteboard markers.
By the time Simone remembers the receipt for £8.50 (she likes having all the colors), fills out an itemized expense report, submits it to her manager for approval, and makes sure it gets to finance for processing, many weeks have elapsed. When the payment finally appears in her check, her claim will have traveled across a bewildering number of desks.
If it's not clear just from the above description, this isn't a good process. And whether we're talking about expense claims, credit cards, or invoices, they all have common flaws.
Pressure on frontline staff
Simone has had to go into her own pocket, spending her hard-earned cash on something about as uninspiring as can be imagined. It might not be a lot of money in itself, but a long sales trip can end up costing thousands in meals and transport.
Plus there's the time that Simone has to take when she gets back to file a claim. And reimbursements can take a month or more to arrive in your staff's bank accounts.
We wouldn’t ask a friend or a family member to wait more than a month to be repaid after shelling out for something. Why, then, would we ask staff members to do it?
Even more pressure on your finance team
We mentioned several times above just how much manual work goes into company spending. Even something that seems modern and simple like a credit card leaves a paper trail.
Finance teams spend far too much of their valuable time on these tasks. And it's all completely unnecessary. (More on that shortly.)
Too many people involved
As we’ve seen with Simone, from purchase to reimbursement, a standard expense claim process can involve a minimum of three people at different stages:
Simone makes the purchase and fills out the expense claim form
Her manager reviews and approves the expense claim
A finance team member checks the documents and processes the payment
What’s more, this doesn’t even include others in the process. For example, the executive assistant collating forms, the HR representative processing payment with payroll, or anyone else unfortunate enough to find themselves trapped in this wretched labyrinth of paper.
Inefficient and inconvenient
A process like this involves way too many manual dependencies. Not only does relying on multiple people to complete their steps slow everything down, but the paper-based process makes things even clunkier, not to mention wasting valuable time.
Having your staff spend so much time on a pointless process is bad enough; what makes it even worse is the fact that it’s probably some of your most valuable staff doing it.
Instead of wasting time on expense processes, your managers and finance people could be considering strategic trends, including new ways to better serve your customers and grow your business.
Trust us - they’d definitely be happier doing that instead.
Serious security flaws
The final major issue is that, with so many paper processes, you almost never have real visibility over what your team is spending. And this leaves big gaps that can easily lead to:
"Maverick spend": When employees stray outside the lines, you often don't find out until the money's already gone. Per Spend Matters, this is a problem that can affect up to half of all businesses.
Overspending: Employees spend on average £117 a month on inflated expenses, according to FairFX.
Credit card fraud. This affects us in our personal lives, and businesses face the exact same risks.
The best course of action to guard against these risks is to deal with expenses in real time. And we'll dive into this shortly.
Why do we put up with this?
Recent years have seen major advances in the efficiency and convenience of personal spending technology. For example, Amazon allows for secure one-click purchasing without having to provide credit card details, making online shopping about as convenient as can be imagined (short of telepathy, anyway).
Why, then, haven’t we seen the same kind of improvements in business expense systems as we have for personal spending? After all, expense report processes are one of the things employees complain about the most. So, what’s the hold-up?
Well, two reasons:
The alternatives aren’t always well understood. When people think of a way to manage business expenses, the first thing that comes to mind is the standard expense claim approach. People simply don’t know there are other options out there.
The people in charge don't have to deal with the hassle. Expense management is usually kept a few layers below the CEO, which means the boss isn’t always aware of the problem, let alone thinking about potential solutions.
Luckily, there’s now an easy solution available: integrated expense management tools.
Integrated spend management: a smart, responsive solution
Integrated expense management tools like Spendesk allow for expense processes to be decentralized and distributed among staff. This makes the workflow faster and easier, removing the need to have everything verified and processed by a finance team.
How they work
Good expense management platforms involve a few key parts:
Expense claim automation: Team members make claims directly within the platform as soon as they pay. Claims can be processed immediately, managers can give approval from anywhere, and employees can be reimbursed quickly.
And there's no data entry for the finance team.
Prepaid expense cards: These replace your company cards for most payments. They're more secure, have adjustable spending limits, and you can easily have one per employee. Plus, receipts are uploaded instantly from a mobile phone as soon as a payment is made.
And there's no data entry for the finance team.
Invoice processing tools: The average employee can process an invoice the same way they make an expense claim. They upload the invoice to the platform, it's sent to a manager for approval, and then on to the finance team. There are no emails or verbal conversations, and all the important data is logged.
And there's still no manual data entry for the finance team!
The beauty of this system is that it all happens in the same platform. And for most employees, the flow feels exactly the same. They don't need to know the different rules for invoices versus expense claims - the software walks them through it.
This means that finance can track all spending in one place as well. The data is always up-to-date, and there are far fewer processing errors along the way.
That means better oversight with less work for everyone involved.
Bonus: Enhanced security and convenience
One major reason that companies stick with old procedures is safety. You already have processes in place, and changing them feels risky.
But an integrated expense management tool allows businesses to manage their expenses without sacrificing security. It does this in a few ways:
Pre-authorized expense categories can be tagged to prepaid cards, meaning employees can only spend inside prescribed limits.
Single-use, non-transferable virtual credit cards make online purchases simple and secure, essentially reducing the risk of business credit card fraud to zero.
Immediate expense validation allows managers to know exactly when company funds are being spent, and why.
Point-in-time tracking and monitoring of business expenses at any time of the month, with all expense tasks and steps in one place for easy viewing and attention.
Smart technology captures and automatically sorts receipts and invoices, saving time and ensuring easier compliance and audit readiness.
These features all work together to empower staff to manage their business expenses with convenience and security, avoiding the hassle of a manual paper-based process.
Perhaps most importantly, no one has to go into their own pockets to cover business expenses. Not only does this avoid a common employee bugbear, but it also significantly reduces the risk of expense claim fraud.
Now you know, there’s no excuse
Irritatingly slow, painfully antiquated, annoyingly complex: it’s time we all called out traditional expense management systems for the dinosaurs they are.
Think about it: there’s simply no way to justify filling out pen and paper expense claims at work and ordering pasta sauce through Amazon’s talking robot at home. It’s just silly.
If you’re a CEO, you can now empower your staff to make business purchases quickly and securely, freeing them up to do their jobs without the hassle of filling out paper and crossing their fingers for reimbursement.
If you’re not the boss (yet), be sure to tell your CEO about Spendesk. You can thank us later:
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