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Spend management is a challenge for businesses of all shapes and sizes, and distributed spending is only adding to the complexity.
Even the world’s top companies have difficulty keeping employee spending in check. Wells Fargo fired or suspended more than a dozen employees and investigated dozens more after it was discovered that they had violated company expense policies. Under Armor removed two of its top marketing executives after extravagant gifts and nights on the town showed up categorized as “marketing expenses.”
While technology has changed how business is done in nearly every other department, financial processes look very much the same as they did 10 or even 20 years ago: manual record-keeping, unruly Excel spreadsheets, mountains of paper receipts, and glacial approval workflows. These outmoded processes are costing businesses thousands or even hundreds of thousands of dollars every year.
It’s past time for spend management to get an overhaul for the modern era. Here are the five most common problems of outdated practices for corporate money management—and the digital-first solutions that can help solve them.
1. Dependence on shared physical credit cards
Credit cards have been a staple of the modern office since their introduction in the mid-20th century. But two decades into the 21st century, continuing to make physical credit cards the center of the purchasing process is holding businesses back.
Without intelligent controls, shared physical cards can result in murky audit trails and hodgepodge spending. For example, a marketing leader’s corporate card might get passed around to different team members making a variety of purchases, perhaps without first obtaining the appropriate approvals. The cardholder may not even know what was spent and why, which can lead to a lot of awkward conversations.
When the credit card statements and expense reports come in, the finance team is left to piece together incomplete transaction data about who bought what and why. They are forced to spend time chasing down employees for receipts and conduct best-guess accounting to close the books.
2. Inaccurate and late expense reports
Submitting expense reports is time-consuming, reactive, and error-prone. When this is a component of your purchasing process, you’re counting on your employees to record and submit all of their expenses accurately.
The data tells us that doesn’t always happen. In one report, 23% of employees said that “it is acceptable to exaggerate expense claims,” while 39% of managers admitted to signing off on an expense report that didn’t adhere to company policy. And those numbers don’t account for all of the reports that get misfiled by accident or those that never get filed at all.
Furthermore, employees don’t always submit expense reports in a timely manner, which can delay month-end close. Often this is not because they are intentionally want to make things difficult for finance, but because filling out an expense report would take too much time away from the pressing tasks that directly relate to their job function. It is very frustrating for employees to take hours out of their day to manually go through this process, especially since the workflow is separate from the rest of their jobs.
3. Slow approval process
Employees want to make purchases quickly and without bureaucracy. If they need to buy something to do their jobs, having to wait several days to get approval from managers and executives can slow productivity, not to mention frustrate the workforce.
It’s not just purchase requests, but expense reports as well. According to Certify’s 2019 Travel & Expense Management Trends Report, it takes 43% of organizations eight days or more for an expense report to be submitted, approved, and reimbursed. This can be frustrating for employees who spent money out of their own pockets.
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4. Lost receipts
At a time when paper has disappeared from almost every other area of business, paper receipts continue to play a surprisingly central role in the way spending is tracked within organizations. According to the Certify report, more than half of organizations (53%) report that their biggest pain point related to expense management is “employees losing paper receipts/submitting without receipts.”
Lost receipts continue to be a top expense-management pain point for companies.
Without receipts, it’s impossible for finance teams to accurately record the expenses being incurred across the company. That means businesses are essentially flying blind and relying on best-guess accounting to close the books.
5. Static, siloed purchasing policies
The challenges of traditional purchasing policies are many. First off, the purchasing policy is often a lengthy file given to employees in a pile with other corporate policy documents, to be skimmed once and then never looked at again.
Workflows are buried under layers of bureaucracy, which makes it difficult for employees to move quickly. They may seek workarounds to bypass the system, and compliance suffers as a result.
In many cases, the rules are either too ambiguous for employees to follow, or too long and detailed for them to remember. Formal purchasing policies tend to cover areas like T&E, but may lack guidelines for other employee purchases, such as SaaS subscriptions.
Of businesses that do have a purchasing policy in place, 58% report that their team’s understanding of the policy is, at best, “decent—but in need of improvement.” And herein lies the issue: there is an over-reliance—or expectation—on employees to correctly remember the corporate policy and spend money accordingly. Instead, finance teams should enable systems that proactively stop employees from spending outside of policy in the first place.
Be proactive with distributed spend management
For too long, finance teams have taken a reactive approach to spend management, instead of treating it as something that they can proactively control. Reactive processes, with manual expense tracking and paper receipts, result in inefficiencies across the business. More significantly, perhaps, companies lose money when finance teams have to admonish employees who spend out of bounds after the fact, rather than ensuring adherence policy from the get-go.
Implementing a distributed spend management platform allows finance teams to gain total control and visibility into purchasing, without strangling company growth and culture. Employees are empowered to make the purchases they need to do their jobs, and finance can rest easy knowing that all of the transactions will adhere to company policy, be correctly coded, and sync to their accounting software in real time.
Intelligent software limits payments to the approved amount, whether on virtual credit cards, physical credit cards, or purchase orders. This ensures that employees don’t spend out-of-bounds or over budget. Unique card numbers for each purchase allow all employees to make purchases on their own—no more credit card frisbee.
Finance teams can enable proactive controls by coding their corporate purchasing policy into software. This guarantees that the appropriate approvals are obtained before any money is spent. And it does so automatically, without employees having to remember or reference a purchasing policy document.
Often overlooked, but equally important, is the user experience. Make the process easy and enjoyable for employees to follow by adopting a system that fits within their existing workflow. Eliminate unnecessary bureaucracy, so the workforce feels empowered to make purchases rather than slowed down by the process.
In a time when even consumer banks offer real-time visibility into customers’ spending, there’s no reason for finance teams to continue to wait days to see the spending that’s happening at their company. With upfront coding and automated reconciliation, finance teams can view correctly coded purchase data at any moment, which enables accurate reporting and forecasting.
By replacing outdated spend practice with distributed spend management software, finance teams can ensure that employees are able to buy what they need, when they need it, while maintaining total control over the process.