Tips for Effective Expense Verification in Lending

We all love reimbursable funding, right? It can provide flexibility and accountability for borrowers and grant recipients, greater opportunity to track how funds are being spent, and… more work for your team. Uh oh!

Despite the best intentions of funders that want their financing to be used for very specific, verified expenditures, these reimbursable funds often leave small lending teams with even more documentation to collect and questions to answer. Most commercial loan softwares don’t offer much by way of client-facing project management, the key to timely and accurate document collection.

Here are some things to consider to increase your team’s efficiency next time you administer an expense-driven loan or grant fund.

Ensure key stakeholders and leadership are aware of the pros and cons of collecting receipts/expense documentation either before or after disbursing funds.

Clarifying timelines from the beginning of the process mitigates the risk that your team or your applicant misses an important deadline for reimbursement.

Deciding whether to collect receipts before or after funds are disbursed is a big decision point, and there are advantages and disadvantages to both options for you and your client.

Collecting receipts after approval, but before disbursement, ensures that funds are indeed being spent on eligible uses. This strategy is also a safeguard against any chance of them running off with the funds, never to be heard from again. However, it slows down the application and approval processes.

On the other hand, collecting receipts after disbursement solves the problem of businesses not already having the funds to spend. Offering this flexibility can keep a small business or individual on their feet as they navigate growth or hard times, faster. There’s a real risk, however, that you might never receive accurate documentation regarding how the loan or grant was used. Which is more important?

Often, the timeframe for collecting receipts or proof of expenditures is set by the funder. A great example of this is the SBA’s recent CARES Act funding, which came with a requirement that recipients submit receipts documenting how their funds were spent within a certain time period to be eligible for forgiveness. Documentation can be a function of loan size, and whether or not that business pursues loan forgiveness.

Clarifying these timelines from the very beginning of the application process mitigates the risk that your team or your applicant misses an important deadline for reimbursement.

What counts as a receipt?

Borrowers must understand clearly what they need to submit to meet program requirements. A common pitfall is to attempt to manage expectations in one, very long, static document.

Rather, having a dynamic list of acceptable documentation will help your borrowers stay on track with collecting that documentation, and reassure them that they will indeed qualify for the reimbursement of funds.

By presenting relevant guidance along the way in a multi-phased application process, applicants are more likely to internalize the guidance you have to offer.

For example, there might be a variety of ways to verify payroll expenses. Options might include bank statements that demonstrate the transfer of funds, a payroll report produced by QuickBooks or an accountant, or a copy of the check used to pay the employee.

Here’s a live example from one of our Lenders:

The instructions in this example, partnered with a dynamic, fillable form ensured that the applicant was confident in what receipts needed to be provided, and how to provide them.

In summary, transparency, clarity, and organization are that much harder when dealing with expense verification. They’re all part of the solution as well. It shouldn’t be as hard as it is to collect the necessary amount of information and approve clients in a timely fashion.

How do you keep track of expense verification currently? We’d love to connect and show how we’re solving for transparency, clarity, and organization.