Stop Doing Expensive Reimbursement: There's a Better Way
Employees lend their employers $1.6 billion every month - and it’s interest-free.
That's what happens when employees have to spend money on behalf of their company and then seek reimbursement.
Expense reimbursement has existed for a long time, but you may have yet to fully consider the impact. Effectively, employees are using their money to buy things for the company. It's a no-interest loan that shifts the financial burden from the company to employees. It also disproportionately impacts those that can afford it the least. While company executives may have corporate cards, lower-wage employees must pay out of pocket and then seek reimbursement. That can cause considerable hardship.
For employees, having to get reimbursed for expenses ties up their capital. It may force them to hold off on other purchases they need to make and rack up additional interest charges in the time they wait for reimbursement. When you consider that nearly two-thirds of employees age 26 or younger are living paycheck to paycheck and dealing with a higher share of consumer debt, you can see the burden this place on them.
Expense Reimbursement: Impact on Companies
In addition to the impact on employees, companies also pay the price for processing employee reimbursements.
Time and Expense
Retaining receipts and filling out forms also takes time from other work for employees and accounting teams. The back and forth to track down receipts, verify purchases, make sure they fit into company guidelines, approve, and issue reimbursement takes time. The average company takes nearly two weeks to process fully and payout reimbursements.
That time adds up. Even when the process is functioning efficiently, the Global Business Travel Association (GBTA) says it costs about $58 to handle each report.
These hidden costs eat up company resources. The GBTA reports that companies process over 50,000 expense reports annually, spending half a million dollars. While smaller companies process far fewer reimbursement requests, the time and cost to handle them are generally greater per report.
Nearly one in five expense reports have errors, which can drive costs higher. The time it takes to correct an expense report can almost double the cost of processing.
Besides errors and missing documentation, many companies have poorly defined policies which can cause confusion and rejected reimbursement claims. This can lead to employees spending money on unapproved items, with vendors outside your preferred network, or exceeding spending limits. In cases like this, it can cause considerable frustration for both the company and employees. Do you deny reimbursement or take disciplinary action for poorly-defined policies?
Cash Flow Challenges
Expense reports are often submitted weeks after spending has occurred. This can make it difficult to accurately forecast cash flow, as spending levels may be unknown until the expense reports start trickling in.
Managing Company Expenses: There's a Better Way
For most organizations, expense reimbursement has been a way of life for so long that it's standard operating procedure. Yet, there's a better way. Using credit and spend management solutions from Torpago streamlines the accounting process, eliminates expense reimbursement challenges, and saves significant time.
With Torpago, you can issue corporate and virtual cards with robust controls to ensure spending is within guidelines. For example, you can restrict usage to preferred vendors, merchant categories, and even time of day. Virtual cards can be issued in seconds for single use without exposing your physical card numbers or for subscriptions that charge monthly.
Cards can also have pre-set spending amounts and be used as an alternative to traditional credit cards to avoid debt or overspending.
With Torpago, companies also get 1.25% cash back from every purchase on corporate or virtual cards.
You can still handle expense reimbursement if you choose but much more efficiently. When purchases are made, employees upload receipts and automation handles the processing and approval based on pre-set configurations. Employees submit receipts using the Torpago mobile app, web app, or email, and the system scans them and automatically fills in details. Information is routed to appropriate managers or accounting teams for review. Upon approval, funds are disbursed directly into an employee's bank account without issuing checks or waiting for payroll runs.
Modernize Your Expense Reimbursement Process
Modernizing your expense reimbursement process, streamlining your workflow, and adding virtual cards can eliminate costly expense reimbursement and relieve the financial burden on your employees.
Contact Torpago today and move to a more cost-effective, time-saving, streamlined expense management platform.
Interesting in learning more about why so many organizations are moving past traditional expense reimbursement programs and switching to a more modern spend management platform? Download our eBook, The Business Reimbursement Model Is Dying Making the Transition from Expensive Reimbursement.