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In an organization, employees often have to incur expenses for business purposes. For example, they might have to travel to meet clients, book a hotel room to attend a conference, have meals while on a business trip, etc. Since employees incur these expenses on behalf of the company, the company is responsible for paying them.
The employees can file for reimbursement by submitting an expense report to the organization. Expense reports help in monitoring the cash flow of the company, preparing budgets, filing tax returns, and identifying cost control opportunities.
But what is an expense report exactly? Let’s see.
An expense report is a document that records the expenses that an organization or its employees incur within a particular period. It usually lists expenses and additional information such as employee details, date of purchase, amount, etc.
The expenses in an expense report are organized in columns according to their categories, such as travel, office supplies, or accommodation. Employees must attach receipts or proof of purchase with the expense report depending on the company’s requirement.
An organization maintains expense reports for record-keeping and reimbursement purposes. The reports are usually created on a monthly, quarterly, or annual basis. Monthly and quarterly reports help track the company’s cash flow and budget. Whereas the yearly expense reports are used for deducting expenses on the organization’s tax returns.
An expense report usually contains the following details :
Different businesses need to incur different types of employee expenses to run smoothly. A few categories of business expenses are :
Expense reporting helps reimburse the employees for any amount spent on the company’s behalf. However, organizations reimburse only those expenses that fall within their policy.
An expense report and corresponding receipts act as proof of legitimate expenditure. The manager uses these documents to verify whether an employee’s claim is within the expense policy. If the expenses are eligible for reimbursement, the manager will approve the report and forward it to the finance department for processing the payment.
Expense reports help track the company’s expenses. They give a detailed account of how much money employees spend across different categories, such as meals, travel, etc.
By getting insights into individual and overall spending, managers can identify areas where the company might be overspending. This way, the company can take steps to cut down on unnecessary expenses and facilitate cost savings.
The finance team uses expense reports to understand how much money each department requires. By comparing the total expenditure of a department with the previously allotted budget, they can determine whether the budget needs to be increased or decreased.
Additionally, expense reporting allows managers to track whether the departments are following the budget. This helps employees stay accountable and ensures they spend the money efficiently.
Many expenses that the employees accrue for business purposes are tax-deductible. This means that these expenses can be subtracted from the overall income of the company in order to reduce the amount of tax.
IRS requires proper documentation and proof of tax-deductible expenses to deduct this amount. Expense reports streamline the process of tracking and recording business expenses. With adequate evidence and records, employers can write off these expenses when filing for taxes.
Companies can either create expense reports manually or use expense management software to automate the process. The manual process is tedious and requires spreadsheets, whereas the automatic method is more efficient and saves time.
Yet, according to the Travel and Management Trend Report, nearly half of the organizations (43%) still use manual processes to manage their travel and expense.
In the manual process, employees can either create expense reports from scratch or use templates that can be customized and edited in a spreadsheet format. This method is inexpensive but time-consuming. Additionally, it requires the maintenance of paper receipts which can be lost, damaged, or stolen.
To create an expense report on a blank spreadsheet, the employee has to :
Most companies opt to provide their employees with templates for expense reports as it slightly speeds up the process and keeps everything consistent. By using templates, employees can fill in the pre-assigned rows and columns for each expense category.
To create an expense report automatically, employees need to click a picture of the receipt and upload it to the expense management software. The software uses OCR technology to read and extract the data from the digital file and then fills in the expense details automatically.
Once all receipts have been uploaded, the employee can club all expense claims into one report and submit it for approval. This process is straightforward, intuitive, and saves employees plenty of time.
Once the employees create the expense report, they have to submit the report to their manager. In a manual expense management system, they are supposed to email the report to the manager along with multiple photos of receipts. However, with the automated expense management system, they can send the digital report with the click of a button.
Furthermore, after the employee submits the report, the manager is responsible for verifying the claims against the company policy. Traditionally, the manager checks each and every receipt for fraudulent claims or policy violations. If there are any errors or discrepancies in the report, it often results in a lot of back-and-forth communication via email, which can extend the process by a few days.
However, in the automated expense management system, the software integrates with the company policy and flags out-of-policy expenses or fraudulent claims. This allows the employees to rectify any errors before they submit the report. The manager can then quickly review and approve the expense report without much hassle.
After the manager approves the report, the finance team is responsible for processing the reimbursement. Traditionally, it takes 5-8 days for companies to approve and reimburse expenses, but with automated expense management, the whole process can be completed within a few hours. This not only improves employee satisfaction but also enhances the productivity of an organization.
According to a GBTA report, the average cost of manually processing a single expense report is $58, and it takes 20 minutes. 19% of these reports have errors that cost an additional $52 and 18 minutes to correct.
Automating expense management saves the company time and money, which they might be losing to such hidden costs. Some other benefits of automating expense management are :
An organization should systematically monitor and track its expenses for efficient cash flow management. Expense reports make it easy to keep tabs on company spending, create budgets for different departments, and ensure company expenditures align with organizational goals. In addition, expense reports are also helpful in reimbursing employees, creating financial projections, and filing taxes.
ITILITE is a SaaS-based expense management software. With ITILITE, you can streamline expense management for your business by automating expense reporting. The software enables your employees to scan and submit their receipts on the go and automatically creates an expense report.
To know more about how automated expense management works, schedule a demo now.