Employees frequently overspend when an organisation lacks a well-established expenditure control system. This might result in running over your monthly budget, accruing larger than expected bills, employees reporting higher than usual expenses and ultimately losing touch with your business finances.
1. Have a spending policy
What is the employee budget, and how do workers use business money? Staff should not be confused about things like this since you never know what cost claims you’ll get. Your business spending policy should include answers to these questions so that workers know what is expected of them. Setting clear boundaries can guide employees’ spending and prevent disagreements. Not to mention, an expenditure policy makes it simple for your finance team to estimate expenses. When creating a spending policy, it would be best to keep a few things in mind. First, the policy should be transparent, straightforward and brief and should nicely and clearly explain the policy instead of bullying employees into submission. It should also ensure the handbook is distributed to staff and is easily accessible in case they need to refer to it. Keep your policy manual updated since nothing remains the same. Make straightforward guidelines rather than extensive lists and include employees in the handbook development process.
2. Create a budget for every category
Setting budgets for all business aspects is part of gaining control of employee expenditure. You should determine the amount each employee or team can spend on all costs and remind them that they will not be reimbursed if they exceed spending limits. In some circumstances, you may want staff to seek clearance before spending. It would be best if you mentioned this in your spending policy manual. Ensure your policy makes perfect sense to everyone so they can remember and follow the guidelines. This includes not creating a lot of exclusions and being consistent in how you apply your policy.
3. Provide employees with suitable payments
Another effective approach is to provide them with a custom payment method. This is where having business spending cards come in handy. You can pre-load expense cards with a certain amount to cover various costs involved in discharging their duties, including gasoline, lodging and meals. For instance, fleet and gas cards are convenient and secure. Employees have the same spending power as if they had their own business credit cards. On the other hand, managers and finance teams can establish particular spending restrictions for each card and know exactly how much employees spend in particular periods.
4. Centrally monitor subscriptions
Businesses can negotiate lower rates by centralising transactions with reoccurring costs. Individual workers should not always be allowed to buy subscription packages like cloud-based software or business news services without the approval of a procurement or business manager. A more central purchasing system improves the company’s capacity to track subscriptions and enjoy leverage. Even if you cannot reduce the price, centralisation may highlight chances to share subscription items instead of purchasing numerous versions of the same thing.
5. Limit employee purchases to selected vendors
Allowing workers to buy solely from a predetermined list of preapproved vendors is another way to regulate employee expenditure. This could include hotel chains, airlines and technology firms you deal with regularly. The list should vary depending on the type of business. However, ensure individual staff or teams can’t choose a vendor or vendors outside the list without authorisation. Businesses can obtain the power needed to enjoy aggregate purchasing reductions by repeatedly trading with the same vendors.
6. Review office supplies buying processes
A few reasonable policies and structures can be useful regarding office supplies. Employees should not be able to walk into storage and take whatever materials they need. Consider appointing a “gatekeeper” for the resources, and make sure that everybody who requests them signs for whatever they use. You could provide the gatekeeper with an incentive to reduce office supply spending. Certainly, there should be other ways to minimise expenditures on supplies, especially in an era of electronic records and tracking.
7. Digitise and automate processes
Every year, the cost of business operations rises. This makes it necessary to consider your business processes that consume the most resources yet yield the least result. Identify, digitise, and dematerialise them. For instance, you can prioritize efficient systems for purchase request management, invoice retrieval, and real-time expenditure processing. Digitising and automating your business process will help you achieve better outcomes, provide your team with more agility, free up time for other critical tasks and eliminate waste.
A few organisations have chosen to outsource services to reduce the expenses of certain activities. However, business process automation is sometimes a better alternative than outsourcing. The latter has several drawbacks, the most noteworthy of which are poor visibility and a lack of control. When a company uses an automation process, it does not need to delegate critical functions to third-party organisations.
8. Prevent expense fraud
Expense fraud isn’t a fun discussion with your employees, but it is a reality almost every business has to deal with. A 2015 survey shows that nearly 85% of UK employees admitted to lying on expense claims. It is crucial to trust your staff, but it is also prudent to be realistic. Of course, employees do not always intend to lie, as individuals sometimes forget the details. In any case, experts strongly advise that you take action. Getting rid of expense reports can be the simplest method to prevent expense fraud. And besides, no one likes dealing with expenditure reports in the first place. Because they are time-consuming and simple to falsify, it is best to avoid them entirely and use agile and flexible payment solutions instead.
Managing employee spending entails striking the correct balance between management and adaptability to suit everyone’s interests. You want your employees to work conveniently and flexibly without blowing your budget. The above tips can be useful for achieving that.