CPAs have a somewhat unfair reputation for appreciating the math side of life: the abacus, counting beans, calculator bingo, and doing friends’ taxes for fun (tax season is like the Holidays for them). Well, we see you, Accountants, and we see these as ridiculous stereotypes that simplify entire departments—entire professions, even. Accountants vary in personality, strengths, and hobbies just like everyone else. What binds them together is the shared knowledge that inefficient expense management slows them down and makes for a stressful end to any month, financial quarter, and/or year-end.
Accountants know the industry undergoes dramatic changes at the speed of changing technology – and the effects of those changes can hit seemingly all at once to produce a whole new set of major business challenges. Expense management tops the list as one of the most daunting challenges for Accounting Teams and businesses as a whole.
No matter what type of clients you serve, they all have at least one thing in common – expenses and the need for tools to manage them. Expense management solutions should streamline expense processing and reporting—unfortunately, that isn’t always the case. We’re here to help separate the wheat from the chaff.
Expense software has become an imperative for all businesses, but each system has built-in pros and cons. We’ve compiled a list of the types of employee expense management solutions on the market today, as well as the advantages and potential hang-ups associated with each. Let’s dive in.
Reimbursement
Business trips mean one thing: clients and their staff spending their own cash for business purposes. Enter reimbursements solutions to save the day. Ideal for small businesses, they make it easy to process reimbursement receipts.
Although time-consuming, the solution should return accurate transaction reports as finance departments typically cross-check all funds and reimbursements manually. Manually. The human double-check makes reimbursement the least risky EEM solution in the eyes of many companies.
Pros
- Employees can make purchases on the go
- Easily identify fraudulence
- Relatively low compliance risk
Cons
- Possible lack of enough personal credit to make purchases
- Multi-level approval process causes delays in reimbursement process
- Reimbursement issues may arise – time, unapproved expenses, improper coding
- Not a scalable solution for large or growing enterprises
Petty cash
Petty cash provides liquid cash for expenses. In this, the funds are budgeted to employees based on projected expenses for the trip. Employees handle cash, make purchases, and must meticulously keep track of receipts.
While this may work well for businesses, it comes with potential security risks and puts the onus of expense tracking on employees. Receipt loss complicates the reporting process and distributed funds should always exceed projected expenses, leaving room for a whole host of latent issues.
Pros
- Ideal for small businesses
- No credit risk
- No interest charges
Cons
- Overspending and fraudulence
- Delays due to accounting errors
- Does not work for organizations with remote employees
Corporate credit cards
The plastic approach typically requires your client to establish a line of connection with the credit card company. The business distributes corporate credit cards, generally with low spending limits, for employee use. The company then pays off the balance at the end of the month, but as the business carries responsibility for all employee charges, the solution carries greater risk overall. Additionally, overspending and payment delays levy added fees.
Pros
- Company’s credit rating could improve
- Easy to track expenses through bank account
- Allows businesses to spend more
- Get credit card rewards
Cons
- Interests for balance amounts
- High fees for late payments
- Credit card misuse on unapproved expenses
- Need to store receipts
Business expense prepaid cards
Companies typically utilize prepaid cards for employee business-related purchases. A company will distribute individual or dependent cards funded with different amounts depending on estimated need to cover the expense. Employees must keep track of all receipts, which the accounting department then checks against expected spend.
Business expense prepaid cards work well for employee expenses as most companies restrict card use to the certain amount that the company places on the card. Additionally, they can track spend through proprietary software, eliminating the need for receipt collection and reconciliation.
Pros
- Streamlines expense reporting process by syncing with accounting software
- Fast and flexible spending
- Gain control over spending
- The ability to set daily spending limits
- No credit risk
Cons
- Not ideal for small businesses
- Not the right fit for businesses with low volume expenses
- Funding employee cards requires capital
Conclusion
Various automated expense reporting solutions exist within the market that reduce the employee and management review time associated with managing employee expenses. You know your client’s business better than anyone else, and ultimately making the final decision, according to what works best, falls on you. Until then, let your CPA flag fly, (abacus optional)!
