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Managing employee spending can be challenging, especially if companies lack clear policies and organized oversight. Small inefficiencies can add up quickly, possibly leading to budget overruns and wasted resources.
For example, a company that reaches its client entertainment budget four months before its fiscal year ends could use its expense tracking visibility to help their cash flow.
A few smart employee expense management policies could make a difference, helping businesses potentially reduce costs while making it easier for employees to follow spending rules.
Key Takeaways:
- Setting clear policies and budgets
- Automating expense tracking and approvals
- Standardizing purchases and payment methods
- Reducing waste by centralizing expense management
1. Establish a category-by-category budget for employee expenses.
Creating an employee expense budget can be a good start, but tracking spending at a category level may provide better oversight. Breaking expenses into defined categories – such as business travel, office supplies, and software – may help companies manage costs more effectively. For example, a company might allocate $100,000 for travel, $75,000 for entertainment, and $45,000 for office supplies.
To help optimize budgets within defined categories such as those listed above, companies may consider implementing the following:
- Analyzing past spending trends to help set realistic limits.
- Defining clear budget categories to help track expenses more accurately.
- Reviewing spending monthly or quarterly to help identify patterns and adjusting as needed.
- Using employee expense tracking tools to help monitor spending.
Tracking and adjusting budgets proactively may help businesses prevent unnecessary costs and flag potential issues.
2. Establish transparency in employee spending.
Companies may not be able to correct spending problems if they don't know the problems exist. Without a centralized system, catching overspending, enforcing policies, or identifying areas to reduce costs could be difficult.
Ways to help improve employee expense tracking can include using options that can offer:
- Automated expense tracking tools that can log purchases in real-time
- Digital dashboards to help monitor expenses by category or department
- Pre-set spending alerts to help flag budget overages before they happen
- Employee training on expense policies to help ensure compliance
Improving transparency could make it easier to enforce policies and keep spending under control. One way to achieve this is to digitize spending reports — by doing so, spending can be reflected in real time in a centralized system.
3. Implement spending rules and limits in employee expense systems.
Setting clear spending rules within an employee expense management system may help businesses prevent unwanted costs before they happen. A good starting point for improved employee spending control may be to implement a system that can spot potential problems immediately.
Tools that can help support employee expense tracking can include:
- Pre-set spending caps on corporate or virtual credit cards
- Automated purchase cutoffs that can block unapproved spending
- Real-time alerts that help notify managers of unusual or excess spending
- Expense tracking software with built-in approval workflows
Consider integrating spending rules directly into employee expense systems to help meet compliance, control costs, and reduce manual oversight.
4. Require employees to use company-issued credit cards.
Standardizing transactions with corporate cards and virtual credit cards can help simplify managing employee spending and provide greater oversight. If all purchases flow through a centralized system, companies may be able to track expenses more efficiently and prevent unapproved spending.
The benefits of using corporate credit cards may include:
- Pre-set spending limits could prevent overspending.
- Automated tracking may help to make expense reporting and reconciliation easier.
- Restricted merchant categories may block unapproved purchases.
- Real-time monitoring could help spot unusual spending patterns.
Standardizing transactions with corporate credit cards may help provide more control and facilitate expense tracking, which can be integral to preventing excess employee spending and waste.
5. Restrict purchases to a short list of vendors.
Another mechanism for controlling employee spending may be to allow employees to buy only from a specified group of pre-approved vendors – for example, a short list of airlines, hotel chains, and technology providers.
This may make it less likely that an individual employee or business team will go outside the supplier "family" to select a vendor or vendors without authorization, a circumstance known as "maverick purchasing."
By giving all of their business to the same group of vendors over and over, companies may be able to gain the leverage needed to enjoy discounts based on aggregate purchasing.
6. Rethink the processes for buying office supplies.
A more strategic approach to purchasing office supplies could help businesses better manage costs and potentially operate more efficiently. Without clear policies, employees may buy from higher-cost suppliers, place duplicate orders, or not take advantage of bulk discounts.
Ways to help improve employee expense management for office supplies can include:
- Using pre-approved, budget-friendly suppliers with pre-negotiated pricing.
- Buying in bulk to help lower costs and minimize frequent reordering.
- Assigning a team member to oversee inventory and help prevent unnecessary purchases.
- Digitizing to help reduce spending on paper, ink, and other materials.
A more organized approach to office supply purchasing can help ensure better cost controls while keeping essential items available.
7. Centralize subscriptions.
Managing subscriptions across a business may result in duplicate purchases, missed cancellations, and unnecessary spending. Centralizing subscription management can help companies potentially gain better control over recurring costs and help ensure they're only paying for what's necessary.
Centralizing subscriptions can help reduce costs by helping to:
- Eliminate duplicate subscriptions and paying for unused services
- Prevent missed renewals by helping to verify subscriptions are tracked
- Allow for bulk discounts through negotiating pricing
- Provide better visibility into company-wide software and service use
A centralized approach can offer businesses better oversight, less waste, and smarter spending on these recurring employee expenses.
Master the Art of Employee Expense Management
A lack of efficient expense management systems and gaps in visibility may be common causes of excess employee spending. Controls can be implemented through upgraded practices, automation, and centralized oversight.
Frequently Asked Questions
What is employee expense management?
Employee expense management involves the process of tracking, controlling, and optimizing employee-related expenses to align with company budget and policies to prevent overspending.
How can I help facilitate the expense reporting process?
Businesses can help simplify expense reporting by using automated tracking tools, setting clear policies, and centralizing approvals. Expense management tools can help reduce manual errors and real-time tracking can provide spending visibility.
How can I monitor and enforce spending limits effectively?
Companies can set pre-approved spending limits on corporate cards, implement real-time alerts, and restrict purchases to approved vendors. Automated expense systems can help track compliance and flag potential violations.
What are the key components of an effective employee expense management strategy?
Clear policies, centralized tracking, automated approvals, and spending limits can help prevent budget overruns, while regular audits and real-time reporting could help businesses maintain financial control.
Photo: Getty Images
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