How To Minimize The Effects Of Recession With Expense Software
Financial experts are warning that our businesses may soon be faced with the daunting prospect of another global recession.
If the current financial forecasts prove to be accurate, expense management is going to be one of the key areas where companies will need to be prepared
What is a recession?
To begin, let's define an economic recession: A normal business cycle sees expansions and contractions, or highs and lows, as part of a routine economic process. A recession refers to a significant decline in economic activity, extended over a long, consecutive period. Typically, an economic decline is only considered a recession if negative GDP growth lasts at least six months.
Recessions can have many stimulating factors and are driven by a drop in consumer spending. A decline in GDP output (adjusted for inflation), income, employment, trade, industrial production, wholesale-retail sales, and contractions in other sectors of the economy all contribute to the economic decline in a recession.
Why is a global recession being predicted?
A combination of factors has created the current concerns.
Recently analysts have identified US stock market patterns and trends which have similarities to the conditions that preceded the 2008 global recession.
Added to this, there are the potential disruptive global consequences of an escalating tariff war being waged between the US and Chinese governments.
The European Union is another ongoing source of uncertainty.
Germany’s economic powerhouse has recently started to falter and then there’s the potential disruption caused by the UK’s planned Brexit departure.
It’s this volatile mix of circumstances that is heightening fears that these will help to trigger another global recession.
How should a business prepare for a recession?
The businesses best able to cope with a recession are those with lean, efficient and adaptable working processes. To achieve this requires regular reviews of performance to identify potential weaknesses.
If you don’t address these problems now, these areas will pose the greatest risks during times of recession as a business begins to feel the strain.
This is why expense management provides a key tool when it comes to future-proofing. For many companies, this remains a significant source of financial loss and workplace inefficiency:
A 2017 report that examined global expense fraud found that 47% of employees admit to having exaggerated or falsified their reimbursement claims.
It’s an endemic problem with expense fraud being the most common form of workplace fraud. It contributes to the 7% of annual expenditure that’s lost to a business as a result of fraud.
These are the kind of losses that a company may be able to ‘write-off’ during normal times but soon become unsustainable when a recession starts to bite.
Operational inefficiencies are harder to quantify than financial ones but the impact can be just as damaging on a business.
A 2019 study, commissioned by Webexpenses, found that more than a quarter (26%) of an employee’s working day is typically wasted on unnecessary admin chores.
This includes the time it takes for claimants and administrators to manage expenses when using a traditional approach. It creates a slow, frustrating and error-prone process that stifles the performance of a workforce.
These two areas of inefficiency are closely related. It’s the inefficiency of traditional paper-based approaches to expense management which has allowed fraud to flourish.
With finance teams struggling to handle the administrative demands of a monthly flood of expense reports, it leaves little time for effective policing of claims.
How can you improve your expense management?
For the majority of companies, expenses are still managed using traditional methods. That means filling in forms, handling bundles of paper receipts and manually entering information into spreadsheets.
This creates the kind of inefficiency and risk that can prove costly during a period of global recession when margins for error are substantially reduced. It’s also a problem area that’s easily fixed.
The switch to a cloud-based management system such as Webexpenses removes the need for any paper-based or manual processes. A smartphone app, using OCR scanning, allows paper receipts to be converted into a digital format, creating a fast, simple and streamlined workflow.
It provides real-time information on expenditures and allows automated checks to alert a finance team whenever suspicious or out-of-policy costs are identified.
What are the benefits of an automated approach?
An automated approach creates a flexible, efficient and robust way to manage costs during the stresses and strains of a recession. An effective digital management solution provides a level of control that’s simply not possible with a traditional process.
The benefits include:
The financial pressures of an economic downturn make it essential to avoid any needless financial losses. By improving expense management performance, a business can significantly reduce these losses.
Real-time data and automated processes help to guard against costly human errors being made. The paperless approach also buys finance teams the time they need to start properly monitoring and enforcing policies.
With automated notifications and checks, each report that is submitted is checked to make sure it complies with company policy. It helps to remove the inefficiency that enables fraud.
When expenses are managed manually, it makes accessing accurate financial data prohibitively slow and difficult. The information has to be collated by hand from multiple different documents and spreadsheets.
A digital management solution automatically generates, tracks, and stores spending information. This is instantly accessible and allows the finance team to monitor expenses in real-time.
Combined with reporting tools, it allows a business to identify and tackle potential issues before they grow into costly problems. Unusual patterns and spending ‘hotspots’, that are normally hidden, start to be revealed.
Moving to an automated expense solution allows the whole process to be streamlined. It removes a whole layer of administration with a fully paperless process and task automation.
Switching to Webexpenses from a paper-based approach will typically deliver a 25% reduction in processing times. This allows a finance team to start properly monitoring costs and ensuring that policies and limits are adhered to.
As well as reducing losses through errors and fraud, improved efficiency prevents dangerous backlogs of paperwork from building up as a business starts to feel the strain.
Whenever a claim is submitted via Webexpenses, an automated check can be carried out to ensure it’s within any defined limits. These limits can be set by the finance team to reflect the company’s policy.
If certain spending limits need to be reduced, this offers a simple and effective way to manage changes across a business. Real-time notifications can inform users about a change and out-of-policy claims will trigger an alert.
Trying to manage these kinds of policy revisions when using a manual approach can be messy with the information that needs to change being scattered and fragmented.
With access to accurate real-time expense data, it allows for better financial forecasting. It’s particularly important during a downturn as a way to reduce the risk of the unknown.
While it’s not possible to predict exactly what lies ahead, accurate data and forecasting help to make informed management decisions to help safely navigate a recession.
Potential problems can be identified early, rather than being discovered after it’s too late. Expenditures can be trimmed in an orderly fashion without being forced into drastic cuts.
The uncertainty and financial pressures caused by a recession can create a stressful work environment. Even the smallest issues can become trigger points for workplace anger and discontent.
The switch to digital expense management helps to remove one common source of these kinds of frustrations. Providing a fast, simple and fair way to reimburse legitimate business costs, it helps to ‘detoxify’ expenses.
It’s particularly important to have a speedy process when many claimants during a recession are liable to be worried about meeting monthly bills and mortgage/rent payments.
The increased efficiency, reduced losses and better financial visibility provided by a digital expense management system, makes it a valuable tool to help recession-proof a business.