Typical expense management reporting follows several steps: employees have to save receipts and manually enter expense information; managers comprehend the context of purchases and inquire about them; finance teams complete the laborious monthly reconciliation process; and employees wait to be reimbursed.
Almost all of the stakeholders along the road experience suffering. For example, employees dislike waiting, managers dislike badgering, accounting departments dislike reconciling accounts by hand, and finance departments dislike waiting until the end of the month or longer to learn how much money has been spent.
This time-consuming process has hidden costs, so it’s more than a hassle. Let’s discuss these hidden costs you are incurring by following a manual way of managing employees’ expenses.
What is Manual Expense Management?
Manual expense management is often done on paper or with spreadsheets like Microsoft Excel and Google Sheets. It refers to manually tracking, recording, and reporting spending.
All expenses are manually entered into a spreadsheet or a paper ledger when managing costs manually. This process typically includes some steps, as explained below.
Recording expenses: This entails recording every expense, along with its date, cost, and intended use.
Categorizing expenses: The areas that fall under include travel, entertainment, and supplies. This makes it easier to comprehend how money is being spent.
Totaling expenses: The total amount spent is then calculated by adding the costs for each category.
Comparing the budget: The total expenses for each category are compared to the budget to identify anomalies.
Reporting: The costs are disclosed for the company or personal use. Making a report for management or tax purposes may be necessary for this situation.
With its low cost and potential effectiveness for individuals or small organizations with limited resources, manual expense management is a good alternative. That being said, it can also be time-consuming and prone to mistakes. Thus, many organizations switch to more automated alternatives when they expand.
The Hidden Costs of Manual Expense Management
The hidden costs that result from employing manual techniques to manage expenses are referred to as the “hidden costs of manual expense management.” These expenses can accumulate over time and significantly impact how much money a business makes. For example, the hidden costs of manual spending management are the following:
Increased risk of errors and fraud.
As manual processes are more prone to mistakes and poor management, wrong expenses may be reported and processed, causing a loss of money.
Inefficient use of employee time
Due to the time-consuming nature of manual operations, employees may spend too much time on activities like data input, expenditure reconciliation, and error correction.
Difficulty in tracking expenses
Real-time spending tracking can be challenging with manual systems, which can delay finding and fixing mistakes or fraudulent activities.
Increased administrative workload
Manual processes can use many resources and add to the stress of employees who handle expenses, which lowers productivity and raises overhead costs.
Lack of visibility and control
It can be challenging to identify and stop overspending or financial mismanagement when manual processes are used since they reduce an organisation’s visibility and control over costs.
Increased stress
Manual, time-consuming expense management procedures can cause stress and burnout in employees, lowering morale and decreasing job satisfaction.
Decreased employee engagement
Employee disengagement and decreased productivity may result from employee frustration with manual expense management procedures, which could have a detrimental effect on the organisation’s financial performance.
Reduced compliance
Manual expense management systems may hamper employee compliance with the organisation’s financial policies and procedures, increasing the likelihood of non-compliance and financial mismanagement.
Furthermore, manually managing expenses can result in a lack of accountability and transparency, making it challenging for businesses to keep track of spending, spot fraud, and make sure that money is being spent wisely.
5 Steps to Avoid The Costs of Manual Expense Management
Automating expense management can avoid the hidden costs of manual expense management. In addition, it can result in enhanced data accuracy and real-time reporting, empowering businesses to manage costs more effectively and make wise financial decisions.
However, automated expense management solutions come at some direct costs. These are the costs a company incurs to oversee, manage, and control its spending. Examples of direct costs include
- The cost of the software and technology used to automate expenditure
- The cost of human resources involved in authorising and evaluating charges
- Other administrative costs, including training and assistance.
However, the benefits of improved expense management, such as increased visibility and control over expenses, improved compliance with financial policies, and decreased administrative workload, typically outweigh the direct costs of expense management as an investment in a company’s financial well-being and stability.
So, here are the steps that organisations can take to avoid the hidden costs of manual expense management:
Step 1: Deploy Expense Management Software
Invest in efficient expense management software. It automates the expense management procedure, lowering the possibility of mistakes, fraud, and mismanagement while boosting accuracy and efficiency.
Note: The expense management market is anticipated to expand at a CAGR of 9.2% from 2022 to 2029, rising from $6.51 billion to 12.05 billion.
Step 2: Simplify the Expense Reporting Process
Ease the procedure of filing expenditure reports. This action would shorten the time duration and resources needed to execute it. Furthermore, it would increase openness and compliance.
Step 3: Train Your Employees
Train employees on how to manage expenses and use cost management software. This action can gradually decrease errors and help employees or stakeholders follow financial policies.
Step 4: Monitor Expenses in Real-time
This procedure will assist you in keeping track of your spending and spotting fraud or mistakes. In addition, it would increase expense control and visibility.
Step 5: Encourage Employee Engagement
Finally, encourage employee engagement. Also, you must give your employees the resources and skills they need to manage their spending. Stress and burnout would be less likely as a result of this action.
Implementing these actions can increase productivity, lower the risk of financial mismanagement, and avoid the hidden costs of manual spending management for businesses.
The Key Takeaway
Manual expense management entails logging all expenses, categorising them, figuring out how much was spent in each category and then comparing that to the budget to see any variances.
Automating expense management operations can lower the hidden costs of manual expenditure management, improve compliance and transparency, and raise employee satisfaction.
Furthermore, automating expenditure management can result in higher data integrity and real-time reporting, empowering businesses to manage their expenses more effectively and make wise financial decisions.