What if you could reduce the cost of processing an expense report from $36 to $8, or even $4? While expense reporting might not jump out as a major target for cost reduction, it`s actually a hidden cost that consumes far more resources than are apparent at first glance.
According to a recent American Express Travel and Entertainment study, processing a single expense report costs $36 and takes 22 days. Daniel Sholler of the META Group estimates that most accounts-payable departments spend approximately 40% of their time processing expense reports. The increasing awareness of these figures helps explain why so many companies are looking to streamline this workflow through a new generation of Web-based expense-reporting systems that provide easy to use, online solutions.
Does it make sense to have highly paid employees spending their valuable time filling out paper-based expense reports? The related cost and time involved escalates as accounts-payable staff spend additional hours checking the individual entries for compliance with company policies and mathematical accuracy, then keying the data into an accounting system.
Pat Phelan, a consultant for the Gartner, says that company size is not primary factor in deciding whether you can benefit from a Web-based solution so much as the amount of travel. “If half your staff is traveling, it`s worth a look regardless of your company size,” says Phelan.
Web-based expense reporting can simplify matters for employees and companies by reducing the paperwork, time, and energy required to process the reports, thereby improving productivity. Employees enter expense information from wherever they are when the expenses are incurred. Setting up the system to automatically audit reports for adherence to corporate policies allows companies to track policy exceptions, evaluate spending trends, and identify unauthorized spending.
For example, if an employee spends $200 per night for a hotel room, but the company reimburses lodging expenses only up to $175, the employee is immediately notified of the exception and must provide justification for going outside the policy-for instance, the standard room rates in New York City are higher than in other locations-before the report can be completed. Using paper-based methods, this exchange could take weeks and require reprocessing of the report.
The Web-based system automatically routes completed reports to the appropriate manager and the employee can track a report`s progress through the system. After the manager approves the report, it moves to the accounting system, where the expenditures are recorded and the employee is reimbursed or the travel supplier is paid.
In the online approach, everyone involved-employee, manager, and accounting department-saves time, since the information is entered only once and routes electronically. Employees fill out forms online using templates so all information matches predetermined categories. Managers spend less time reviewing reports because the software automatically checks against company policies, leaving managers the option to review exceptions only. The accounting department saves time because the data automatically flows into the system, which saves both review and keyboarding time, also reducing the potential for errors.
As a result, the average cost to process a typical expense report collapses to between $4 and $8, according to different estimates, and the total elapsed processing time shrinks to 72 hours. By automating these processes, staff spends far less time on administrative work. Salespeople have more time to sell, consultants more time to consult, and managers more time to manage, while the technology handles the routine details. Clients are billed more quickly and more accurately, improving cash flow, and employees are reimbursed sooner for out-of-pocket expenses. Managers have a data repository that provides real-time visibility for isolating and identifying spending trends. For example, managers can track expenditures by region or project, generate spending reports instantaneously to track budget variances, and identify expenses with particular suppliers to aid during purchasing negotiations.
Gartner`s Phelan points out a less obvious advantage of automating expense reporting-speeding up reimbursement can improve job satisfaction for key employees. “You hear horror stories about employees not being able to make mortgage payments because their companies take so long to reimburse their travel expenses,” says Phelan. “Most travel-and-expense vendors emphasize the timely processing of expense reports as one of the primary benefits of their products. Early on, companies implemented the software to help enforce travel policies. But now the primary benefit is to get their travel process working better in general, to provide a real benefit to their employees.”
The different approaches to automating expense-reporting systems generally fall into three basic models. The first model is simply to purchase software from a company such as Extensity, Necho, InterPro, or Gelco and install it on your own server. Companies that specialize in this area customize solutions according to your needs or specifications. The advantage is that you pay for the software only once and you can integrate the expense-reporting solution with your existing enterprise financial systems.
The second model is to contract with an outside firm, such as American Express, and have it handle every aspect of your company`s expense reporting on a fee basis. Depending on the size of your company and the amount of travel employees do, this solution could either be expensive or cost-effective. The advantage is that you eliminate the need to administer and maintain the software and you don`t have the initial expense of purchasing the software or recurring expenses for software upgrades.
The third model is to develop a custom solution that fits your business process and integrates smoothly with your existing systems. This approach usually provides the ultimate in productivity, but costs are usually higher due to the amount of technology expertise required to plan, build, and manage the system. However, this option is often best for companies that have unique travel or expense spending not covered by off-the-shelf solutions.
How do you justify a major expenditure for improving expense reporting? Necho Systems, a provider of automated expense-processing solutions, offers a method for calculating the return on investment:
a.. Estimate the time required to create and approve an expense report. For example, it might take the traveler 30 minutes and the approver an additional 15 minutes. Divide the total number of minutes by 60 to convert the number to hours, which would be .75 hours for this example.
b.. Assign a dollar amount to the value of the time of these two people, such as $40 per hour. Multiply these numbers to obtain the cost of creating and approving one report.
c.. Many companies do not rely solely on manager approval but also audit a certain percentage of travel reports. Multiply the percentage of reports audited (such as .10) by the time required per audit (such as .5 hours) times an auditor`s hourly rate ($30).
d.. Factor in the cost of data entry and posting the expense report to the general ledger or accounts payable module of your accounting system by multiplying the data-entry time in hours (such as .10) by the hourly rate (such as $15).
The total, in this example $33, represents the current total cost per expense report. Automating the process through a Web-based system will typically reduce the cost of processing each report to about $4, representing a savings of $29 per report. The numbers add up. In most cases, $29 multiplied by the number of total expense reports processed in a year yields a significant figure, making the savings generated by converting to a Web-based system well worth the effort.