Spend management

Hidden costs of manual expense management

January 21, 2020

Businesses often start out with pen-and-paper expense management, but in the long run, this may end up costing you significant time and money.

Many startup founders spend a large portion of their day thinking about the best way to manage their business expenditures. Unfortunately, they also have to consider the costs incurred while managing their costs, which includes time, money, and resources spent on ensuring that all expenses are accurate and up-to-date.

Many brand new businesses start by tracking their expenses manually, perhaps in a logbook or online spreadsheet. This can be a good system for companies who sell a few high-value products each month, or who don’t have many transactions to begin with.

But this method of tracking spend is inefficient and difficult to scale. And as companies grow larger, it’ll only become a bigger time and money sink.

If your company is growing—in terms of internal size, geographic locations, or client base—but you’re still managing expenses with paper and pen, then it may be time to make a switch to an automated expense management process. Not only will it save time, it’ll also reduce the risk of fraud, employee dissatisfaction, and low visibility over funds.

What are the risks and hidden costs involved with manual expense management? We’ll break them down for you in this blog post.

Manual expense management takes a lot of time

A single expense report has to be reviewed by multiple people, including a manager and an accountant. It then has to be reconciled accurately and processed for reimbursement.

On average, a single expense report takes 20 minutes to complete, and requires multiple receipts, a calculator, a pile of spreadsheets, and back-and-forth communication. This unproductive use of time is the most obvious business expense management cost.

Imagine if each of your 50 employees spends just 20 minutes per month on an expense report (and submits 1 report per month). Over the course of the year, your business will have wasted 200 hours solely on expense reporting. This figure doesn’t even include the amount of time it takes for review, verification, and correction—that eats up another 18 minutes per report.

Multiply that by the number of reports processed per year and you’re looking at hundreds or, in some cases, thousands of misspent hours.

Your money is wasted on inefficient processes

Manual expense management requires that someone enter data, manage expense-related texts, Whatsapp messages, and e-mails, and keep track of paper receipts, then handle approval, reconciliation, and reimbursement. That’s a lot of unnecessary work.

Consider this data from a report published by the Aberdeen Group on expense report processing: SMEs are spending an average of $20.65 to process one expense report. On average, the report also shares, one employee submits 1.5 reports per month.

That means a company with just 50 employees would be spending $18,585 per year simply to process their expense reports.

expense reports time sink

Then consider the amount you must spend on office supplies, postage, and storage to produce all of these documents. After a year or two, you may be stuck with an entire file cabinet of reports that you can’t dispose of for fear of losing valuable information. After a decade, you may end up with an entire room full of file cabinets. It’s wasteful and inefficient.

Manual expense management is not sustainable for larger businesses, which is why, as they scale, many companies switch to digital expense management. Rather than spending upwards of $100 per month solely on office supplies, these funds are spent on a subscription fee for a one-stop accounting and expense reporting system. This cuts down on those pesky expense processing fees.

Spenmo is one such service. We provide automated spending cards that instantaneously track transaction data at the moment a purchase is made. Because each employee has their own card, it’s easy to track transactions by individual or category without resorting to finicky Google Sheet filters.

Spenmo Dashboard

Manual processes leave an opening for fraudulent claims

One of the more frustrating hidden costs of manual expense management is the high potential for fraudulent claims. It’s a sensitive issue that plagues most companies: when employees are given the power to process and report on their own finances, some may take the opportunity to claim personal purchases or fudge the numbers to claim more money.

In 2018, companies lost an average of 7% of their annual expenditure due to fraud—and according to research from Crowe Clark Whitehill, it has cost the global market over $3 trillion.

It has become increasingly difficult to disentangle legitimate costs from fraudulent ones, especially when these claims are for meals, accommodation, or mileage. Unfortunately, too many managers accept these fudged claims as a necessary byproduct of doing business, says Paul Raymond, director of strategic relationships at Conferma (a fintech company specializing in virtual payments). He believes that instead, companies must view them as an overhead that can be reduced.

“Companies could see up to a 30 per cent reduction in travel spending through a more efficient system for charging and reconciling travel claims,” he says. “Technology being developed in the card payments industry could help.” Modern problems require modern solutions, and his sentiments about the necessity of an automated expense management tool are echoed by many financial advisors around the world.

To take the most advantage of such a system, however, companies will still need to develop their own clear expenses policy.

Low visibility into expenses leads to unmanaged spend overages

Manual spend management is too murky for companies who need to have a solid grip on their budget—it’s difficult to pinpoint where money is being misspent or wasted. Additionally, humans are prone to error—they may file too late, or forget entirely. These human mistakes lead to penalties, late fees, and duplicate charges.

Manual processes can be difficult to audit or analyze, which means that it takes an unnecessarily long time to discover superfluous costs. A company may spend needlessly on duplicate payments (and waste thousands) for months before someone realizes the error. This low visibility into the “bigger picture” impedes leaders from coming up with best practices or making informed decisions about company spend.

automated spend management solution

Rather than looking forward and strategizing the best future use of funds, managers are forced to spend their time mitigating the impact of prior spending mistakes in a manual expense processing system. With corporate cards, however, spending is monitored in real-time—irregular spending patterns or anomalies can be spotted and immediately cancelled.

And it just frustrates employees

Manual expense reporting is not generally considered to be an enjoyable task. In fact, more than one-third of workers say they never claim expenses back due to a complicated process that’s more difficult than it’s worth.

For those who need to claim expenses because of how much they’re spending on business development, transportation, or some other resource, the plodding nature of a manual process may endanger their financial position, causing them pain and difficulty in their personal lives. This tension is particularly felt during periods of late reimbursements or expense disputes.

Regardless of whether an employee relies on their reimbursements or not, manual expense reporting is a hassle. An oft-cited University of Warwick study shows that happier people are 12% more productive: companies that insist on manual management may actually be risking the happiness, commitment, and overall satisfaction of their teams, which ultimately negatively impacts their bottom line.

Automation is the answer to saving these costs

Nearly every industry has been impacted in some way by the power of automation, AI, and machine learning. Accounting and expense reporting can seem like an intimidating industry, but with digital tools like Spenmo, it’s possible to democratize the process and make it simpler for everyone.

Automated expense management tools are expected to save businesses around the world thousands of dollars. And according to the GBTA, the right automation system can also halve the amount of time spent on reporting.

It can seem prohibitively expensive to digitalize existing processes—it’s one of the main reasons companies don’t switch sooner—but automation actually saves you more money in the long run. More importantly, it allows you to spend time on high-impact activities, such as making valuable connections, developing strategic plans, and communicating with investors.

Interested to learn how automation can empower your company’s expense management process? Contact Spenmo today for a consultation.

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