A woman business owner reads a paper expense report. She is holding her reading glasses while reading the report.
Expense-tracking apps save you and your staff a lot of time and frustration. The best apps let you submit receipts and reports from mobile phones, tablets, and desktop computers. — Getty Images/Extreme Media

Accurate employee expense management ensures that your small business reimburses staff for out-of-pocket costs incurred as part of their job or on behalf of your company. While a one-off expense is easy to track, organizations with mileage, meals, and other receipts can spend hours tracking down employees and documentation. According to a Center survey, 40% of respondents said their top issue was “employee time spent filling out expenses and collecting receipts.”

Expense management apps automate approval workflows and enforce policies, resulting in quicker reimbursements and fewer compliance challenges. Learn how expense management works and why your process matters while exploring the benefits of cloud-based tools and examples of online systems.

Introduction to expense management

Expense management is your company’s system for tracking and reimbursing employee (and, sometimes, contractor) expenses. A small business pays back workers who use their personal funds to buy a work-related product or service. A salesperson might have travel or entertainment expenses, whereas a manager might purchase office or breakroom supplies.

An effective expense management process requires clear policies that explain the following:

  • Allowable and unallowable expenses.
  • When preapproval is required.
  • How costs are tracked (what documentation the employee needs).
  • Methods for submitting expense reports and receipts.
  • Expense account deadlines.
  • Reimbursement process and payout timeline.

[Read more: A Small Business Guide to Employee Expense Reimbursement]

IRS guidelines and the importance of employee expense tracking

The IRS allows businesses to refund staff for expenses without counting the funds as wages if the process falls under the “accountable plan” status. If your company fails to meet these guidelines, you could be on the line for back income, Social Security, Medicare, and FUTA taxes.

According to IRS Publication 15, an accountable plan requires employees to satisfy all three of the following rules:

  • They paid or incurred the expense while performing the role of your employee. For example, the expense would count if they dined with a liquor vendor as part of their salesperson position. But if the dishwasher eats with the same vendor, this may be considered a personal expense. And you can’t reimburse the worker for that “would have otherwise been paid to the employee as wages.”
  • The employee must verify the expense to you within a reasonable time frame. Generally, this is “within 60 days after the expenses were paid or incurred.” Alternatively, you may issue a “periodic statement (at least quarterly)” asking employees to account for their expenses within 120 days.
  • They must return any overpayments within an appropriate period. The IRS recommends that employees return excess amounts “within 120 days after the expenses were paid or incurred.”

Forty-six percent of companies achieved positive ROI (return on investment) in less than one year after switching to a cloud-based expense system.


Employee expense management challenges

Time-consuming processes, errors, and expense policy issues cost small businesses money. These problems also irritate employees and create issues that spill over into other areas of your company.

The Global Business Travel Association found that 1 in 5 expense reports have missing information or errors. On average, it takes 20 minutes to process an expense report for a single-night hotel stay. A mistake adds 18 more minutes.

Likewise, the Center report identified the following barriers to successful expense management:

  • Employees spend too much time filling out expense reports.
  • It takes too long to generate and analyze expense data and trends.
  • Workers lack awareness of the travel and expense policies.
  • The time to close the books (averaging 10 days) is lengthy.

Advantages of using expense management software

Eliminating manual processes benefits your business and workforce. Indeed, as Emburse reported, “46% of companies achieved positive ROI (return on investment) in less than one year after switching to a cloud-based expense system.” The main drivers include lowered expense report processing costs, employee productivity improvements, and better travel and expense policy compliance adherence.

Here are a few ways your business benefits from using an expense management app:

  • Simplifies employee and management process: An online system autopopulates employee details, reducing repetitive data entry. It also captures receipt or invoice data and is accessible from mobile phones, allowing users to handle expense tasks quickly.
  • Quicker employee reimbursement: Expense software reduces reconciliation and reimbursement times, meaning employees get paid faster.
  • Ensure expense policy adherence: Many spend management apps automatically request more information for submissions that don’t meet your policy or approval requirements.
  • Guarantee tax and recordkeeping compliance: Employers face fewer risks at tax time by improving employee policy compliance rates and ensuring accurate records.
  • Improve financial health: Project, travel, and employee expense tracking helps you understand your total costs and trends. Automation tools reduce time spent collecting data and running reports, making visualizing your financial health easier.

[Read more: 7 Technology Tools to Help You Run Your Business From Anywhere]

Tools for managing employee expenses

The best employee expense management apps let your staff submit receipts and reports from mobile phones, tablets, and desktop computers. It should be user-friendly, which will reduce the number of errors and duplicate requests. Indeed, almost 60% of respondents to the Emburse survey said “ease of use” was “the most important factor when selecting a cloud-based expense system.”

Check out the following expense management systems:

  • Airbase: With automated approval workflows and easy receipt management tools, Airbase streamlines your process. It provides a detailed audit trail and travel booking integrations.
  • SAP Concur: Integrate expense management to centralize your data and expand your reporting options. SAP Concur lets you configure settings to enforce spending policies, and employees can upload receipts to expense reports directly.
  • Emburse Certify: Leverage technology to automatically categorize receipts and turn trip data into accurate mileage expenses. Emburse Certify integrates with your favorite tools and has actionable dashboards.
  • Ramp: Use artificial intelligence to autogenerate memos and categories while integrations with popular platforms autocollect and match receipts. Ramp helps you close books and reimburse employees faster.
  • Zoho Expense: Autoscan receipts or import them in bulk with Zoho Expense. It offers 100% accuracy for mileage tracking and multiple expense upload methods.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.

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