What is the true cost of missing receipts and invoices for your business?

Updated July 2023

Many of the businesses we talk to share that their employees don't understand why finance managers and accountants care so much about chasing and collecting missing receipts or invoices. And thanks to the often labour-intensive process of submitting expenses, they put this off for as long as possible or simply don't do it at all. This lack of documentation causes huge issues when it comes to accounting, auditing, and, worse still, claiming back VAT.

Paying more taxes

Your business could end up paying more taxes if your expenses fall into any of the below categories:

• Either representative
• Expenses without documents
• Expenses not related to the core business
• Or some other category, depending on the nature of the expense and your country's tax regulations

How does this impact you? Well, you simply pay more taxes, and the total cost for your company will equal the total expenses without documentation multiplied by your effective tax rate.

Let's say you're running a business in Germany where the corporate tax rate is 15%, and you've failed to submit a document for an expense worth €100. At the end of the year, your business will pay €15 more taxes because of this single missing document.

“Before Payhawk, missing receipts meant missing VAT reclaims. With quarterly VAT bills of up to £240K, that’s massive. Now with Payhawk, our cardholders upload receipts in seconds and save the business thousands.”

— Uchenna, Finance Manager at MDM Props

Risk of tax investigations

What's more important is that if the pool of expenses with missing receipts increases dramatically, there's a high risk that your local tax authorities will investigate if you are making hidden profit distributions (allocating resources from one entity to another to avoid taxes). Tax authorities take this very seriously, and hidden profit distribution penalties can be significant. The tax audits and penalties depend on local legislation, but this is definitely a situation every business should try to avoid.

Skewing the numbers

Not putting expenses in the correct categories (marketing, IT, etc.) or matching with the period they relate to causes misrepresentations in your financial statements and the KPIs you track. Imagine that your sales, marketing, or events expenses are not booked in the correct category or period and can't be reconciled. This can have a huge material impact on your customer acquisition cost and lifetime value calculations and other KPIs that you use to run your business. And you could end up reporting incorrect financial data to your investors (current and potential) and business partners.

Summary

If you want to run your business more efficiently, you need to get a handle on the expenses in your organisation and avoid missing receipts and invoices.

"We no longer have to chase receipts. Since using Payhawk, managers must simply take a picture of their receipt — thus digitising it — and enter it into the automated finance system. In the first year, this change resulted in ATU recouping € 2 million from the tax office that would have otherwise been lost."
— Mathias Goetz, Senior Project Manager at ATU

The good news? Spend management solutions like ours with expense management software, corporate cards, auto data capture via OCR, multi-entity management, seamless ERP integrations with providers like NetSuite, Xero, and Microsoft Dynamics will make tracking and reconciling expenses easy and error-free. Find out more, book a demo today.