An effective business expense management system is more than just balancing a budget on a spreadsheet. It’s an important strategy for maintaining the financial health of any business, requiring precision and attention to detail.
When business expenses are not managed efficiently, the results can be more damaging than just immediate overspending. Even seemingly minor oversights, like missing small expenses, can quickly accumulate and snowball into costly mistakes.
Here are some hidden costs that can result from poor business expense management:
- Increased risk of fraud and mismanagement
- Late payments
- Strained work relationships
- Tax fines, penalties, and missed deductions
- Difficulty in securing potential investors
Increased risk of fraud and finance mismanagement
Trust is a valuable resource in business. But despite stringent hiring processes that filter out bad actors, there’s still a risk of fraudulent activities and financial mismanagement, both within the business and with vendors. That risk can increase significantly without a clear monitoring or stringent approval process for business expenses.
When expenses aren’t closely monitored or accurately tracked, key details can be overlooked, making detecting fraud difficult. This can result in severe financial losses that damage your business’s reputation and undermine team and partner trust.
In fact, the Association of Certified Fraud Examiners (ACFE) reported in a 2020 Global Fraud study that approximately 5% of total revenue loss can be linked to fraud, with some cases being a attributed to poor expense management.
Late payments
Another common issue tied to poor expense management is late payments. A 2021 report by Accenture, supported by Xero, found that nearly 48% of invoices issued by small business owners were paid late, with over 10% taking more than a month to be settled. This is especially problematic for small businesses in Australia, where invoices are paid, on average, 6.4 days late, resulting in a staggering $1.1 billion in annual costs.
This alarming number is because late payments cause a ripple effect in a business’s cash flow. When there’s a delay, covering expenses from employee reimbursements to operational costs can be a struggle. The pressure can be eased by efficient business management. By accurately tracking and forecasting cash flow, businesses can better anticipate when funds will be available and plan accordingly.
Did you know? Flexigrow helps prevent late payments by integrating invoicing with automated reminders, so you never have to worry about unpaid invoices again.
Strained work relationships
Poor business expense management can harm relationships within your team and with external partners. Mounting delays in reimbursements and confusing approval processes can frustrate and make your employees feel undervalued. These can then lower morale and impact their productivity.
Expense mismanagement also leads to poor cash flow and delayed vendor payments. This might lead them to charge fees, demand upfront payments, or even sever ties with your business, which can hurt your reputation and make it harder to negotiate favourable terms.
Tax fines, penalties, and missed deductions
The stakes are high during tax season, and it’s stressful enough without the added baggage of a messy financial report. If expenses are not accurately tracked throughout the year, your team may find themselves scrambling to balance the numbers, increasing the chances of missing important requirements and deadlines. This not only impacts your team’s stress level but also disrupts your company’s overall cash flow.
Inaccurate financial reports can trigger audits and fines, putting your business at risk. Additionally, failing to track expenses properly can result in missed tax deductions, leading to overpayment and further draining your cash flow—resources that could have been reinvested in your business.
Difficulty in securing potential investors
When negotiating for credit or funding, a business is heavily scrutinised to determine if it’s worth investing in. Potential investors and partners will analyse your financial health, test your operational efficiency, and perform risk assessments. So, when expenses aren’t managed well, presenting a clear and convincing financial picture becomes challenging, which may discourage investors. And without access to necessary capital, the business may struggle to meet operational needs.
That’s why it’s important to have an efficient business management system that allows for accurate financial reporting. The better you manage your business expenses, the more confidence potential investors will have in you.
Keep your business finances healthy
A strong business expense management system can help you avoid these hidden costs and set your business up for long-term success. By streamlining your processes, improving cash flow, and investing in powerful tools, you can can further boost your productivity and avoid unnecessary risks like late payments. AI-powered expense systems can cut tracking time by up to 80%, allowing teams to focus on strategic tasks instead of paperwork.
Looking for a solution? Flexigrow’s AI-powered business management platform can provide end-to-end solutions, from sending quotes to invoicing and receiving payments. Plus, with our scan-and-go feature, you can create digital copies of receipts and replace paper clutter with a more accurate expense tracking system that automatically generates financial reports. Start with our 30-day free trial today and transform how you manage your business.
