An essential component of managing expenditures is having a profitable business. Without proper expense management, companies can easily overspend, hurting profitability and sustainability. Here are 5 tips for companies to better expense management system:
1. Track Expenses in Real Time
Tracking expenses in real time is critical for cost control. The usual approach is to track spending at month-end. But by then, the money is already spent. There’s no adjusting mid-month to fix budget excess.
Real-time tracking logs every expense instantly. When an employee purchases on a corporate card or gets reimbursed, the expense is recorded immediately. The software integrates with bank feeds and cards so expenses auto-populate without manual entry. Dashboards show spending by department, category, and budget status so leaders can intervene in the current month.
The benefit is visibility if there are any fluctuations as they happen. Leaders can identify unexpected costs and make adjustments on the fly. They can address problems before month-end. Real-time data enables agility and better spending decisions. Companies gain control of expenses rather than reacting after it’s too late.
2. Set Expense Limits
Setting usage limits is crucial after implementing real-time tracking. With visibility into consumption, leaders can define thresholds to control resource allocation. This makes teams accountable.
Limits are set by category based on budgets and past utilization. For example, maximums for monthly software subscriptions, per-employee travel, and large expenses needing approval. When limits are exceeded, alerts notify managers to review promptly.
Capping per individual travel usage reduces excessive costs. Employees stay under the limit to avoid justification. Volume thresholds requiring manager approval discourage large uncontrolled utilisation. Users submit rationale to get exceptions approved. Limits paired with workflow approval make teams consider all perspectives before allocating resources. The key is that leadership defines limits centrally based on plans – not left to the discretion of users and managers. Visibility through real-time tracking enables limit enforcement. Alerts and approval processes ensure accountability.
3. Implement Expense Policies
Formal policies codify which expenses are allowed and prohibited. This provides clear guidelines for employees. Common policy elements include requiring receipts, banning certain expenses, and establishing usage rates. Receipt requirements create accountability for significant expenditures. Having a threshold where receipts are mandatory deters unsupported claims.
Banning alcohol stops inappropriate expenses. Though occasional drinks may be customary in some industries, alcohol can be misused or overused on expense accounts. Per use rates like daily meals and mileage reimbursement prevent excessive charges. Capping food expenses curbs lavish spending while still covering genuine business needs.
Whatever the specifics, the policies should be memorialized in writing and distributed to all employees. Make sure new hires are educated on policies during onboarding. Email periodic reminders of policies to reinforce awareness. Managers are responsible for monitoring expenses and enforcing compliance. Violations should be addressed through corrective action.
4. Use Corporate Cards over Reimbursements
Corporate cards streamline expense management and provide better control than reimbursements. With a corporate card program, employees put all allowed purchases on a company-issued card. The transactions automatically sync with expense software without manual data entry.
Reimbursements require the employee to pay out of pocket, save receipts, and submit them for approval. The lag time means the expense data is not captured in real time. Reimbursements also increase the accounting workload for processing approvals and payments.
Central corporate card payment gives finance real-time visibility. Card feeds go directly into tracking tools rather than getting submitted later. This enables monitoring spending as it occurs and enforcing policies and limits. Establish a clear approval workflow for when employees must use personal funds, like travel bookings, before issuing a corporate card. Require prompt submission of receipts along with a justification. Managers can determine if the purchase adheres to the policy.
5. Review Expenses Regularly
Ongoing monitoring of expense reports is essential to enforce policies and controls. Rather than sporadic yearly audits, expenses should be reviewed at least monthly. More frequent weekly checks are ideal for catching issues quickly.
These regular reviews analyse spending patterns to identify potential problems early. Look for transactions outside defined policies, large spikes in specific categories, and expenses approaching set limits. Check for repeat policy offenders who consistently violate rules like expensing alcohol or not providing receipts. These employees should be coached and retrained on proper policies.
If violations continue after corrective action, consider revoking corporate card privileges to reinforce consequences. Temporary card suspension motivates behaviour change better than just reporting non-compliance. For categories nearing limits, proactively reallocate the budget or adjust the threshold before overspending occurs.
Conclusion
Managing business expenses effectively takes consistency and commitment. Real-time tracking, defined limits, clear policies, corporate card usage, and regular review enable finance leaders to control costs. With robust expense management, companies operate efficiently and make the most of limited financial resources. Simultaneously, the business gains agility to respond to new opportunities for growth and innovation.
Also Read: Digital Twins in Financial Services: Driving Business Insights and Risk Management
