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Manage expenses to boost the bottom line

Expense management is one area of business where the application of IT can bring about double-digit cost reductions

Every year, UK businesses deal with about £10bn in expenses claims, but surprisingly few use IT to manage that spend.

According to most expense management suppliers, 40-70% of large and medium-sized businesses still rely on Excel spreadsheets and manual paper-based systems to calculate their expenses.

This is down from the 80% we found in 2014, but still an alarmingly high figure.

Figures from the latest survey by security business Okta show that the UK is well behind the US in take-up of expense management (EM) applications – just 16%, compared with 43% in the US.

It is doubly shocking to see such a small take-up when you consider that the gains to be made by implementing an EM system can be around 25%, particularly when replacing a traditional Excel and paper-based system.

Cloud removes barriers to entry

So why aren’t businesses taking up expense management tools? In the past, answers to that question would have included: integration with the various back-end systems; the cost and time to install, build and run an on-premise system; a lack of flexibility and ease of use in the products available; and inertia in the business, particularly from the HR and finance departments.

However, with the advent of cloud-based EM, many, if not all, of the main technical and cost-related barriers to entry are now a thing of the past. Cloud-native solutions, including offerings from KDS, Software Europe, Concur and Coupa Software are – unlike the enterprise resource planning (ERP) or accounting bolt-ons of the past – able to bring an immediate return on investment (ROI) for the business, and should continue to deliver returns as new features and functionality are added.

The difficulties with integrating EM into back-end systems was one of the first big problems tackled by the industry, and most of the serious players have worked hard to integrate their systems with the main ERP and accounting applications.

However, many EM businesses have gone further and are now integrating with the diverse travel and expense ecosystems, including credit card and corporate card issuers, online travel services such as Uber and traditional hotel chains and airlines.

Off-the-peg integrations

One advantage of choosing an offering from one of the big established players is the ability to utilise data from a wide range of third-party sources with off-the-peg integrations. SAP-owned Concur has an app store of third-party providers that offer hundreds of connectors into the expense management system. 

The smaller players may be nimble, but the lack of a good directory of integrations can add time and problems to the initial development process. KDS quotes about two months to develop and get a typical EM project off the ground, but cost savings and efficiencies can be made immediately by encouraging employees to use mobile apps to start capturing data, even before the back-end systems are fully integrated into the business ERP and accounting systems.

Integration with credit card and corporate card providers should be at the top of the list of requirements for businesses looking to implement an EM system. By integrating with a card system, businesses get a second line of defence against fraudulent payments: receipts can be accurately matched to purchases to avoid intentional payment duplication. It also enables businesses to see exactly where they are financially – a card purchase may appear days, weeks or months before the matching receipt arrives on the system.

Consumer-like experience for the business

Ease of use is one of the key areas of development in the EM market, with many suppliers aiming to involve as few clicks as possible for users to submit their claims, and for administrators to see reports and approve requests.

As part of this “race to zero”, the EM market has seen a move from the desktop to mobile devices as the main delivery platform. Software Europe has more than a million users of its mobile applications and to make sure those apps are actively used, a significant amount of research is going into the user interfaces (UIs). Most UIs are designed to be as intuitive to use as apps built for consumers – rather than the conventional click-heavy UIs of corporate applications – and designed to exploit many of the devices’ built-in features to capture expense data. 

For example, KDS has a diary system that loads up employees’ Outlook calendars and pre-populates meeting information into the system – for example, a receipt for two coffees in Starbucks at 4pm coincides with a meeting with a particular client between 4pm and 5pm, so it allocates the cost to that client or project. 

Smart mobile expense capture

The move to mobile apps that complement and feed into back-end cloud systems has created a whole new set of criteria to look at when considering EM. At a very basic level, businesses should expect to be able to capture a receipt using the mobile device’s camera, and to enter details of an expense claim using the mobile app. More sophisticated interfaces will use optical character recognition (OCR) and bar code readers to enter details straight from the receipt into the application.

The most sophisticated will use all of a device’s sensors and functions – including voice recognition, calendar entries and GPS – to enter expense data. For example, you are in Switzerland, so the receipt will be in Swiss francs, not UK pounds, and the service has detected a recent purchase on your corporate credit card for a similar amount, so it will ask you if this is the same purchase, then consolidate the two items. The app will then add this to a pre-arranged trip expense and match the receipt to a project or client.

As well as data capture, the mobile device is also now the de facto way for managers to view and approve expenses on the road, with mobile apps not only providing access to data while online, but also caching data locally to allow expense approval to happen even at 30,000ft.

Hidden cost savings

While EM offers many obvious cost and time-saving benefits, there are also hidden savings. One customer of Software Europe is using EM to attract new employees by highlighting the fact that they will get expenses paid back in days, rather than weeks or months. Also, any business that can reduce the undocumented hours spent reconciling receipts into Excel spreadsheets can see additional benefits in productivity and employee loyalty.

Read more about expense management

Some executives think that travel and entertainment (T&E) expense claims are a licence to practise their creative fiction skills.

This analyst paper from Quocirca looks at the benefits of expense management software.

Gartner looks at the benefits of expense management tools and the circumstances that make software as a service preferable.

Improving the processing of credit card expenses can also be a benefit. One client of Software Europe in the leisure industry had more than £1m of unallocated expense payments on its employees’ corporate cards before introducing an EM system. One of the dangers of corporate cards is that there is little incentive for users to do their expenses, because it is not money they have spent from their own account. By enforcing a policy where personal expenses were paid back only after corporate card expenses were resolved enabled the leisure industry client to reduce outstanding card debts significantly.

Further cost savings can be created by EM systems that allow corporate policies on spending to be automatically policed by the system, rather than a manager saying ‘no’.  

Compliance is a word usually associated with additional costs and extra work, but an EM system can help businesses benefit from compliance, particularly around VAT repayments. About 60% of VAT on expenses goes unclaimed. By automating the input of receipts, businesses can reclaim more VAT and reduce the risk of fines from the HM Revenue & Customs due to discrepancies in filing end-of-year P11D expenses and benefit claims.

Third-party systems

The more progressive EM systems not only enable businesses to enforce internal corporate expense policies, but can also link into third-party systems to ensure employees are also meeting the correct legal requirements. For example, Software Europe interfaces with the DVLA to prove users have the correct licence for the vehicle they are driving and claiming for.

Reporting in real time is a key feature to look out for in an EM system. Off-the-peg reports that enable a financial controller to see exactly the amount owing on corporate cards, the top 10 spenders, VAT owed and unexpected costs or fraudulent transactions are all now a standard requirement. Also, the ability to drill down into expenses, by client, project, employee, expense type and so on, to see exactly where the costs arise, is also now becoming a standard, with all of the reports viewable and accessible on mobile devices – or at the very least on a tablet.

Trends to watch

Up-and-coming trends that buyers should be aware of are the ability to integrate and use wearables, such as smart watches, to enter data and track movement; voice recognition for input; and the bringing together of invoicing with expenses to give the true costs. For example, with an exhibition, the system would reconcile the stand hire, build and publicity with the expenses for travel, food and accommodation of those staffing the stand.

As we outlined at the start, EM is one of the few areas left where a business can derive real and immediate benefits from implementing an IT system, particularly a cloud-based offering with a simple-to-use mobile application for data capture.

Marcus Austin is service director for cloud computing at Quocirca.

This was last published in July 2016

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Good morning! Great article! Can you comment or email me on implementing SAP/Business 1 on a small business versus SalesForce? We have initial costs however we are concerned with later upgrades and growth maintenance costs. Thank you in advance for your help!
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