Expense Management - is Automation the Answer?
Expense management automation has emerged as a strategic opportunity to create dollar-for-dollar improvements in profits. As the mandate to continually grow revenues from quarter to quarter becomes more challenging,
Expense management automation is key to substantially reducing and establishing control over an organization’s second largest controllable cost – employee business expenses. Over the past few years, companies have realized that expense management is an area where tangible, consistent returns are possible by automating the policies and procedures associated with expense reporting.
Automation manages employee business expenses through quick, accurate and easy claim submission, approval and reimbursement. The end result is greater control over costs, improved compliance and increased visibility with better expense data capture – potentially translating into a 10 per cent reduction in costs and a direct impact on the bottom line.
For both traditional and web-based reporting there are four basic components to the process:
Traditional manual expense reporting, characterized by excel spreadsheets or photocopied pieces of paper with receipts attached, is often a tedious and error-prone practice, resulting in costly processing cycles for employees, managers and accounts payable personnel.
In a web-enabled environment, the process is streamlined from submission to reimbursement. Automation of the expense report initiation and payment components eliminates the re-keying of data, results in faster reimbursement, greater data accuracy and increased resources for mission critical tasks. Through expense management automation, an average company can reduce processing time and costs by 40 to 60 per cent, with payback in as little as six to 12 months.
What is the value of expense management automation within an organization? Studies have shown that a typical non-automated expense report can cost from $48 to $75 per report. According to Aberdeen Group, expense management automation can:
Expense management automation has emerged as a strategic opportunity to create dollar-for-dollar improvements in profits. Getting expenses under control has become critical for businesses of all sizes to survive in today’s environment. As the mandate to continually grow revenues from quarter to quarter becomes more challenging, businesses are looking to cut costs as a way to demonstrate value. Since employee business expenses such as travel and entertainment account for an organization’s second largest controllable cost after payroll, expense management automation can be a very profitable endeavor.
Beyond these immediate savings, companies are also benefiting from the capture of opportunistic savings within discretionary spend – often adding an additional 10 per cent to the savings total. In fact, indirect expenses can represent as much as 30 per cent of total expenditures, with travel and entertainment comprising only one fifth of that amount – a compelling reason to pay closer attention to discretionary employee business spending.
The cost savings derived from expense management automation tends to increase over time as the automation process is applied to more than travel and entertainment expenses. For efficiency, more and more spending is done outside of the purchasing department, at the employees’ discretion, with p-card, fleet and other corporate cards.
For example, a company with revenues of $700m, $50m in EBITDA and $20m in annual employee business expenses can make a dramatic impact on its bottom line without increasing revenue. If automation reduces these expenses by only five per cent in the first year the savings alone have the same impact on the bottom line as $12m in new revenue. The Gartner Group supports this finding in a 2001 study by noting, “…a five per cent reduction in operating costs in the expense management process has the same impact as a 30 per cent increase in sales”.
When compared with other cost reduction projects, investing in expense management automation is extremely low risk and high reward. By streamlining the entire expense reporting process, companies can achieve significant, tangible cost savings within a short period of time.
While computing the value of automating the expense report submission and reimbursement processes is fairly straightforward, there is as much – if not more – potential for savings within the audit and analysis process. During these stages of automation, organizations begin to realign business processes such as receipt management, reporting and spend analysis. In fact, many companies find that after automating their expense reporting process, the greatest savings are opportunistic – found through the analysis and management of spend.
By offering a holistic source of expense data not possible within a manual system, companies achieve the ability to capture history and analyze trends relating to spending and expense types. Analysis of this data enables more informed vendor negotiations which can amount to additional, ongoing discounts and rebates if properly leveraged and managed.
Most importantly, process optimization can facilitate improved communication of, and compliance with, corporate policies and legal requirements by changing employee behavior.
Industry and government sources estimate the incidences of maverick spend is more than 27 per cent of overall indirect expenditures on average. Maverick or ‘off-contract’ spending occurs outside the procurement process and limits an organization’s ability to maximize contractual commitments and new vendor negotiations. In a recent survey by CFO Research Services over 50 per cent of CFO’s said identifying and controlling unauthorized spend is a top priority for indirect expense management.
By establishing and enforcing spending rules and business policies within an expense management automation solution, companies are creating effective tools to educate users on what they can and cannot spend and with whom. Users who attempt to submit an expense outside of these internal rules and polices will receive instant notification of the violation. For example, this functionality can be set to immediately notify users when a hotel rate, meal or other expense is not with an authorized vendor or beyond the spending limit. The policy is then communicated immediately and consistently, which is key to affecting changes in behavior.
In addition to educating and reminding employees about rules and policies, many organizations have also successfully curbed expense report fraud through automated reporting. Though fraudulent expense report transactions are usually relatively small transactions, they are common and extremely difficult to detect. Over time, the losses can be substantial. And, even when expense report fraud is identified, the loss is rarely recovered.
Expense management automation is a strategic compliance and spend management tool that has emerged as a valuable investment in today’s business environment. Companies that have adopted expense management automation are now able to:
More importantly, these organizations are saving significant dollars, adding more to their bottom line.