Expense Reimbursements Are Hurting Your Organisation. Here’s Why.

1 November 2021

Expense reimbursement sounds good on paper. The employee initially pays for any organisation expense, collects the receipt, submits a monthly expense claim, and gets reimbursed later. But reimbursements aren’t as effective as they seem, and it’s costing organisations more than they know. So let’s take a closer look at this popular method of expense management, and some newer ways of doing it.

Expense Reimbursements Are Hurting Your Organisation. Here’s Why.

Organisations love expense reimbursement because not only is it quicker than requesting petty cash, it’s certainly cheaper than procuring corporate credit cards. So reimbursements have somewhat become a norm for many companies.

But is reimbursement the best way to go? What if there’s a better way?

The truth is, we all know that reimbursements can be a pain. From lost receipts to manual reconciliation - it’s an inconvenient process that we have somewhat normalised. But let’s look at some of the more significant reasons as to why expense reimbursement is really bad for business.

It poses a financial burden on employees.

Expense reimbursement is a long process that puts financial strain on employees. Since most organisations reserve company credit cards for senior personnel, lower-level employees often have to fork out their own money for company expenses - not ideal when they are generally paid entry-level salaries.

A 2019 study shows that 2 out of 5 employees claim that using their own funds for company expenses has resulted in a personal cash flow problem. Therefore, organisations that want to keep employees for the long term should empower their staff in the long run. This means giving more thought to their personal financial positions and not burdening them with organisation expenses. This makes them feel more valued.

There’s a higher chance of expense fraud.

Although most organisation-employee relationships operate based on trust, unfortunately, fraud does happen. According to a study, travel and expense fraud account for 14.5% of all occupational frauds. Some common examples of expense frauds are:

Submitting claims for items that were purchased for personal use.
Claiming for items that were not purchased
Claiming for mileage separately when 2 or 3 employees have travelled together.

Expense reimbursement fraud accounts for 21% of fraud in small businesses. While organisations could double and triple check reimbursement claims in an attempt to prevent fraud, it’s actually a labour-intensive affair - which brings us to our next point.

It’s a tedious and time-consuming process.

An average claim takes up to 20 minutes to process and at least two weeks to be reimbursed to employees. However, the reality of this timeframe is quite different for most small organisations. Lean teams mean that employees are highly prone to mistakes in their claims and to losing receipts. Finance teams juggling multiple things at once will also most likely be unable to process the claims on time.

The result? Most employees often don't get reimbursed on time, and finance teams are stressed trying to sort out errors and meet deadlines. This process is highly demotivating for all staff involved.

Reimbursements contain hidden costs.

While reimbursements may seem simple enough, the cost involved in actually doing it right is high. Organisations take roughly AUD $46.53 (USD $35.02) to process one expense report, so even processing ten expense claims a month can cost companies roughly $500 dollars/month - and that’s only a direct cost. In addition, organisations are also dealing with hidden costs that come from productivity loss, manual errors, and fraud.

Because reimbursements are so manual, businesses are also incurring loss from overlooking tax benefits and other government concessions that might be available. Ideally, an expense management process should enable organisations to easily track and generate reports for audits and end of financial year (EOFY) tax time.

An Alternative to Expense Reimbursements

Automating one’s finance process has become a big trend. It allows companies to store receipts securely in the cloud, track expenses in real-time, and reconcile transactions automatically for easy reporting. Statistics show that 46% of organisations record positive ROI in less than one year after automating expense reimbursements.

Organisations that automate using Budgetly’s prepaid corporate cards and expense management software can achieve the same - all without burdening employees with tedious manual paperwork.

To learn more about how Budgetly works, download our eBook, Managing Expenses with Budgetly. Alternatively, schedule a demo with us today to find out how we help organisations make expense management easier.