Company spending policies follow the same rule as any other corporate process: build as much as needed when you need it. This means different things for different companies. We will share our observations of how different companies tackle the rules around their business expenses. Building on this knowledge, we have summarised the objectives the organisation needs to consider when defining a spending policy.
In the following article, you will not find a recipe for setting up spend management in your business. We try to give you some guidance as we work with dozens of companies on this topic. From the one-person company in Malta to a large conglomerate in the UK, we work with all of them. We know that there is no single right answer. Our research and experience also reveal that there is often a mismatch between the implemented spending policy and the results the management expects.
In the end, the ultimate spending policy decision is yours. We just want to support you in making an informed choice based on your current circumstances.
This only works if employees know and understand these rules. However, research shows that on average 66% of employees haven't read their company's expense policy; 10% of employees aren't aware they can submit expense claims or reimbursements; and 25% of employees will avoid a meeting with a client, supplier or potential hire because they do not know how to pay for it.
All of the above indicates that designing a spending policy is not enough. How you implement it and enforce it distinguishes the successful ones.
Our experience shows that frequently this one is either the company’s founder or the leading finance manager. If an employee needs funds, they ask directly to this manager. The advantage of this approach is that this manager has total visibility of all expenses.
However, there are three main disadvantages to this setting. This manager is a bottleneck for all spend decisions and delays the whole spend management process. They are investing their time in low-admin work like chasing receipts instead of focusing on the company’s growth. Finally, as there is no standard policy on how to spend company funds, the team is unable to learn how to manage company funds in a responsible way.
Option 2: Mail chain with additional tools around it.
Email is a great tool that combines action and documentation. Hence, a lot of companies build their spend management process around it. Funds requests, approval process, expense reports and scanned receipts with explanations are all in the same email chain.
In contrast to the previous approach, here we have a delegation of decision power. This process is more robust and scalable. Additionally, the company employs an existing tool-set to manage the process. The expense report is created with a template in Excel or Google sheets. OneDrive or Google Drive are used to store the receipts and invoices. The employees do not have to learn a new system. The company does not need to pay for one.
However, a clear disadvantage of this approach is that highly skilled employees are doing low-admin level work. Instead of working on the next deal, the sales manager needs to scan receipts. It takes 20min to complete an expense report for a business trip with a single overnight stay. The same study found that additional 18min overhead is added if there is an error in the submission. This is the case for 19% of all expense reports. Check out this calculator to learn how long it takes and how much it costs to do manual expense reports in your company.
Option 3: ERP system with a procurement department.
ERP systems with a purchasing department streamline the spend management process. They enable significant automation and spend policy enforcement. Companies’ gain efficiency and visibility of their spending. ERPs are great to manage expenses when everything works as intended.
However, from a process perspective, ERPs main disadvantage is that they cannot handle corner cases. As an example, a member of the sales team participates in a conference. During the conference, she meets a potential customer and wants to pitch the company services over lunch. This expense was not planned. The approval process needs to undergo the same steps as buying a new computer.
Also, ERPs face difficulties managing multi-company entities where a person in company A approves the budget for a person in company B.
Intentionally we avoided mentioning company size when describing the three cases above. In our practice, we see companies with 10 employees that have a well-documented spending policy and well-thought-out spend management process. There are companies with 40-50 employees that have implemented ERPs and have procurement departments. We also talk to companies with 150 people where all expenses go through a single person.
Normally, the process goes as follows: an employee requests funds; then a manager or multiple managers and/or the CFO approve the request. Then the employee spends the funds and matches the invoice or receipt with the payment transaction. Following the bookkeeping team checks the data and imports it in the accounting software. Finally, the controlling team analyzes what is happening in real-time. The graph below shows the process described:
Normally these are the default steps for every company. The distinction lies in the process design and the tools around it. The goal is that the process aligns with the company’s spending policy.
Nevertheless, based on our experience this is not the case. Companies focus solely on spending control. In that way they miss the other aspects such policies can induce.
Hence, we summarize here the four objectives organisations should aim for when they are developing a spending policy:
If the company wants to improve processes speed, it will try to automate or digitalize it. Often with stand-alone solutions that do not solve the problem comprehensively. The time saved on the execution is lost in learning a new tool and integrating it with the other systems the company has.
Key question: how can you simultaneously ease the work for all process stakeholders and increase its speed?
If companies want to analyze the situation and react on time, they need as close to real-time data as possible. Otherwise, the business will miss a great opportunity and won't be able to cut costs in a timely manner.
Key question: how can you achieve actionable, real-time expense management?
Key question: how can your financial tools help manage your cash flow better?
If the company wants to increase its velocity and decision speed, it needs to give additional team members access to company funds. This can lead to months of process reorganisation and new IT restructuring.
Key question: how can you choose a tool to enforce the spending policy that allows you to adapt it as you grow?
We build Payhawk's spend policy feature with this insight in mind. We give our customers the freedom to fit Payhawk to their needs. Our main objective is that all customers can achieve their spend management goals.
Companies can enforce as tight or as loose spending control as its business requires. It can grant spend authority to all of its employees but differentiate their spending allowances and limits. The organisation can dynamically modify the approval levels based on request amounts.
Our customers do not need to follow a predefined approval process that does not fit their needs. Coming soon, not only administrators can approve fund requests, but also teams, projects, cost centres, unit managers and CFOs. They will be able to do this in one company as in a holding with multiple entities. We make it easy for the company to enforce its current spend policy rules. We make it intuitive for the employees to follow them.
Payhawk's inherent expense management software automates the pre-accounting process. Our mobile app enables employees to effortlessly gather and share their expenses with the accounting and controlling departments in real-time. The integrated request and approval flow diminishes expense surprises for the accounting department at the end of the month.
If you want to know more about Payhawk's customizable spending policies please book a demo with us here.
Whether you have tens, hundreds, or thousands of employees, we’re making your business spend work for you, giving you control over spending at scale with a single solution. Say goodbye to tedious finance tasks, and schedule a demo with us today.