The Expense Approval Process and Why You Should Automate It

expense approval process

Business spending comes in many forms, from payroll and equipment purchases to vendor payments and service costs. Spend management is the process of monitoring and optimizing all these payments, and expense approval is an essential aspect of it.

The expense approval process involves approving and reimbursing any business-related expenses incurred by your employees. This can take up significant time and resources—especially if your workflows rely on outdated tools and tedious manual tasks.

Luckily, new solutions have emerged that can help finance teams automate these workflows. Below we’ll explain what the expense approval process is, why you should automate it, and how to implement some of these tools for your business.

What Is the Expense Approval Process?

Every business has an expense approval process, but the details of it can vary. In simple terms, it includes the life cycle of every expense from the time it’s incurred until it’s reconciled. The goal is to ensure that all expenses are recorded, costs are accurate and reasonable, charges are approved, payments are made, and reconciliation is possible.

Key Steps of the Expense Approval Process

The process of approving an expense involves several steps:

  • Submitting a report of the expense with the relevant receipt
  • Ensuring that the expense is aligned with company policy
  • Getting the expense approved by the relevant budget holder
  • Reviewing and reconciling the receipt in the company’s accounting system
  • Reimbursing the employee for the expense

Why You Should Automate Expense Approval

The traditional expense approval process places heavy demands on finance teams in terms of time and effort. Software allows you to automate the process, which can free up team members to focus on strategic goals. Here are a few of the main benefits it provides.

Improved Efficiency

Expense management software can automatically route and streamline approvals based on your procedures, removing the need for manual approvals. Communication is embedded within the platform so that questions and follow-ups are delivered instantly. 

This makes the whole process faster and more efficient. Staff can spend their time on more valuable tasks. Payments are processed more quickly and fewer resources are required, which improves not only reporting and forecasting, but also the bottom line.

Increased Accuracy

Automation reduces the risk of human error. Calculations and comparisons to the budget are always accurate, which leads to more reliable reports. The software can also check for duplicate invoices and flag them for review before they’re paid—something the finance department might not always be able to accomplish.

Enhanced Compliance

When data is available in real time, you can make better assumptions about the current situation and trajectory of the company, greatly improving compliance. Any adjustments for taxes or reporting to regulatory agencies will be made based on current and accurate data.

Ensuring compliance is critical, as taxes, penalties, and fees can have significant costs that typically aren’t included in the budget. Staying compliant reduces the risk to your bottom line and keeps the company operating smoothly.

How to Automate the Expense Approval Process

It’s never been easier to automate the expense approval process. Businesses of all sizes in every industry are implementing automation, thanks in large part to how simple and effective the transition is. Many software platforms can seamlessly migrate your data and build out your processes. Here are a few ways to automate expense approval. 

Use Expense Management Software

Expense management software has become much more commonplace over the last few years. New platforms that are specifically designed to help with expense approval and reimbursement can give small businesses benefits that were previously limited to larger companies.

These platforms combine policies, approval processes, and receipt collection into one solution. That said, some expense management tools are narrowly focused on replacing certain workflows, rather than encompassing all of spend management.

Remember this as you compare expense management solutions to spend management software. The former tend to be more focused on reimbursement, while the latter help you manage all company spend, often including employee expenses. 

Spend management platforms can also provide an alternative to the traditional reimbursement model. Many offer custom virtual cards and other solutions that prevent employees from having to use their own funds.

Use Project Management Software

Proper project planning is key for successful implementation. Project management software can help you develop, track, and achieve your goals—including those related to expense approval.

Project management software helps foster accountability and transparency between departments. It makes processes smoother and automates communication and reporting. If you’re implementing a new spend management system, consider using this software to streamline the transition.

Use a Cloud-Based Accounting System

A cloud-based accounting system is accessible to anyone, anywhere. Similar to SaaS models, the system is hosted on remote servers instead of on-site. Users log in remotely through a website or app, and then use the system like they would any other. 

Cloud-based accounting offers a wide range of benefits, from 24/7 access to improved business continuity. Built-in automations include system backups, user management, and system upgrades. Finance staff can run reports from wherever they are, avoiding travel delays and other issues. 

Use a Paperless System

Digital storage is the way of the future. A paperless system holds all business documentation, regardless of format, in a single location. The data is organized, categorized, optimized for search capabilities, and available at all times—either online, through an app, or both.

To be effective, expense approval automation must be based on a paperless system. Automated approvals that pull support from digital files are faster and more accurate. The alternative is to rely on staff to locate, upload, and assign receipts to charges, which is highly inefficient and unreliable. 

How to Choose the Right Method for Your Business

The best way for your company to automate expense approval will depend on a variety of factors. Consider your business type, industry needs, travel and accessibility factors, staff size, and compliance burden.

Paperless systems can benefit every industry, while project management software may be better for specific niches. Cloud-based accounting systems and expense management software are worthy investments for everyone from suppliers and service providers to SaaS companies and nonprofits.

The Big Picture

The expense approval process involves much more than just managing reimbursements and travel expenses. It’s an important part of your company’s overall spend management system. Although it might seem costly upfront, automating this process will help you become more efficient—which ultimately leads to savings.

Whatever solution you choose, make sure to keep in mind the tips and methods outlined above. Ultimately, the most important thing is to implement expense approval automation in the way that works best for your business.

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