Expense approvals are an essential part of business operations, but the process can be tedious and time-consuming. This article will discuss what expense approvals are, the benefits of automating the process, and provide a step-by-step guide on how to implement a streamlined expense approval system in your accounts payable processes.
Understanding Expense Approvals
Expense approvals are a crucial step in the expense management process, where employees submit expenses incurred on behalf of the company for approval by designated approvers. These general expenses include travel, meals, office supplies, or other business-related costs.
The approvers, usually managers or finance team members, review the expenses to ensure they adhere to company policies before approving or denying the reimbursement. This step allows managers to track and approve spending as a way to effectively control budgets.
After employees incur business-related expenses and submit their budgeting reports, they must wait for a manager’s approval before receiving reimbursement from the finance department. This crucial expense approval step should be as efficient and straightforward as possible.
Why is It Important to Track Expenses?
Tracking employee expenses is essential for effective budgeting, cost control, and tax compliance. It ensures adherence to company policies, streamlines the reimbursement process and provides a reliable audit trail for internal and external purposes.
The traditional method of expense reports is time-consuming, error-prone, and susceptible to fraud. This process is not only a hassle for employees but also burdensome for the finance team. Accurate expense data is vital for generating financial reports, offering stakeholders a clear insight into the organization’s financial health and performance.
Pre-Approved Expenses Vs Manual Expense Approvals
When it comes to approving expenses, there are options. Approval can be granted before the expense or afterward.
Opting for pre-approved expenses streamlines the process by granting authorization before any money is spent. Managers verify the necessity, adherence to expense policies, and alignment with the budget in advance. Real-time updates to the budget ensure transparency, eliminating guesswork and providing visibility to all stakeholders.
Manual expense approvals
Manual approvals involve a post-expenditure process but can be efficient. After incurring the expense, employees submit proof, typically a receipt, to their manager. The manager reviews and approves the expense before forwarding it to the finance team for further approval. While involving additional steps, this method ensures scrutiny of expenses.
Elements of the Expense Approval Process
The expense approval process encompasses various components, including:
- Establishing travel cost limits and allowances.
- Reimbursing employees for their expenses.
- Monitoring and tracking employee spending.
- Enforcing an expense policy to guide spending behavior.
- Notifying employees of non-compliance with expense policies.
- Analyzing spending data to identify and address irregularities.
Steps in the Expense Approval Process
An expense approval process usually follows these steps:
- Employees accrue business-related expenses (e.g., trip costs, event expenditures, client gifts).
- Receipts are saved by employees and submitted to their manager for approval and reimbursement.
- The manager reviews and either approves or rejects the expense claim before forwarding it to the finance department.
- The finance department examines the expense reports for policy compliance and makes the final approval or rejection.
- Approved claims lead to reimbursement for the employee, while rejected claims may be returned to the employee for revision if necessary.
Common Problems Related to Expense Management
In the absence of a robust expense management policy, the approval process can become chaotic and disorganized. Here are some issues that commonly occur:
Long Approval Cycle
Traditional, manual expense approval processes often involve multiple layers of approval and lengthy back-and-forth communication, which can result in delays and frustration for both employees and approvers.
Depending on the scope and services provided by the organization, the finance team may face a huge volume of approval tasks that can be challenging to manage. The process can become exceedingly tedious for everyone involved when finance teams and managers are tasked with manually verifying Excel sheets and other documents.
The heavier the workload, the higher the probability of errors. Finance teams and managers may find it difficult to approve all items or reject some requests. This is because each document needs personalized scrutiny and a solid understanding of its significance.
As a result, meeting deadlines for approving or rejecting requests can be challenging, negatively affecting the approval process’s efficiency and accuracy.
Improper Expense Distribution
Once a proposal and budget have been approved, it is essential to ensure proper execution from the moment of approval to the completion of the purchase.
For example, if approval is granted for buying five computers, the components should be obtained within the budget constraints and promptly delivered to the individuals who need them.
Delays in this process can lead to decreased productivity, suboptimal utilization of resources, and employee dissatisfaction due to not receiving the required tools, such as software, hardware, or other forms of support, in a timely manner. Additionally, a sluggish reimbursement process for employees can negatively affect overall productivity.
Overall, manual expense management systems can lead to errors, such as duplicate or incorrect expense entries, which can distort the company’s financial records.
By streamlining the expense approval process and adopting automated solutions, organizations can minimize these issues, ensuring accurate financial records and maintaining employee satisfaction.
Inefficient Budget Management
In the context of expense approvals, automation is often mentioned, but managers cannot blindly approve every request that lands on their desks.
They need to check the monthly and yearly budget, scrutinize the Opex (operational expenditure) reports, and go through several Excel sheets to ensure correctness. A misstep could cause chaos if the wrong items are approved, leaving more critical ones without the required funds for acquisition.
It’s important for managers to not approve an expense simply because there is spare cash or an unallocated budget.
Only the most pressing needs can be greenlit immediately, while other requests must be assessed based on their priority. Poor budget management can negatively impact an organization’s financial health.
Furthermore, in the absence of a centralized expense tracking system, managers might find it challenging to effectively monitor and manage departmental budgets.
By adopting an automated expense approval system, managers can better oversee budgets and make well-informed decisions, contributing to the organization’s financial stability and ongoing success.
Why Automate Expense Approval Process?
Modern companies do not need to adhere to the cumbersome expense approval processes and long waiting periods.
There’s a better way: automated expense approvals. By automating expense approval processes, businesses can:
- Improve Transparency at Scale: Automation software helps to maintain accurate records and provides visibility into the company’s expenses, making it easier to track and analyze spending patterns.
- Save Time: Automated expense approval systems speed up the approval process by streamlining workflows and reducing manual work for both employees and approvers.
- Simplify Auditing: An automated system makes it easier for auditors to review expenses, ensuring compliance with company policies and reducing the risk of fraud.
- Manage Budgets Strategically: With a clear view of company spending, managers can make informed decisions on budget allocations and spending priorities.
- No More Overloads: Automation helps to distribute the workload evenly among approvers, preventing bottlenecks and reducing stress.
Find out more about how automation can empower your finance teams by downloading the eBook below.
Automate Expense Approval Process in 6 Steps
Ready to streamline your expense approval management? Follow the step-by-step below:
Choose a Reliable Automation Software
Selecting the right expense management software is crucial for a successful automation process. Look for a solution that is user-friendly, secure, and can integrate with your existing accounting systems.
One option that fits all these criteria is Peakflo. Our AR & AP automation simplifies expense approvals with automated workflows, allowing you to save hundreds of man-hours wasted on time-consuming approval procedures.
Revisit Existing Policies
When managing finance reports manually, companies often follow ambiguous policies that are hard to remember, so it’s crucial to use this opportunity to refine your expense policy.
Review your company’s existing policies to ensure they are clear, up-to-date, and comprehensive. Address any gaps and establish guidelines for expense submission, approval limits, and reimbursement timelines.
Write your policy in clear language to prevent confusion, making it flexible enough for emergencies and special circumstances. Specify which managers make final decisions on approvals and detail the approval workflow steps.
Ensure all team members can easily reference the policy and remember best practices. By doing so, you’ll lay a solid foundation for a seamless transition to an automated expense approval system.
Using Peakflo, design workflows that reflect your organization’s specific requirements. Customize based on the budget type and range of amount, then easily apply them to bills, transactions, purchase orders, or credit notes.
By adopting Peakflo, save time, minimize errors, and have more control in ensuring that your approval system is following the company’s standard of practices.
Tag the Relevant Approvers
Design and implement workflows in the automation software that reflect your company’s expense approval processes.
In Peakflo, you can add up multi-level approvals, route expenses based on department or budget, and configure notifications for approvers and employees. This way, you can provide a more efficient and transparent expense approval process.
Strategize How You’d Like to Follow Up Approvers
Establish a system for following up with approvers who may be slow to review and approve expenses.
With Peakflo, approvers will have a dedicated dashboard to track approvals for purchase orders, bills, transactions, and credit notes.
Instead of manually chasing approvers in long chains of emails, Peakflo will do the chasing for you.
If an email doesn’t work, Peakflo allows you to personalize where and how you’d like to follow up on approvals to fast-track the process. You can leverage mobile approvals via WhatsApp for Business and update external stakeholders, such as vendors, to streamline communications.
Resolving issues will also be quicker and easier as you can simply mention a team member in Peakflo, allowing them to review and revise immediately.
By implementing Peakflo’s automated follow-up system, reminders, and escalation procedures, you can ensure that your expense approval process runs smoothly and efficiently, eliminating any blockers for your team or organization as a whole.
Supercharge Your Approval Matrixes with Rules
To further streamline the approval process, incorporate rules and conditions into your approval matrix using Peakflo’s role-based permission system. This feature allows you to automatically give specific individuals, such as managers and junior admins, access to certain approvals based on their department, business unit, level, and more.
By leveraging Peakflo’s approval rules, ensure that the right people are involved in the approval process at the appropriate stages, further enhancing efficiency and compliance with your company’s policies.
Track, Manage, and Approve Better
Automating the expense approval process can significantly improve the efficiency, transparency, and control of your company’s spending.
By choosing the right software, revisiting existing policies, and implementing effective workflows and rules, you’ll be well on your way to streamlining your expense approval process and creating a more efficient and transparent financial management system.
Peakflo makes every step of the budget management process streamlined, including tracking and approving expenses. It’s time to track your company’s budget in real-time from purchase request creation to bill payments. Instead of using spreadsheets to manage budgets, easily define budgets for any company expense and manage your budgets professionally.