What Is an Expense Report?
A business expense report is a form that details and justifies company expenses that were made for the purpose of running a business. This report is important in order to maintain accurate records of business expenses and to ensure that company funds are being used wisely.
Any business will have unavoidable expenses. This includes expenses such as gas, meals, parking, travel, hotels, and more. An expense report is a document that lists all of the expenses that a company has incurred in a specific period of time. This report can be used to track where company money is being spent.
If you are aware of where the money within your company is going, you can get a better understanding of its financial wellbeing, work out its profits and losses, and see how effective it is as a business.
Employees submit expense reports to their business entity so that the company can reimburse the money spent on work-related expenses.
Most companies require employees to submit expense reports with receipts to verify the legitimacy of the expenses. The business entity will only reimburse the money if everything in the expense report is accurate and valid.
The accounting department files the amount as a business expense once the company reimburses the money. The expense is taken into account when calculating profits and taxes.
Why Do We Need Expense Reports?
Executives will often times not see the importance in an expense report if they have an accounting department that deals with financial statements. This is a huge mistake.
Business expense reports are important for businesses for the following reasons: -They provide a way to keep track of spending and ensure that money is being spent wisely -They can help businesses identify areas where they may be able to save money -They can be used as a tool to manage and control business spending -They can provide valuable information for tax purposes
They Enable Effective Cost Control
An expense report is a document that contains details about the money that has been spent by a person or organization. This information can help you understand your employees’ spending habits and what they are spending their money on.
There are several expense categories in each business. You can start implementing cost control measures by understanding which category is driving your costs.
You Will Know the Accurate Reimbursement Amount
As we stated previously, employees will commonly front certain expenses themselves but expect the organization to reimburse them for said expenses.
Analyzing expense reports can give you information about when expenses were incurred, where they took place, and why they were necessary. You will end up paying more than necessary if your employees do not create accurate reports.
Doing Taxes Will Be Easier
Most business expenses are tax-deductible. But you will need proof that these expenses occurred.
While some executives use corporate card statements as proof for deductible expenses, it is much better to use expense reports. Business accounts and credit card histories may not be accurate because they cannot track all expenses.
What Should Be Included in a Business Expense Report?
Different businesses include different things in their expense reports. Yet, the fundamentals are almost always the same.
- Date and amount . Expense reports must include the exact date and amount of the incurred expense.
- Employee information . The employee that submits the report has to include some basic information such as their name, department, SSN, and contact information.
- Seller information . This is the information of the vendor from whom an item or service was purchased.
- Expense type . For easier navigation, always include the type of the incurred expense.
- Brief description. Adding a brief description about why a certain expense had to incur can be helpful later for cost control.
- Sub-total . This refers to the sub-total of each type of expense.
What is expense management?
The process of managing expenses is often seen as being time-consuming, laborious, and likely to result in mistakes. It can also be frustrating. Despite its negative connotation, employee turnover is essential to keeping your business profitable.
Organizing expenses so they can be processed, approved, and reimbursed.
Why is expense management important?
Expense management has different implications for different stakeholders. Finance teams typically focus on two key areas: keeping accurate records and financial planning. The goal for employees is to get reimbursement with as little hassle as possible. For employees, it is about being able to trust the leadership, have access to the necessary resources to perform the job, and feeling valued and appreciated For owners and management, the workplace is about growth, productivity, risk management, cost-saving, and employee satisfaction. For employees, the workplace is about being able to trust the leadership, have access to the necessary resources to perform the job, and feeling valued and appreciated.
Here are some perks of paying heed to expense management:
- When the expense management process flows smoothly, it gives accurate insights into the organization’s financial health. This helps management identify cost-saving opportunities and potential risks.
- Next, when expense employee reimbursement cycles are shorter, it results in higher employee satisfaction and trust. This plays a crucial role in determining your employee and financial productivity.
- Lastly, when you put in the effort to stay compliant and maintain detailed records, you are rewarded with tax benefits. A well thought out and implemented expense management system, hence, has benefits both tangible and intangible.
What does the expense management process look like?
The expense management process involves the following:
- Reporting of business expenses by employees
- Verification and validation of reports by managers/approvers
- Audit of expense reports for compliance by accountants/finance teams
- Processing of payments for employee expense reimbursements
- Safe-keeping of expenses, sales receipts, and records for external audits
What is traditional expense management?
Many companies still rely on paper-based receipts and records for their expense management processes. To paint a picture, this is what a traditional expense management system looks like:
- Employees are tasked with keeping all business receipts safe to claim expense reimbursements at the beginning of every reimbursement cycle.
- Approvers need to manually verify expense claims and ensure they comply with the company’s travel and expense policy.
- Finance teams are tasked with auditing all approved expense receipts with paper trails before processing.
- Finance teams then have to save all receipts and records in an organized manner for future internal/external audits.
Challenges with traditional expense management
An upgrade from paper-based accounting was Excel-based accounting. Both systems are time-consuming and rely only on manual data entry and verification. Here are some challenges and limitations of traditional expense management:
- High probability of data entry errors: Traditional expense management relies on manual data entry for expense reporting, approvals, and even record-keeping. An additional zero or a missing one could skew your books and open you up to audits.
- High risk of expense report frauds: It is very much possible for policy nuances to slip through the cracks and create expense report frauds. This costs businesses a lot of money and may block your calendars for an unpleasant inquiry with tax authorities.
- Lack of visibility into employee spending: Finance teams have no way to know how much employees are spending on different projects until they’ve turned in expense reports at the end of the month. This handicaps financial productivity and can cause a serious threat to your company’s bottom line.
What is automated expense management?
Expense management software with special features automate financial reporting by eliminating all mundane tasks. This helps remove the frustration behind manual expense reporting.
Besides making expense reporting and tracking a breeze, here are some other benefits automated expense management brings with it:
- Offers easy ways for employees to track and report expenses from any device of their choice.
- Runs real-time policy checks on every expense claim even before it is reported to ensure policy compliance.
- Enables customization and automation of approval workflows and bank and corporate credit card reconciliations.
- Integrates with other accounting, ERP, and HRMS software to ensure all employee and travel and expense management data are centralized.
Benefits of switching to automated expense management
Making the switch from paper and Excel-based expense reporting to digital can be a big change for businesses. There are several advantages that automated expense management has over traditional expense management methods.
- Employees spend less time compiling and submitting expense reports.
- Approvers spend less time verifying and approving expense reports.
- Compliance is taken care of by the expense management software.
- Audit-readiness is ensured without any extra manual effort.
- Finance teams get continuous visibility into employee expenses.
Automated expense management can help businesses improve their financial performance, employee productivity, and budget management.
What is expense management software?
Expense management software is designed to make things related to travel and expenses easier, such as making reports, getting approvals, getting money back, and making travel plans. An automated expense management process reduces the risks that are common with traditional expense management. There are several advantages to using expense management software, which can be broken down by who stands to benefit from its use.
For employees, it offers:
Efficient receipt tracking and reporting
Most expense management software offer the ability to track business receipts, which can reduce the time and effort employees spend on expense reporting. One of the most useful features of expense management mobile applications is the Optical Character Recognition (OCR) scanner.
Employees can take a picture of a paper receipt and use the OCR scanner to upload it. After taking a picture of a receipt, the software enters the expense details automatically, so that they can be reported. This makes it so that you only have to click once to do your expense report, rather than the tedious process of doing it manually.
Faster expense reimbursements
This software makes it easy for employees to submit travel and expense reports that follow the company’s guidelines. This software also prevents the need for consistent communication between different people involved to make sure timely reports of expenses, approvals, and money given back to employees.
For approvers, it offers:
Custom automated approval workflows
There is no need for managers or approvers to respond to emails asking them to point the sender to the right person when they are using expense management software. The workflow can be automated so that report submission reminders are sent and reports are auto-approved, which would eliminate any delays in the expense approval process.
Effective expense policy enforcement
It is not a good use of your time as a manager, department head, or member of the finance department to verify expense claims against policies. The software automates policy checks and alerts the user about any violations. This allows you to take appropriate action without wasting time on verification.
For finance teams, it offers:
Automatic corporate credit card reconciliation
A few years ago, corporate cards were very popular and they seemed like the perfect solution for managing business expenses. Only finance teams know how much pain it is to match credit card statements to bills and then audit them for compliance. An expense management software can make credit card reconciliation much easier. This software eliminates the need for manual intervention to match expenses, receipts, and transactions. The app also links up with credit card providers so you can get a direct feed of your expenses onto the management dashboard. This allows finance teams to see where the money is being spent in real time instead of just knowing that money is being spent.
Digital audit trails for continuous compliance
This software keeps track of every expense and every action taken by everyone involved. Finance teams can audit expense reports and process reimbursements more easily. This means that you don’t have to worry about losing paper receipts or where to store them.
Faster payment processing
An expense management software brings all your existing systems together, such as your ERP, accounting, HRMS system, and bank portals. Instead of using multiple platforms to manage employee and expense data, this allows you to do everything from a single dashboard. You can also initiate payments directly from the expense management dashboard. Additionally, this will allow you to monitor the payment process, so you are always up-to-date.
Secure cloud storage for expense receipts
All expense receipts that are attached to expense claims are stored securely and can be searched for in the cloud. Finance teams can easily search for any expense, receipt, or report using filters. If you are being audited, you will not have to spend an hour sorting through reports to find the one the auditor asked for.
Real-time insight into expense data analytics
An expense management software gives you the ability to see what your employees are spending in real-time. You can also see this information across multiple organizations. This information is available on your expense management dashboard, where you can view spending by departments, projects, categories, and more.
If you have access to real-time data about your expenses, you will be able to make changes to your spending habits as needed. This can be helpful in situations where you need to save money. It also ensures you’re sticking to the predicted/allocated budgets.
Data security
Anything that involves software is a massive concern for data security. The best business expense management software will follow industry-standard security measures to make sure your data is always protected. The software also offers features like role-based access, IP based access, and auditor-access to ensure different stakeholders with different roles only have access to data you decide to let them see.
An expense management software helps you automate the entire expense management process, saving you time and money. Benefits of using an attendance system include reducing risks and fraud while also boosting employee morale and profitability.
THE PROBLEM: YOUR BUSINESS ISN’T GROWING AS FAST AS IT SHOULD!
Your sales have stagnated or decreased, and you can’t figure out why. Discover what’s holding you back from achieving predictable sales growth in your business.
If you want to grow your business, you need a proven plan and framework. That’s what you get with the 2X Your Sales Discovery Session.
Want to learn about a formula for Predictable Growth that will put your business on a 90-day path to 2X Your Sales?