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You may have heard this story (or a similar one) before: Imagine this: A top sales executive, Lee, goes on a sales trip to pitch a prospect. The trip successfully increases your expected earnings for the year ahead and beyond quite a bit. Of course, Lee incurred numerous expenses during the trip—airfare, hotels, rental cars, meals, and other incidental expenses. Lee paid for these with the understanding that the company would reimburse them.
But the expenses are not refunded quickly, and Lee’s personal savings and credit cards reflect this. Days turn into weeks and months, interest and late fees accrue, affecting Lee’s personal financial history. Lee becomes disillusioned and frustrated, leading to job dissatisfaction and diminished performance. Quiet giving up turns to real resignation as your Lee’s valuable skills and connections are now working for a competitor that pays its employees on time. This lucrative deal is likely to go with Lee.
See also: 5 Easy Steps to Prevent Expense Fraud
What you can do – and what you should do
A wide range of business expenses allowed by the IRS often have to be paid for by employees. Those that cannot be covered in advance include unplanned flights, taxi or ridesharing, meals, or hotel stays. In other cases, employees may be traveling on business in their own vehicle, in which case you should of course reimburse them for the mileage and wear and tear of the vehicle. Other common categories of reimbursable expenses may include training, professional fees, consumables, tools and parts, and entertainment (note while You may reimburse employees for expenses e.g. For example, if you take a client to a sporting event, those expenses are not deductible for you and have not been since 2017 Tax Reduction and Employment Act).
The importance of being timely and accurate
Accuracy in tracking your business expenses is important because most, if not all, purchases made by an employee on behalf of your company are for items and services that are tax deductible.
Some companies often re-bill a customer for expenses. Examples include plumbers or electricians whose employees may need to pick up a plumbing or electrical installation at a hardware or hardware store.
Employees who invest their own funds for your company deserve immediate repayment for a myriad of reasons. First, the business—and the risks and costs—is yours, not them. You can pay them a salary, but it’s not their job to carry cash or expenses to make you a profit or secure future business. Don’t leave them on the hook longer than necessary because they’ve done you a favor. Prompt payment also demonstrates your commitment to them as valued employees.
Related: Don’t throw money away by not monitoring expense reports
It needs rules
It also helps if employees understand what they are expected to do on your behalf. Provide guidelines for employees who are asked to spend their money on your behalf. That would start with your budget for specific expenses. Determine this in advance. And while the yearly list of crazy expense reports is amusing to read – from helicopter flights to work to hang-gliding ‘to avoid divorce’ – You do not want your company to appear on this list. Oftentimes, a budget solves this problem, with the added benefit of not having to approve every two-dollar purchase.
When reimbursable expenses are realized, they should be recorded promptly using your preferred system. This may be a spreadsheet, but many small and medium-sized businesses (SMBs) use contract accountants or accounting platforms. More often, they rely on document management systems with expense tracking capabilities that use optical character reading (OCR) to enter data such as receipts and invoices. These documents can be captured in a variety of ways, including photographing them, emailing them directly to a cloud server, importing them directly from a computer, or scanning them.
After being converted using OCR technology, the data can be manipulated using just about any reasonable method. For example, you can track them for each of your sales reps, you can track them by the department submitting the request, or you can track them by client or project. Your employee can also make the entry.
Using a cloud-based system that allows you to capture receipts this way means you can avoid the complexity — and errors — of re-entering information and managing spreadsheets. You can sort the data by category, by provider, or by date. Contrast that to spreadsheets, where remembering which tab your expenses belong in and making sure each cell contains the correct equations makes it much more difficult to promptly reimburse your employees. Paper records have similar shortcomings. Additionally, paper can be lost, misplaced, or damaged in tragic coffee accidents.
These platforms are also more efficient, which translates into time and cost savings. They also make verification and control easy. Pay your employees back quickly while gaining insight into what is being spent and for what purpose. You can then make any necessary spending adjustments and keep your employees happy.
Related: This one thing can make managing your company’s expenses super easy
what’s in it for you
Getting your refunds done quickly avoids both errors and fraud. That’s a risk twice as high in SMEs And more harmful to them.
But paying your employees back immediately gives you significant benefits. It improves employee morale and job satisfaction, making them better employees. Worrying if your spending is hurting their own finances can also affect their performance at work and create resentment. And suppose your reimbursement practices become a problem for employees. Then it can also be difficult to recruit new, high-performing employees.
But if you give employees their money back promptly, everyone will be happy, resulting in time and resources being devoted to growing the business.