Slow reimbursement: Is it hurting your employees and your business?
When running a business, there are millions of things to consider; reimbursing your employees for out-of-pocket expenses may not seem a high priority. However, have you considered the impact slow reimbursements have on your employees? You would be surprised about how far-reaching the effects of slow reimbursement are and how they can impact your business.
First, what do we mean when we say ‘slow reimbursement’? From an employee's point of view, slow reimbursements are repayments that happen outside the normal pay cycle. At a minimum, you want to avoid the messy situation where an employee gets stuck paying interest on their personal card for business spending because there has been a lag in reimbursement. A timely and efficient process for reimbursing your employees is crucial to their engagement, well-being, and ultimately, your company's growth.
We’ve unpacked the three common ways slow reimbursement processes are hurting your employees and your business — plus a simple way you can change this.
1. Slow reimbursement erodes employees' personal finances
Whether it is remote-working needs, buying office supplies or client lunches, you want your employees to feel confident with spending in line with their role in the company. But the simple fact is, it’s very common for employees to be concerned that the personal money they’ve spent won’t be repaid speedily. This is especially true for travel reimbursement, where travel costs and accommodation expenses can add up quickly. Moreover, if slow reimbursement does eventuate, an employee will feel like that company has little concern for their personal finances.
In regrettable circumstances, there can be situations where an employee can also face personal finance liabilities. For example, if an employee uses their own money for a business trip and the reimbursement takes too long, they may not be able to pay their bills on time. As a result, they may face late fees or interest charges, and their personal credit score may be negatively affected.
More commonly, employees who don’t have access to a company credit card will be hesitant to use their personal money for work-related expenses. As a result, employees may avoid opportunities to network or develop skills, which presents a large concern for growing businesses and businesses reliant on building strong relationships with clients. Employees may also delay purchasing what they need until closer to pay run (and reimbursement), again a concern for businesses looking to seize opportunities and empower their staff.
There are also situations where employees will simply wear the purchase cost rather than deal with the reimbursement process. Depending on the expense amount, if things degrade to this point, retaining staff may start to become an issue.
2. Compromises employee relationships
What do slow repayments say to your employees? First, it says, “your financial wellbeing isn’t a priority for us”. Which can have a flow-on effect through the company, as company culture and feeling valued at work are primary reasons people join or leave a business. From the employee perspective, the speed of reimbursement says a lot about management. If you expect your employees to carry the financial burden, it is a short step in their minds before trust is broken.
No one likes reminding their manager to approve a submitted expense or asking for the business credit card for another routine purchase. While not seemingly integral from a management perspective, having a concrete reimbursement cycle is important if you want to build a strong, trusting culture in a workplace.
A simple and clear reimbursement process will combat many of these concerns. This could be expense management software or, even better, the use of company credit cards. By doing this, you are working to alleviate employee concerns, so they are confident to make purchases on behalf of the business to do their jobs.
3. Reimbursement hassles cause employees to be less productive
One of the hardest things to measure in a workplace is productivity; however, financial stress has a negative impact. According to a study by Financial Health Network, 78% of employees with high financial stress say it impacts them even more than work, family, or health-related issues. Slow reimbursements contribute to this stress and can be a distraction throughout the workday.
This impact on employees can happen even with an expense management software and reimbursement process. The reimbursements process is time-consuming - the receipt must be submitted, along with categories and other required information for repayment. Filling in reimbursement forms is a distraction that interferes with productive work. Then the expense often needs to be approved by a manager(when they get around to it). It also consumes the time of your financial manager, having to oversee the process, plus dealing with any record-keeping, chasing receipts or correcting errors in the submissions themselves. Creating expense accounts and reports can be tedious if they don’t know how to record reimbursement in accounting programs.
Both of these situations are less than ideal — you want your employee to be able to purchase what they need to get the job done and not have to spend hours getting their money back. Similarly, you want your managers and financial team to be empowered to make quick approvals on spending, so they can spend their time focusing on more important things.
Let’s eliminate expense reimbursements
A competent bookkeeper or accountant will know the procedures for reimbursing expenses. For example, there’s a process to record reimbursement is Xero that makes it fairly easy to track expenses and pay back employee expenses as part of the payroll process. Although it still doesn’t solve all the issues in points 1 to 3 above.
Consider the example of an employee who gets paid on the 15th of each month. Let’s say they travel for business in the middle of a month and have substantial travel expenses. They can submit expense claims upon returning but will have to wait until the middle of the next month to get their money back. You can also get a Xero expenses app that makes it possible to submit business expenses in real-time, but it still requires time for employees to input the information for all expenses. Xero also has a program called Xero Projects which helps businesses track project expenses.
So while Xero employee expense reimbursement can be a solution, it does not solve all the issues we’ve covered.
A solution to all three common pains for small and medium businesses is company credit cards. First and foremost, they will remove any arduous process of reimbursement you have now – employee confidence will be up, and time spent doing financial admin will be down. They will be able to spend on behalf of the company and not worry about being out-of-pocket.
All good business card issuers will have the option of multiple cards for staff, saving you the awkward process of juggling and keeping tabs on the card around the office. Ideally, having access to credit instead of debit will provide you with even greater flexibility across the board; you won’t be restricted by the balance of your account nor have to spend time preloading balances on cards.
Archa is a company that ticks all of these boxes – a spending solution that lets you instantly issue multiple cards to your employees. Automation is a win for all – employees and employers. So if you want to spend less time doing financial admin and more time focused on your work, speak with an expert to learn how Archa can help you do just that.