Small and medium businesses of all types waste an average of 11 hours every month dealing with manual expense reports. For a small HVAC business with 20 employees, that adds up to 220 hours of lost time every month!
What’s more, these same manual expense reports often hide policy violations that can cause problems down the road.
That’s why it’s so important that fleet managers, contractors, finance managers, and small and medium businesses of all types don’t disregard the power and impact that expense reports can have.
Yes, they may seem like complicated, inconsequential documents, but they’re actually a very important tool for your business and your employees.
This guide will teach you what an expense report is, why they’re so important, and how to create one. With that in mind, you can help your employees write expense reports that give you a more accurate picture of business spending.
We’ll also discuss how you can get rid of expense reports altogether by using a business credit card.
Key Takeaways
- An expense report is a document employees use to get paid back for money they spend on company business. From a business standpoint, they are a very effective way to protect your business against fraud and overspending.
- The best way to streamline the submission process is to create a template that everyone fills in after they make a purchase.
- To fill in an expense report, gather receipts, organize and categorize purchases, go through each field of the template filling in the correct information, attach receipts, review the form for errors, and then submit for approval.
- Many modern businesses are replacing expense reports altogether by issuing employees a company credit card. Such spending solutions provide granular control over the who, what, where, when, and why of business spending.
What Is An Expense Report And Why Are They Important?
An expense report is a document employees use to get paid back for money they spend on company business. For example, if a field tech uses their own money to buy supplies for a job, they’ll fill out an expense report so that the business can reimburse them.
These reports need to include details such as what was bought, how much it cost, and the date of the purchase, along with receipts as proof.
Expense reports are crucial for several reasons. First, they help your business keep track of its finances. With a good recordkeeping system in place, your company can see where its money is going and make smarter decisions about how to spend it.
Expense reports are also vital for budgeting. You can examine past expense reports to create realistic budgets for future needs. This helps prevent overspending.
For tax purposes, expense reports are essential because they provide the records your company needs to claim deductions for business costs. This can lower the amount of tax you have to pay at the end of the year.
Finally, expense reports help prevent fraud. According to the Association of Certified Fraud Examiners, expense reimbursement fraud costs organizations an average of $1,400 per month.
Requiring receipts and clear documentation makes it harder for an employee to claim money for something that wasn’t a real business expense. By making sure all your expenses are legitimate, you protect your business and help it stay financially healthy.
Key Components Of An Expense Report
Key components of an expense report include employee information, date of expense, merchant name, description of expense, amount, reason for purchase, and all applicable receipts.
All of this together forms the who, what, when, where, and why of the expense report so that you can get as accurate a picture of business spending as possible.
- Employee information is essential so that you know who made the purchase.
- Date of expense establishes when the purchase was made.
- Merchant name serves as the where and is necessary to prevent duplicate or fraudulent charges.
- Description of expense tells you what was purchased.
- Amount shows you the cost of the item purchased.
- Reason for purchase helps you understand why the purchase was made.
- Receipts serve as proof that the purchase was made and prevent fraud.
How to Create An Expense Report
Creating an expense report for business reimbursement is like making a list of all the money an employee spends so you can keep track of where all the dollars go and reimburse them for the money they spent.
It’s a common task, and if your employees follow a few simple steps, it’s not hard at all.
The first thing you, as a business owner, need to do is create a template that everyone can use when they need to submit an expense report. The template can be a piece of paper, an electronic spreadsheet, or an app that makes the process easier.
It’s also a good idea to establish a schedule for when expense reports should be turned in. Depending on the number of employees doing so, that may be once a week, every two weeks, or once a month.
Find what works best for your team based on the number of expenses that will be turned in and the amount of time it will take to process everything correctly.
With the template in hand, the next step is to collect all the applicable receipts. Train your team members to ask for a receipt every time they spend money. It doesn’t matter if it’s an electronic receipt or a paper receipt, as long as they have some proof of purchase.
An effective solution for receipt management is to have employees take a picture of the receipt soon after they buy something and submit it to you via text, email, or some other electronic communication.
Some corporate credit cards (like Coast) even come with a mobile app that allows employees to include notes, job codes, and other information with the receipt to streamline the expense report process.
Next, your employees will go through their receipts and fill out every field on the expense report form. The form should ask for details about each expense, including the key components mentioned in the previous section.
Those components include employee information, date of purchase, merchant name, description of purchase, amount of purchase, and reason for purchase.
It’s also a good idea to get your employees in the habit of including a spending category or job code for every purchase. That will make it easier for you to separate and track costs based on things like job, client, location, and other variables.
The last step in the process is submitting the expense report.
After an employee has listed all their expenses and attached the receipts, they turn in the form and any attached documents so that it can be reviewed and approved or denied by a manager or supervisor.
Once the expense report is approved, the company processes the report and reimburses the employee for the money they spent.
Eliminate Expense Reports With Coast
Even the best expense report process still means more work for your team. Coast eliminates the need for reports entirely.
Each employee gets a Coast card with built-in controls for where, when, and how money is spent. Receipts and purchase details are added by employees right as they spend, so you won’t need to chase your employees for receipts or explanations.
For more information on how Coast can help you take control of your business finances, visit CoastPay.com.
Frequently Asked Questions [FAQs]
Is a receipt necessary for every expense?
Yes, a receipt is a must-have for every expense. Think of a receipt as proof that your business spent money. It shows what you bought, where you bought it, and how much it cost.
Without a receipt, your company has no way to confirm the expense is real. Keeping all your receipts helps you track spending, prepare for taxes, and comply with local, state, and federal compliance guidelines.
Make it clear in your company purchasing policy that all employees must submit a receipt when they buy something for the business, no matter how small the product or service is.
Why would an expense report be rejected?
You may choose to reject an expense report for a few common reasons.
The most frequent issue is missing or unclear receipts. Employees must submit proof of purchase when they buy something for the business. If they don’t have the receipt, make it clear that you won’t reimburse them.
Another reason you might reject an expense report is if the purchase doesn’t follow the company’s rules. For example, if an employee spends too much on a meal, you could reject the claim.
A third common reason you might reject an expense report is if it contains math mistakes or incorrect entries. Make sure your employees know to double-check their work before they submit their report.
What kinds of expenses are allowed on an expense report?
The types of purchases allowed on an expense report depend on your company’s specific rules. However, most companies allow employees to report common business costs. These often include T&E expenses like flights, train tickets, and fuel for company vehicles.
Lodging, such as hotel rooms, is another common purchase that many businesses allow on expense reports, as are meals, office supplies, and money spent on entertaining clients.
What’s the best way to manage expense reports for field teams?
The best way to manage expense reports for field teams is to use a combination of physical credit card and specialized software, like Coast.
Since field teams are always on the go, Coast lets employees take pictures of receipts right after they make a purchase. This keeps everything organized and prevents them from losing receipts.
The app also allows them to add notes and job codes, making the process faster and more accurate. This way, they don’t have to wait until they’re back at the office to collate their receipts.
