cash flow

The complexities of reimbursing employees can take some SMB owners off guard when it  comes to managing cash flow.

When launching a business, many entrepreneurs channel their passion and energy into the product or service they’re offering to achieve success. But motivation alone can only get you so far to sustain a competitive operation. In a survey of SMB owners, the challenges that most soon run into, are those around maintaining growth, finding talent and access to capital.

Initially, many business owners may not realize, for example, that on average, reimbursing employee expenses is the second-largest line item behind payroll. The complexities of reimbursing employees can take some SMB owners off guard when it  comes to managing cash flow, and according to research, more than 70% of SMBs still use a manual-based expense reporting system. Upon analyzing more than half a million expense receipts from U.S.-based SMB employees, findings show that when it comes to big-ticket purchases like hotels and flights, it takes employees more than two months on average to submit their expenses for reimbursement. This creates a volatile situation for any owner trying to manage cash flow.

In monetary terms, given the average cost of flights and hotels, one traveling employee can be sitting on a total of $3,000 in unclaimed expenses in the time it takes them to submit the report for reimbursement. To get ahead of the drain that reimbursable expenses can be on a business, there are a few turnkey best practices that businesses can put into place right now in order to gain more cash flow visibility and control.

Make it easy for employees to submit expenses. Put simply, the easier it is for employees to track and report their expenses, the more likely they are to do so in a timely and accurate manner. For decades, expense reporting has been plagued by manual entry and reporting, sometimes taking hours of employee time to organize. In 2008, with the introduction of the iPhone, mobile-first business solutions made life easier – both as business owners and consumers. So too did mobile-based expense reporting, significantly alleviating the burden on employees who could now easily take pictures of receipts while on the go. Since then, new technologies have emerged that are built with the employee experience in mind, while also optimizing back-end functionality.

Today’s modern expense management systems leverage open APIs and AI technology to seamlessly integrate with employee emails and other resource planning systems to remove the tedious task of manually entering details, allowing employees and business owners alike to track expenses with just a few clicks. For example, if an employee is on a business trip collecting paper receipts for each of his or her meals, they can easily scan the receipts with their smartphone and let the power of AI automatically extract and upload all of the appropriate information directly into an expense report.

The process can be just as easy for expenses incurred electronically, which is increasingly the case as most purchases and subscriptions provide email-based invoices and receipts. Web browser extensions and email add-ons allow employees to track and report electronic receipts directly from their inbox. This not only makes the entire process much easier for employees, it helps employers gather accurate expense data faster than using antiquated expense management methods of yesteryear.

All of this adds up to business owners having a clearer and more immediate view of employee spending, which is critical when gauging cash flow.

Link business credit cards for accurate visibility. Many businesses issue corporate credit cards to help manage and track expenses, but gaining a granular level of visibility can still be a challenge. Sure, business owners have access to monthly statements, but what is the context for each individual charge? When linking corporate cards to a modern expense management system, it makes the entire process infinitely easier.

New expense management solutions give business owners the capability to automatically find exact to near-matches for expenses and credit card transactions, or simply create new expenses for unmatched transactions. They can also add credit cards from multiple banks or card programs — Visa, MasterCard, American Express, and so on — and manage them individually from a central dashboard. This means businesses aren’t tied to one individual credit card issuer and can reap benefits such as points or miles that are most relevant to their specific business.

Automation technology also makes it possible to detect and flag duplicate expenses made on company-issued cards without manual intervention, alerting employees to match transactions with expenses and submit receipts within a specific timeline. This contributes to telling business owners a more complete story of their employees’ spending, helping them make more intelligent cash flow decisions.

Use analytics and spend-controls for better compliance (and to maintain sanity). Automated expense report software can be set up with custom spending controls that allow for pre-compliant reporting, meaning expenses can be automatically approved or denied according to corporate or regulatory policies in real-time, thereby eliminating inaccuracies and time-consuming back-and-forth between employees and managers.

Meanwhile, a centralized expense software that tracks expenses across the organization gives business owners greater visibility into employee spending and expense reporting. This allows decision-makers to understand if employees are attempting to claim fraudulent expenses, accidentally or otherwise, and can help inform whether company policies are working or need to be tweaked based on employee needs. It also lets business owners see who the top spenders in the organization are, as well as the vendors where employees are spending the most money — which could create an opportunity to negotiate a company discount.

Analytics gives business owners insight into the patterns and behaviors of their employees, along with reliable indications of future risks and expense fraud. This is the basis for making quick and intelligent cash flow decisions beforehand, saving both money and headaches.

Cash flow is the lifeblood of each and every business. Those that have a firm grasp on how much money is coming in and how much is going out each week, month or year are able to make smarter decisions or identify potential problems before they’re out of control. With employee reimbursement as such a large expense for business owners, considering some of these best practices gives them a clearer view of their cash flow, along with a competitive advantage.

Yash Madhusudan is the Co-Founder and CEO of Fyle. @FyleHQ