For businesses with employees who frequently travel or incur expenses, having a well-defined expense policy is crucial. This policy explains what expenses can be claimed and how to submit claims. But what exactly is an expense claim?
It’s when an employee asks to be reimbursed for costs they’ve paid out of their own pocket while doing their job. These costs can include travel, accommodation, meals, and other work-related expenses.
Managing expense claims well is important for businesses because it keeps finances clear and operations running smoothly. In this blog, we’ll explore the key points, best practices, and important aspects of managing expense claims.
What is an Expense Claim?
Expense claims allow employees to get reimbursed for money they spend on behalf of the company. This could include costs for business travel, buying supplies, or other approved expenses. Employees pay for these expenses upfront and then submit a claim to be reimbursed.
To submit a claim, employees need to provide details about each expense, like the date, what was purchased, how much it cost, and proof of purchase (such as receipts or invoices). After the claim is submitted, it is reviewed by the employer or finance team to make sure it follows company rules. If approved, the employee is reimbursed.
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 differ based on the type of expense and the company’s rules. Here are some common types of expense claims:
1. Travel Expenses: These include costs for transportation (like flights, trains, or rental cars), accommodation (such as hotels or Airbnb), meals, and other expenses related to business trips.
2. Meal Expenses: These are costs for meals bought during business trips or while working. Some companies have policies on what meals can be claimed and how much can be spent on each meal.
3. Mileage Expenses: This category includes costs for local transportation, like taxis, rideshares, public transport, and parking fees when used for business purposes.
4. Entertainment Expenses: These are costs for entertaining clients or business partners, like meals, event tickets, or other activities. These expenses are usually closely reviewed and may have certain limits or policies.
5. Communication Expenses: This includes costs for business communication, like mobile phone bills, internet fees, and other communication services.
6. Office Supplies: These are costs for buying office supplies or equipment needed for business activities, like stationery, printer ink, or computer accessories.
7. Miscellaneous Expenses: This category covers any other business expenses that don’t fit into the categories above, like business gifts, postage, or other small costs.
What Qualifies as a Claim?
Let’s break it down to what most companies qualify as an expense claim:
- Expense claims should be for business-related costs that support the company’s goals, initiatives, or formal tasks.
- Personal expenses are not eligible for reimbursement.
- Unnecessary or overly expensive costs may not be eligible for reimbursement.
- The claimed expenses should reflect the fair price of the goods or services.
- Expenses must be consistent with the company’s spending policies and standards.
- Use the correct categories when submitting your claim to be eligible for reimbursement.
- Provide original, itemized receipts or invoices with details such as date, description, vendor, and amount paid.
- All expenses must follow the local tax rules.
- Expense claims need to be submitted on time. Late submissions may lead to delays or rejections.
- Claims should follow a proper 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 fill out a form, either on paper or online (like a Google form), where they provide details such as the date, description, and amount of each expense. They also attach any supporting documents, like receipts or invoices, to the form.
3. Review and Approval: The completed expense claim form and supporting documents are sent to the right department or supervisor by email for review and approval. This step makes sure the expenses follow the organization’s policy and guidelines.
4. Finance Department Approval: Approved expense claims are forwarded to the finance department for further processing. This involves checking the expenses, calculating how much needs to be reimbursed, and manually assigning the expenses to the correct accounts.
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.
This process can work well, but it can also take a lot of time and lead to mistakes. Many companies are now using automated expense management systems to make the process faster and reduce the workload.
Pitfalls of Manual Expense Claim Process
1. Time-Intensive
Traditional expense claim processes are slow and time-consuming. Employees have to spend time sorting expenses, doing calculations, and making reports. Getting approvals adds to the delay. This extra work takes employees away from more important tasks, reducing productivity. For businesses with lots of employee travel, the finance team has to spend a lot of time checking all the expense reports, which can be overwhelming.
2. Error-prone
Manual entry can lead to mistakes in expense calculations and data entry. Employees might misunderstand expense policies, causing them to submit incorrect claims. Without automated checks, errors in adding up expenses or attaching the wrong receipts are common. Finance teams often face challenges in reviewing stacks of expense claims, identifying errors and inconsistencies, and may need to rework on the claims. These errors, if serious, can affect the company’s financial health.
3. Receipt Management Challenges
Managing physical receipts can be tricky. Employees might lose receipts or forget to submit them with their expense claims, causing delays. Also, storing receipts manually can get messy, making it hard to find them later for audits or reports.
4. Compliance Issues
Following company policies and regulations can be tough with a manual process. Without automatic checks, employees might accidentally claim expenses that aren’t allowed or forget to provide required documents. This can lead to non-compliance and possible audit problems.
5. Expense Fraud
While many leaders trust their teams to act ethically, studies show that 85% of employees have admitted to lying on expense reports. Manual expense claim processes can be taken advantage of by employees to commit fraud. This can include submitting duplicate bills, making fake reports, or doing other illegal things to get money. Even employees with good intentions might accidentally submit fraudulent forms because manual expense claims are prone to mistakes.
6. Limited Real-time Visibility
The manual process makes it hard to see spending in real-time. Since everything is done manually, you can’t quickly know how much money is being spent. This makes it difficult to track your budget or predict future expenses accurately. The accounting team has to manually gather and sort data for taxes, which can lead to mistakes. Without real-time data, financial planning and budgeting become harder, which could lead to 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 can make your expense management faster and more accurate, helping you save money and stay compliant with policies and regulations. Here’s how Peakflo’s Travel and Expense Management can help:
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 important for any business, but it can be tough, especially during times of growth.
The good news is that automating the expense claim process can help. It saves time and money while keeping things running smoothly.
Automation reduces mistakes, ensures rules are followed, improves budgeting, and gives you a clear picture of your company’s spending. It’s not just about controlling costs — it’s about making smart, informed decisions for your business.
Peakflo offers an intelligent, reliable, secure, and efficient solution for travel and expense reimbursement processing. We tailor our platform to your business needs, making the transition to automated expense management seamless.
