Welcome to the first blog of the Small Business Painkillers Series!
At Interactive Accounting, we are proud to be working with passionate and talented business owners. We know how hard you work and we want to share some practical tips that will save you a bit of time in your busy day.
For our first article, we decided to go with a pain that is familiar to majority of businesses we work with. In one form or another most businesses need to process expense claims. For some they are infrequent, only when director needs to buy something with a personal card because the business card was left at the office (we’ve all been there). For other businesses expense claims are an inherent feature of how they work, with employees routinely using their personal funds and expecting reimbursement. In fact there are so many possibilities, we have summarised them into a table below to help you decide where your business falls.
Of course there are a lot of other factors to consider as well. Some businesses have highly mobile employees that do not sit together in an office and in this case collecting paper receipts can be a pain. Other businesses already have an established paper based process and prefer to alter it as little as possible. Regardless of the minor tweaks to the process, there are three options for how expense claims can be processed in Xero: as a Bill, in Xero as an Expense Claim or through Receipt Bank. Now lets look at each in a bit more detail.
Expense Claims as Bills
Managing expense claims as bills is perhaps the easiest option which is familiar to many from their regular Xero session. It’s a simple, free and quick solution for low volume expense claims processing. Once the need for an expense claim has been identified, (usually an employee who spent their own money for a business purpose and would like to get it back) we can enter it. First, we should get a receipt from them to confirm how much they spent and secondly enter this receipt as a bill in Xero. The supplier name would be set as employee’s name. Here’s an example:
Now to pay back the money we can simply transfer the amount to this employee and match the bill to the payment. We can also process this expense claim as part of a pay run. The process takes slightly more involvement, but the employee’s payslip will have a “Reimbursement” line to it which is pretty cool. If you are interested, let us know and we can show you how to do it. Simple and easy, but it becomes quite difficult and tiresome if you have a lot of expense claims to process. Here is where the second option comes it.
Xero Expense Claims Module
We all see it, it sits quietly on your dashboard and looks something like this:
Now the process workflow built into Xero Expense Claims is not the most intuitive and has been known to cause confusion. If you are not comfortable with using it, it’s better to try Receipt Bank or Xero bills.
The workflow is as follows:
Employees need to be set as a payroll employee and have draft purchase invoice permission
Employees enter expense claims via desktop or using their phones with the help of Xero Touch app
Common point of confusion: Employees have to select an expense account and set a GST code for this expense. They do not always know which account to select and what GST code to set. It’s very important to train employees before this feature is used. Accounts available under Xero expense claims can be adjusted in your chart of accounts.
Employees must submit expense claim for approval
Common point of confusion: Employees enter receipts for an expense claim, but forget to submit this expense claim for approval. As a business owner you are not able to see the claim until it was submitted for approval.
Approver/business owner approves the claim
Common point of confusion: After an expense claim is approved, it needs to be authorised
Business owner authorises the expense claim
Common point of confusion: After an expense claim is authorised it needs to be marked as paid (and payment needs to be made from your bank account).
Expense claim is paid
Phew! That was a lot of work for an expense claim! You are quite right if you think it is a rigid process and subject to data entry errors. If only there was a way to combine the simplicity of Xero bills with advantages of having a phone app, while minimising data entry. well there is, lets look at Receipt Bank!
Receipt Bank – Expense Claims
Receipt Bank is useful not only for expense claims, it is actually designed to process bills/receipts and invoices. The software extracts information from images and pushes the information into your Xero file as Xero bills. The expense claim functionality is quite handy and allows you to group receipts submitted and import them as a single Xero bill, from then on the process is the same as for Xero bills.
There are several ways to set Receipt Bank up and Interactive Accounting is happy to set it up for you if you need a hand, but a common workflow for expense claims is:
Each employee receives login details that they can use for their iPhone or Android phone.
They snap pictures of the receipts with the app and send them to Receipt Bank
Business owner logs into Receipt Bank
All receipts clearly indicate who submitted them and information is already pre filled by the software. Receipts are coded to the right accounts (manually at first but Receipt Bank learns and will start coding receipts from the same suppliers to the right accounts)
All receipts from a single employee are combined to form an expense claim
Expense claim is pushed into Xero as a bill
Paid immediately or as a part of upcoming payroll
There is a dark side to expense claims. We heard awful stories of people consumed by the the administrative process: having to spend time chasing employees for receipts, dealing with lost receipts, spending additional time entering information into an accounting software, and some more time spent shuffling receipts around trying to store them or find a particular historical one. This is the stuff nightmares are made of!
We hope that whichever process from the above you select it will help you leverage three principles of cloud accounting:
Location does not matter – enter the information from anywhere, using any device
Data entry is for the computer to do – lets face it, it’s getting pretty good at it.
Access is 24/7 – once in the cloud, access and search you data from anywhere using any device
As always, Interactive Accounting is here if you have any questions. If you have a business pain that you would like us to cover in a blog or a helpful tip to share with other Interactive Accounting clients please let us know.