5 Big Risks of Inefficient Expense Management

17 July 2015

Expenses are an important part of any business. Incurring a lot of expenses is ideally a sign that things are going well. But even when there is more than enough revenue to cover a large expenses bill, keeping track of the particulars of those expenses is a critical element of maintaining a healthy and strong business.

But it is not just about keeping an accurate account of your business’ expenses, it is also about collecting and managing that information in a manner that's efficient as possible. If expenses are poorly managed, the cost of their burden can outweigh the benefits brought by those expenses in the first place.
Here are 5 of the biggest risks that inefficient expense management can bring.

Cash Flow
One of the more obvious effects a mishandled expense accounting system can have is in terms of cash flow, particularly if there are delays in the recording or processing of regular or semi regular expenses that can disrupt a company’s ability to make planned purchases. Over the long term this can stifle a company’s ability to plan for the future and grow competitively.

Time is money as they say and nowhere is it more so than in business. The time of employees in particular converts directly into wages paid for a specific set of tasks. If employees are spending disproportionate amounts of time filing expense reports or explaining expenses to accounts departments, they are not getting on with their jobs.
This impact on productivity can gradually eat away the benefits gained from the source of the expense.

Inefficient expense management can affect morale in a number of ways. One is in terms of time as mentioned above. The vast majority of employees enjoy their job and have spent time and energy developing a professional career that allows them to do that job. No one wants to spend their time filing tedious expense reports. They just want to get on with their jobs.
Many businesses also have expense systems where certain expenses are paid for by employees up front who are then later reimbursed after they have been processed. When those processes are inefficient, they are slow. When they are slow, employees are unlikely to be reimbursed promptly. This can affect their personal cash flow which in turn affects their personal morale.

Building on Savings
Over the course of many years, making and claiming expenses for some employees are likely to discover areas where savings can be made. Many of those savings will apply to the expenses of other employees but depending on the size of the organisation that information may not necessarily travel efficiently through the organisation.
An efficient expense management system should be able to highlight where savings are made and be able to pass those savings opportunities on to other employees where possible.

Cost of Managing Expenses
A fundamental problem posed by inefficient expense management is the basic cost of managing them. Outside of the time taken by employees to file expenses, the burden the expense process puts on the accounts department managing it is one of cost.
Simply put, the less efficient an expense process is the more it costs to maintain.

Any company big or small needs their expense management system to be a simple procedure, with a clear policy on filing that provides relevant information and is carried out in a timely manner. HR softwares with integrated expense management features can form a key component in developing an efficient expense management process.