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Expense reporting is a vital part of running a business. Trips for work purposes incur costs, and when employees are attending work trips the expenses they incur can become complicated. This is where expense reports come in.
In this glossary article, we’re going to discuss expense reports. We’ll go over definitions and discuss why expense reports are so important for your business, before outlining the easiest ways to create your own.
An expense report is a document containing a list of purchases made on behalf of the organization that the creator of the report is a part of. The purchases are made out of the employee’s pocket, and the report is then used to request reimbursements, which will be made as long as the purchases fall under approved expense categories.
Expense reports can also be used to audit the company, file tax returns, and claim tax deductions. They essentially simplify the process of spending money for the company, by systematizing the process and adhering to a standard.
Are expense reports digital or carbon copy?
In the past, expense reports have been carbon copies, usually faxed and signed by the finance team. Increasingly over time, expense reports have become digitized and automated, for accuracy and efficiency. Digital expense reports save time for companies and automated ones make fewer mistakes that might otherwise appear due to human error.
Business expenses range across a variety of categories. Whether they will be approved depends on the company policy, but we’ll go over a few major categories likely to fall under approved expenses, so you can plan ahead for your own.
All these expenses will eventually be included in a travel expense report.
Filling out and using expense reports, whether you have employees or run a business by yourself, will make things much easier to manage from a financial perspective.
Come tax time, you will have an immediately retrievable collection of incurred expenses and reimbursements made or due, and in the case of an audit this is an invaluable resource.
Keeping track of expenses is made much easier with automated and digital expense reports, with search functions to ensure they are easily retrievable when needed.
With a detailed and accurate approach to creating expense reports, you’re much more likely to be able to budget precisely and in the long-term. This is because you will have a much clearer picture of the financial state of your business.
You can plan ahead better for trips, improve and refine your tax returns, and continue to save on equipment and software purchases by using previous expense reports as research.
Especially if you have a team of employees or hire freelancers, accurate reimbursements are crucial. They support the financial health of your business while maintaining good relationships in and outside of your business.
Most issues with manually produced expense reports are the fault of human error, so automating is a good way to avoid this issue. Just make sure you keep your software up to date and regularly audit it for quality.
Good tax deducting is much more achievable when things are simple. Maintaining accurate and up to date expense reports is going to keep things simple during tax time, because you have all the information you need about the financial state of your business.
Putting together an expense report is a process that any business owner should replicate as closely as they can each time. The more uniform your approach to expense management process, the more effective it will be each time.
Let’s go over the basic structure of putting together an expense report—from need to completion—so you can follow this closely each time.
Why are you filling out an expense report? Understanding what you need to create an expense report for (i.e. which category it fits into) will help you to use it more appropriately in the future.
Whether it’s you or your staff filling out the expense report, you should make sure before they commit to the task that they fully understand your expense report procedure. In addition to your templates and submission process, this includes the approved expenses and reimbursement process.
Establish clear lines of communication during the time the expenses are being incurred, so that any outstanding questions can be raised and solved immediately. This is easier with today’s technologies, so make sure if you are a manager that you have a positive relationship with your team.
Once the purpose of spending is complete, fill out the report or submit the necessary information into your expense management software.
You or your finance team should then go over the report, even if it has been produced with automation software. This is to check that the report includes all of the information necessary and that no errors have been made, nor any violations have been committed.
If you want to find some more handy expense management tips, our blog article is the right place for you.
So you can fill out your own expense reports or make sure the software you use has everything you need, we’ll now go over the basics of any expense report.
Automation software takes away a great deal of the hassle of expense reporting, however you may wish to do your expense reports yourself. In addition, there are still possible errors even with automation.
To better help you with knowing what to look for, we’ll go over some of the common challenges and errors made when reporting expenses.
Creating your own expense reports comes with the common issue of making simple mistakes. We’re only human after all. Common errors made include:
Combatting human error is best done by cross checking your expense reports and using automation software.
It’s important to know that automation alone will not solve an overly complex or poor approval process.
Approval process refers to the stage at which you or the staff you appoint for this task will validate the expense report from the employee. Basically, the more unnecessary steps and communication procedures you appoint at this stage will further delay the approval, and overly complicate the process.
Keep your approval process simple to avoid this issue.
Employee expense fraud is a common risk that must be accounted for when producing expense reports. This kind of fraud can be both intentional and unintentional, with employees filling out inaccurate expense reports that are then filed by the finance team without double checking.
Deliberate expense fraud however, can be particularly damaging to your business if left unchecked. Certain ways they can do this include:
Policy compliance is one of the most important things to ensure against expense fraud. When crafting a policy, create one that uses clear language and is simple to follow.
To better guarantee policy compliance, there are a few things you can include in your policy.
Clear categories and budgets. Employees should know how much they can spend and which category each expense fits into.
Equal treatment of employees. Expense policies should be company wide, regardless of position or individual relationship. This reduces jealousy and bitterness among employees, which reduces the possibility of intentional fraud due to unfairness.
Short and simple document. The longer your document is, the more likely your employees are to skim read it, make mistakes, and cause potential problems. Keep it short, boil it down to the essentials.
Regular updates. Updating your policy regularly means keeping it accurate as your company changes in size, and its requirements change with it. This also means updating according to legal regulations in your region.
Expense reporting software can help by automating much of the process. This increases efficiency and accuracy of your reports, while giving more autonomy to you and your employees in a way that financially benefits your company.
We’ve compiled a list of the 13 best expense reporting software on the market today, which is designed to help you make an informed decision about what you and your company needs.
Also, Qonto’s spend management solution helps you scan, digitize, file, and manage your receipts and define specific expense limits for your team. That allows you to always stay aware of your business expenses while having more time for what really matters – your business.
