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A CFO's Guide to Selecting the Best Expense Management Software

August 11, 2023
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Expense management is integral to a business's financial health. It involves tracking, analyzing, and minimizing business costs. This includes tracking all business expenses, from incidental costs to substantial outlays, to get a clear snapshot of spending.

Effective expense management enables expense forecasting based on historical data. This facilitates strategic decision-making in budget planning and resource allocation. It also fosters regulatory compliance by ensuring expenses are justified and correctly accounted for.

Expense management also plays a critical role in vendor management and negotiations. It allows businesses to spot spending trends, optimize vendor relationships, and negotiate better contracts, achieving cost savings. 

But none of this can happen with traditional expense management. 

Expense management automation is the solution to these problems. It automates the entire expense management process, simplifies it for all stakeholders, and saves businesses time, money, and resources.

If you are a CFO or business owner looking to switch from traditional expense management or other expense software, this is THE guide for you. We collaborated with Mike McCracken, the Chairman and Co-Founder of McCracken Alliance Corporation, a professional services firm dedicated to supporting companies with their finance needs to help flesh out this guide from his 30+ years of experience. Let’s dive in!

Top 3 Expense Management Challenges for Businesses

1. Manual Processes and Inefficiencies in Expense Management

  • Traditional expense management is plagued with manual tasks such as manual data input, receipt organization, and reimbursement processing. This makes the process time-consuming and error-prone, undermining the integrity of the company's financial reporting. 
  • Manual tasks can lead to discrepancies in expense reporting and difficulties in real-time expense tracking, delaying the detection of anomalies or fraud
  • Manual systems also struggle with the intricacies of tax laws and regulatory requirements, elevating the risk of non-compliance and legal issues. Such inefficiencies hamper productivity, as employees are entangled in administrative tasks instead of focusing on core business activities, affecting efficiency and employee morale.

2. Lack of Visibility and Control Into Company-Wide Business Expenses

  • Expense management is a continuous struggle to gain visibility and control over spending. Companies struggle to identify patterns, spot abnormalities, and uncover cost savings without a comprehensive overview of where and when money is spent. 
  • Lack of visibility can also result in inefficient allocation of resources, impacting the bottom line. This challenge is compounded when companies have decentralized systems or a dispersed workforce. 
  • With expenses being processed in various departments or locations, consolidating and analyzing expenditure data also becomes more difficult.

3. Expense Policy Compliance and Audit Risks

  • Compliance risk arises when businesses fail to meet the standards required by regulatory bodies, which can vary based on jurisdiction, industry, and the nature of the expense. Non-compliance can lead to fines, legal complications, and damage to the company's reputation.
  • Audits play a vital role in verifying the accuracy and integrity of financial transactions. Manual processes and the lack of a centralized expense tracking system can make audits labor-intensive and error-prone. 
  • Disorganized record-keeping can lead to difficulty retrieving documentation during audits, increasing the risk of non-compliance findings.
  • Employees may inadvertently violate rules if expense policies are unclear or inconsistently applied, leading to audit flags. This exposes the company to the risk of fraudulent activity. 
  • Without proper enforcement of expense policies, the risk of misuse and fraud increases, leading to otherwise avoidable costs.

Top 3 reasons to automate expense management

Expense management software can solve all the challenges above, transforming how businesses handle their expenses. Here's a detailed breakdown of how.

1. Addressing Manual Processes and Inefficiencies

One of the most significant advantages of an expense management software is its ability to automate manual tasks. Automating data input, receipt tracking, and reimbursement processing minimizes human error and saves time. This makes real-time expense tracking a reality, facilitating the timely detection of anomalies and potential fraud. 

An expense management software can also navigate complex tax laws and regulatory requirements, reducing the risk of non-compliance and litigation. As a result, it frees employees from cumbersome administrative tasks, improving overall business efficiency.

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2. Enhancing Visibility and Control Over Business Spend

Expense management software provides a centralized expense management hub, offering a holistic view of spending, regardless of the many systems the expenses may be collected from. 

Enhanced visibility also allows for efficient resource allocation, identification of cost-saving opportunities, and uncovering spending trends. In terms of control, the software ensures consistent enforcement of expense policies, preventing misuse and fraud.

3. Mitigating Compliance and Audit Risks With Real-time Checks

An expense report software enables effortless compliance with varying regulatory standards, preventing fines and protecting the company's reputation. The software simplifies audit processes, maintaining an organized audit trail for easy document retrieval. Businesses can also integrate enforceable expense policies into the system, reducing the chances of inadvertent rule violations by employees.

In summary, an expense management software, with its ability to automate, enhance visibility, control, and mitigate risks, offers a robust solution to the challenges inherent in expense management. It ensures financial integrity and fosters efficiency, paving the way for financial success.

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Key Considerations for Selecting An Expense Management Software

1. Integration with Existing Financial Systems

A crucial factor to consider when selecting expense management software is its ability to integrate smoothly with your existing financial systems. This includes compatibility with your current accounting, payroll, banking, and other platforms.

The integration allows for seamless data flow between systems, minimizing the need for manual data transfer and reducing the chance of errors that come with it. This streamlines operations, enabling real-time financial records and ensuring all systems reflect the same, accurate financial information.

Integration also promotes more comprehensive financial analysis. The software can provide a more holistic and accurate view of the company's financial status by combining data from various sources into one platform. This aids in making informed, data-driven decisions.

Thus, when evaluating expense management software, consider how well it can fit within your existing systems environment. Look for software that supports direct integration with your systems or, at the very least, offers robust data export and import capabilities. The right choice can enhance efficiency, ensure data accuracy, and drive more insightful financial analysis.

2. Scalability and Flexibility of Workflows and Processes

Your financial operations and expense management needs will change as your business evolves. Therefore, selecting an expense software that can adapt and grow with your business is crucial.

Scalability refers to the expense software's ability to handle increased volume as the company expands. This could mean managing more transactions, accommodating more users, or tracking more categories of expenses. Scalable software ensures that the system won't become a bottleneck as the business grows, saving you from costly and disruptive system upgrades.

Flexibility pertains to the software's capacity to adapt to changing business needs. This could include adjusting expense policies, customizing reporting formats, or supporting different currencies for international operations. A flexible system can adapt to new strategies or regulatory changes, ensuring the system remains relevant and effective over time.

3. Expense Management Automation and Efficiency

A primary aim of implementing expense management software is to reduce the time and cost of expense tracking and reporting tasks.

Automation capabilities allow for routine tasks to be performed with minimal human intervention. These include automatic data entry from digital receipts, automated policy enforcement where the system flags non-compliant expenses, and scheduled generation of expense reports. This minimizes the potential for human error and frees up staff time, enabling them to focus on more value-adding tasks.

With efficiency, consider how the expense report software can streamline your expense management process. This might involve features like real-time expense tracking, which provides immediate visibility into spending, or intuitive user interfaces that make it easy for employees to submit expenses. Efficient expense software reduce the administrative burden of managing expenses and improve the speed and accuracy of expense reporting.

4. Data Security and Compliance

When businesses handle sensitive financial data of their own or their customers, it's paramount that their software choices provide robust security measures to protect against breaches and cyber threats.

Look for expense management software that provide data encryption, secure access controls, two-factor authentication, and regular system security updates. It's also crucial that the expense software complies with various data privacy regulations, such as the General Data Protection Regulation (GDPR) in the EU or the California Consumer Privacy Act (CCPA) in the U.S.

Regarding compliance, the expense software should be able to adapt to changing regulatory landscapes and company policies. This means having features that allow for automatic updates to expense policies and the capability to track and report on compliance issues. This prevents potential breaches and makes providing necessary documentation easier during audits.

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5. Reporting and Analytics Capabilities

Reporting and analytics features transform raw data into actionable insights, helping businesses make informed, data-driven decisions.

Quality expense management software should offer customizable reporting options that allow businesses to track and analyze various aspects of their expenses. This includes generating comprehensive reports summarizing total expenditures, breakdowns by category, department, or employee, and trend analysis to understand spending patterns over time. 

Advanced analytics capabilities can provide deeper insights, such as identifying outliers in expense data, detecting potential fraud, or uncovering opportunities for cost savings. It can also facilitate budgeting and forecasting, helping businesses predict future expenses based on historical data.

6. User Experience and Adoption

The best expense management software is one that employees find intuitive, straightforward, and convenient to use.

The interface should be designed with the user in mind, offering intuitive navigation and functionality. This not only improves efficiency but also minimizes the need for training. Features that streamline the expense submission process, such as mobile app for expense logging and digital receipt scanning, can enhance the user experience and promote regular, timely usage.

Additionally, the expense software provider's comprehensive support and training resources can aid in adoption and ongoing use. A readily available support team can resolve technical issues promptly, minimizing disruption and maintaining user confidence in the system.

Expense Management Software Vendor Selection and Evaluation

1. Defining Requirements and Objectives

Clearly defining your requirements and objectives ensures that your expense software selection process remains focused. It provides a basis for comparing solutions and measuring their success once implemented. The right expense management software should meet your current needs and adapt to future business growth and changes.

Start by identifying the challenges you want to address in your current expense management process. Next, outline your specific expense software requirements. Consider user-friendliness, mobile access, customizability, security features, reporting capabilities, and scalability.

2. Requesting Demos and Evaluating Expense Management Solutions

Once you've shortlisted software vendors, the next stage is requesting demos for a more thorough evaluation. A demo is an opportunity to see the software in action. 

Please pay close attention during the demo process and consider recording it to share with other stakeholders. Ensure you assess its automation capabilities, reporting and analytics tools, and security measures. Also, consider how well the expense management software can integrate with your existing systems.

Remember to involve relevant stakeholders in these demo sessions, including representatives from finance, IT, and end-users. Each will have unique perspectives and considerations essential for a comprehensive evaluation. If you do not have a full-time CFO to help evaluate options, consider engaging a Fractional CFO for a special project. 

Measuring Success and ROI of Expense Management Automation

Key Performance Indicators (KPIs) for Expense Management Automation

Establish KPIs that apply to your business. KPIs provide quantitative data to assess the effectiveness of your expense management software and its impact on your organization's financial operations. If you aren't tracking these KPIs already, doing so before implementing the expense software can help establish a baseline by which to measure Return on Investment.

Examples of KPIs you can track related to expense management automation

  1. Processing Time: This will measure the time from when the expense was incurred to when the reimbursement was made.
  2. Vendor Rates: As opportunities to negotiate better rates with vendors are revealed, you can analyze the impact.
  3. Error Rate: How often are expense reports producing errors? Anything from duplicate expenses to mis-keyed data.
  4. Compliance Rate: Measures how often your expense reporting process remains in compliance.
  5. Fraud Detection Rate: The rate at which you detect anomalies related to fraudulent activity.

Calculating Return on Investment (ROI)

With a baseline of KPIs, you can measure the change in your KPIs over time to inform the ROI from your expense management software. To accurately assess its value, use this formula:

ROI = (Total Benefit - Total Cost) / Total Cost x 100

A positive number here indicates a benefit that outweighs the initial investment. Additional intangible benefits, such as employee satisfaction and better expense visibility, are difficult to quantify.

Analyzing User Feedback and Satisfaction

Finally, take the time to gather feedback from users. Ideally, you will hear mostly positive responses but listen to the criticisms. Always look for opportunities to improve what you've worked so hard to invest in.

This blog has been edited by Shruti Kesavan.

Effortless expense management for all business spends. Earned time, saved costs, improved productivity, happy employees - achieve it all with a single software.

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