Jun 6, 2019
5 mins read

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

Hristo Borisov - Chief Executive Officer at Payhawk corporate spend management solution. Hristo Borisov
Missing Receipts And Invoices
Quick summary

Everybody hates expense reports and administrative work that doesn't add value to the business. It will be ideal to simplify administration and focus on what we do best - growing our business. But failing to organize expenses with accountants might result in paying a bigger price than you think.

Most of the businesses we talk to don’t understand why accountants chase so fiercely to collect missing receipts or invoices. Employees often postpone this task for as long as they can or simply don't do it at all. They often think that the accountants will pull out some tricks to fix things. It’s important to understand the impact on the business and risk you bare if failing to organize your expenses properly.

Paying more taxes

Usually, your accountant will put expenses without supporting documentation (invoices or receipts) as

  • either representative,
  • expenses without documents,
  • expenses not related to the core business
  • or some other category, depending on the nature of the expense and the tax regulations of your country.

What you should know is that such expenses are typically not recognized for tax purposes. How this impacts you — well you simply pay more taxes, the total cost for your company will be equal to the total expenses without documentation multiplied by your effective tax rate. Let’s say you are running a business in Germany where the corporate tax rate is 15%, and you have failed to submit a document for an expense worth €100. In the end of the year, your business will pay €15 more taxes because of this single missing document. Uh…

MDM Props saves $1000s with expense categorization and reconciliation

Risk of tax investigations

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

Skewing the numbers

Not putting expense in the right categories (marketing, IT, etc.) or matching with the period for which they relate to cause misrepresentations in your financial statements and the KPIs you track. Imagine that your marketing or hosting expenses are not booked in the correct category or the correct period. This can have a material impact on your customer acquisition cost and lifetime value calculations and other KPIs that you use to run your business. You will be reporting incorrect financial data to your investors (current and potential) and business partners.

Summary

If you want to run your business more efficiently, get a handle on the expenses in your organisation. Especially missing receipts and invoices can become an issue. There are some vendors that make it hard to collect your end of the month invoices. But doing so will have a significant impact on the way you manage your business. In fact, there are ways to streamline your expense management and the sooner you start the healthier your business will grow.

Hristo Borisov - Chief Executive Officer at Payhawk corporate spend management solution.
Hristo Borisov
Chief Executive Officer
LinkedIn

Hristo is the compass guiding Payhawk's journey. With a rich background in engineering аnd product management he is a stalwart advocate for our products and customers, bringing a mix of innovation and user-centricity to everything we do. Outside the office, you'll catch him enjoying camper and sailing trips, shredding slopes on his snowboard, or simply soaking up precious moments with his family.

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