For businesses with employees who frequently travel or incur expenses, having a well-defined expense policy is crucial. This policy outlines what expenses can be claimed and provides clarity on the process for submitting claims. But what exactly is an expense claim?
It’s a request made by an employee to be reimbursed for out-of-pocket expenses incurred while performing their work responsibilities. These expenses can include travel, accommodation, meals, and other business-related costs.
Efficient management of expense claims is essential for businesses, as it ensures financial transparency and smooth operations. In this blog post, we’ll delve into the key principles, best practices, and aspects of managing expense claims.
What is an Expense Claim?
Expense claims allows employees to seek reimbursement for expenses they incur on behalf of the company. Whether it’s for business travel, purchasing supplies, or other approved expenditures, the process involves employees paying upfront and then requesting reimbursement through an expense claim.
To submit an expense claim, employees typically need to provide detailed information about each expense, including the date, description of the item or service purchased, amount spent, and proof of purchase such as receipts or invoices. Once the claim is submitted, it goes through a review process by the employer or finance department to ensure compliance with company policies. Approved claims are then reimbursed to the employee.
Efficient management of expense claims is essential for maintaining financial transparency, ensuring compliance with company policies, and accurately tracking business costs.
What are the Different Types of Expense Claims?
Expense claims can vary depending on the nature of the expense and the organization’s policies. Here are some common types of expense claims:
Travel Expenses: These include costs related to transportation (such as flights, trains, or rental cars), accommodation (hotels, Airbnb), meals, and other travel-related expenses incurred during business trips.
Meal Expenses: These are expenses related to meals purchased while on business trips or during working hours. Some organizations have specific policies regarding the types of meals that can be claimed and the maximum amount allowed per meal.
Mileage Expenses: Apart from travel-related transportation, this category includes costs for local transportation such as taxis, rideshares, public transport, and parking fees incurred for business purposes.
Entertainment Expenses: These are costs associated with entertaining clients or business associates, such as meals, tickets to events, or other entertainment activities. These expenses are often subject to stricter scrutiny and may have specific limits or requirements.
Communication Expenses: This includes costs for business-related communication, such as mobile phone bills, internet charges, and other communication services.
Office Supplies: These are expenses for purchasing office supplies or equipment necessary for business operations, such as stationery, printer ink, or computer accessories.
Miscellaneous Expenses: This category includes any other business-related expenses that do not fall into the above categories, such as business gifts, postage, or other incidental costs.
What Qualifies as an Expense Claim?
Let’s break it down what most companies qualifies as an expense claim::
- Expense claims should have a clear business goal and provide value to the organization’s activities, initiatives, or formal tasks.
- Personal costs are often not eligible for reimbursement.
- Any expensive or needless costs may not be eligible for reimbursement.
- The claimed expenses should reflect the fair market worth of the products or services purchased.
- Expenses must be consistent with the company’s spending policies and standards.
- Adhere to the predetermined expenses categories when submitting claims to be eligible for expense reimbursement.
- Original, itemized receipt or invoice records should include essential information such as the date, description, vendor information, and amount paid.
- All reported costs must comply with the country’s tax norms and legislation.
- Expense claims must be submitted correctly and timely. Delays in filing may cause payment delays or even rejection.
- Claims should adhere to the approval hierarchy.
How does the Manual Expense Claim Process Work?
Managing expenses manually can be a tedious process. Here’s a simplified overview of the manual expense claim process:
1. Expense Incurrence: Employees incur business-related expenses and keep receipts or other supporting documentation.
2. Expense Claim Form: Employees complete a paper-based or online expense claim form (viz., Google form), providing details such as the date, description, and amount of each expense. Employees attach the supporting documentation, such as receipts or invoices, to the expense claim form.
3. Review and Approval: The completed expense claim form and supporting documentation are submitted to the appropriate department or supervisor for review and approval through email. This step ensures that the expenses comply with the organization’s policies and guidelines.
4. Finance Department Approval: Approved expense claims are forwarded to the finance department for further processing. This includes verifying the expenses, calculating the reimbursement amount, and allocating the expenses to the appropriate accounts manually.
5. Reimbursement Processing: After verifying and processing the expenditure, the finance department initiates the payment to the employee, either by direct deposit or by sending a reimbursement check.
While this process can be effective, it can also be time-consuming and prone to errors. Many organizations are now turning to automated expense management systems to streamline the process and reduce administrative burden.
Pitfalls of Manual Expense Claim Process
1. Time-Intensive
Traditional expense claim processes are slow and require a lot of time and effort. Employees have to spend valuable time sorting through expenses, making calculations, and creating reports. Seeking approvals adds to the delay. This administrative work takes employees away from more important tasks, affecting productivity. For businesses with frequent employee travel, the finance team must dedicate significant time to reviewing all the expense reports, which can be overwhelming.
2. Error-prone
Manual entry increases the likelihood of errors in expense calculations and data entry. Employees may misinterpret expense policies, leading to incorrect claims. Additionally, without automated checks, errors in totaling expenses or attaching incorrect receipts can easily occur, further complicating the process. Finance teams often face challenges in reviewing stacks of expense claims, identifying errors and inconsistencies, and may need to rework claims. These errors, if significant, can impact the company’s financial health.
3. Receipt Management Challenges
Managing physical receipts can be cumbersome. Employees may lose receipts or fail to submit them with their expense claims, leading to delays in processing. Additionally, manual receipt storage can be disorganized, making it difficult to retrieve receipts for auditing or reporting purposes.
4. Compliance Issues
Ensuring compliance with company policies and regulatory requirements is challenging in a manual process. Without automated checks, employees may inadvertently claim expenses that are not allowed or fail to provide necessary documentation. This can result in non-compliance and potential audit issues.
5. Expense Fraud
While most leaders trust their teams to act ethically, studies suggest that 85% of employees admit to having lied on expense reports. Manual expense claim processes can be exploited by employees to commit fraud. This can include submitting duplicate bills, creating fraudulent reports, or engaging in other unlawful activities to obtain money. Even well-intentioned employees may unknowingly submit fraudulent forms due to the high likelihood of errors in manual expense claims.
6. Limited Real-time Visibility
The manual expense claim process lacks real-time visibility into spending. Since everything is done manually, you cannot instantly see how much money is being spent. This makes it challenging to monitor your current budget or predict future expenses accurately. The accounting team must manually extract and categorize data for tax purposes, which can lead to inaccuracies. This lack of real-time data can hinder financial planning and budgeting, potentially resulting in poor business decisions.
7. Processing Delays
The manual review and approval process can lead to delays in processing expense claims. With multiple stakeholders involved, including employees, managers, and finance personnel, getting approvals and processing reimbursements can be time-consuming. This can result in frustration for employees awaiting reimbursement and impact cash flow.
12 Reasons Why You Should Automate Expense Claim Process
Many businesses are now adopting automated expense management solutions to address the challenges mentioned earlier. Here are some key advantages of using automated travel and expense management software:
1. Speeds Up Processing: Automation streamlines manual tasks like paperwork and data entry, allowing employees to focus on essential duties. This results in faster review, approval, and processing of expense claims, leading to quicker reimbursements.
2. Reduces Manual Work: Automation simplifies data capture and calculation, reducing the need for manual intervention. This frees up time and resources for employees to concentrate on more strategic tasks, boosting productivity.
3. Minimizes Errors: Automation flags invalid data, duplicate receipts, and fraudulent claims, ensuring accuracy and compliance with financial records.
4. Provides Real-Time Visibility: Digital solutions offer real-time insight into expense claim status, enabling easy tracking and monitoring for both employees and finance teams.
5. Enhances Policy Compliance: Integrated systems enforce company travel and expense policies, facilitating reimbursement only for compliant claims.
6. Simplifies Reporting: Well-managed expense claims contribute to accurate financial reporting, aiding in budgeting and financial planning.
7. Boosts Employee Satisfaction: Automated systems enable easy expense submission and quick reimbursement, enhancing employee satisfaction and eliminating administrative hassles.
8. Eco-Friendly Approach: Going digital reduces paper and ink usage, contributing to a more environmentally sustainable approach.
9. Scalability: Automated systems can easily scale to accommodate growing businesses and increased expense volumes.
10. Cost Savings: Eliminates expenses on paper, ink, and manual processing hours, while reducing errors and fraudulent claims, resulting in long-term cost savings.
11. Integration with Accounting Systems: Seamless integration with accounting software simplifies reconciliation and ensures accurate financial records.
12. Enhanced Audit Trail and Compliance: Digital systems maintain a clear audit trail, promoting transparency, accountability, and compliance with regulatory requirements.
Features to Look for in Expense Management Software
Automation features can significantly improve the efficiency and accuracy of your expense management processes, leading to cost savings and better compliance with policies and regulations. Peakflo’s Travel and Expense Management Let’s take a look:
Device Agnostic Access
The software should be accessible across various devices, such as computers, tablets, and smartphones, and platforms such as email, WhatsApp, Slack, etc., ensuring flexibility and convenience for users.
Configurable Expense Policies
The ability to customize and configure expense policies within the software to align with your organization’s specific guidelines and requirements.
OCR-enabled Expense Receipt Capture and Record
Optical Character Recognition (OCR) technology allows for easy scanning and digitization of paper expense receipts, simplifying expense reporting and record-keeping.
Automated Anomaly Detection
The software should have built-in algorithms to detect anomalies or irregularities in expense claims, helping to prevent fraud and ensure compliance.
Streamlined Approval Workflows
Automated workflows that route expense claims to the appropriate approvers based on predefined rules, reducing manual intervention and speeding up the approval process.
Digitized Audit Trails
A detailed digital trail of all expense-related activities, including approvals, rejections, and modifications, providing transparency and accountability.
Auto-Reimbursement and Multi-Currency Support
The ability to automatically calculate and reimburse expenses in multiple currencies, simplifying international expense management for employees.
Closing Thoughts
Managing expense claims is crucial for any business, but it can be challenging, especially during periods of growth and expansion.
The good news is that automating the expense claim process can help. It saves time and money while ensuring your operations run smoothly.
Automation reduces errors, ensures compliance, improves budgeting accuracy, and gives you a clear view of your company’s spending. It’s not just about controlling costs — it’s about making smart, informed business decisions.
Peakflo offers an intelligent, reliable, secure, and efficient solution for expense claim processing. Our platform is flexible and can be tailored to your business needs, making the transition to automated expense management seamless.
