What is Expense Management?

What is Expense Management?

Expense management is more than just tracking employee spending. It also decides how the company will reimburse them. This also applies to the policies and procedures used to control this type of spending. When generating reimbursements, the expense management process considers daily allowances employees receive for meals while on vacation.

Why is Expense Management Important?

To stay in business, all companies need to be able to pay their bills on time. Employee expenses are one example of such bills. Expense management is essential for any company with employees who do business outside the office. Even something as straightforward as a client's lunch paid by an outside sales manager must be documented, approved, and reimbursed.

Companies can quickly issue reimbursements if they have effective expense management processes. Employees don’t like waiting for reimbursements to be issued months after covering an expense.

Types and Management of Expenses

There are many ways companies can manage expenses.

• Paper tracking. Employees collect paper receipts from customers and submit them to the accounting department to be approved every month or quarterly.
• Spreadsheets. This is an option for companies looking to reduce their dependence on paper but not yet able to migrate to an automated expense management system.
• Expense Management Software. This method simplifies expense management. The software alerts managers when expense reports are due for review and allows them to accept or reject the claim. The software automatically routes approved expenses to accounting for reimbursement.

Expense Management Procedure

Management of expenses is a multi-step process. First, it involves capturing and filing expenses. This can include: submitting reimbursement requests, approving, or denying those claims. Next, scheduling the claims for payment and finally, reimbursing employees.

Companies can use the process to monitor their spending and ensure that employees are not abusing it. If they are, they can quickly correct the situation (e.g., letting employees know that they are spending more in certain areas than they should). A quick review of receipts can reveal if a salesperson is flying first class without authorization.

These issues can be hard to spot with manual systems, especially for companies with growing teams of field workers. These issues include missing information, slow approvals and approvals that are not reviewed thoroughly. This is a waste of time for employees, but it also makes employees wonder where their expense checks are (often while they're already adding new expenses to the next period).

Manual expense management can be time-consuming, inefficient, and costly. A recent survey showed that many companies still do it but are not reaping the benefits from automated expense management.

• Nearly half (46%) of organizations don't keep track of the expense of processing expense reports.
• 43% of companies still manually manage expense reporting.
• 44% of companies don't intend to invest in a dedicated expense and travel management system because they feel their current processes are sufficient.

This aspect of company operations can be automated for many benefits. 82% of companies who have invested in technology to facilitate expense administration say that it is the primary reason they did so.

Another important motivator is the need for real-time insights into spending. The company's entire spending management activity should be on one platform rather than scattered across multiple spreadsheets and paper.

Expense Management policy

Implementing an expense management policy that everyone can follow is one of the best ways you can control employee spending. In addition, an expense management policy will explain why expenses are rejected or questioned and allow you to decide whether to reimburse them.

All expense management policies must include:

• This is a complete list of all expenses that the company will cover.
• This is a complete list of all expenses that the company won't pay.
• Clear, concise language is required (so that there are no doubts about what is/isn’t permissible).

Organizations should regularly update their expense management policies. In addition, this policy will need to be updated as your business grows or expands.

Be sure to include best practices such as requiring pre-approval for certain expenses, clearly defining approval steps and other elements that will help reduce potential problems when someone flags expenses.

What is an Expense Management system?

Software that automates much of the expense reimbursement process for employees is called an expense management system. The software reduces paper use, automates expense management and minimizes errors.

This software automates the tracking, approval, payment, and approval of employee reimbursable expense claims. The expense management software is compatible with the company's expense policy to prevent overspending on approved (or not approved) expenses.

An expense management system provides analytical tools that allow the organization to make better decisions regarding future spending and make necessary policy adjustments. The system also helps companies maintain accountability and compliance by accurately reporting all expenses.

Additional benefits can be gained by integrating expense management software with an accounting or ERP system. It eliminates the need to manually upload expense report data. This saves time and reduces the chance of making mistakes. In addition, employee reimbursements are faster once expenses have been approved.

The combination of expense report data and ERP data results in a richer analysis across all categories and by region, brand, or other business segments. The integration allows service companies to easily link expenses to individual projects. This eliminates questions about how expenses should be allocated and to whom they should be charged.

Expense management software features & capabilities

These are the main features and capabilities that expense management software offers:

• Keep track of all employee receipts
• Allow employees to use smartphones to capture receipts
• Place the receipts on a centralized dashboard
• Document spending limits and company policies
• Companies can change these policies and limits as needed
• If applicable, integrate with corporate credit cards
• Send the receipts to the appropriate approbators
• Flag those in need of more attention or manage those that have already been approved
• Examine for violations of policy
• For payment, schedule reimbursement checks

Why use an expense management system?

Manual expense reporting management can be both time-consuming and costly. It takes on average:

Automating expense management can drastically reduce the time and money it takes to do this task. They also gain insight into individual employees' spending habits, making it easier to identify unusually high expenses and address them.

Advantages of Expense Management Software

Software for expense management helps companies automate tedious tasks, reduce errors and gain greater control over employee expenses (not general company expenses). The software also offers reliable tracking, such as instant notifications when an employee enters receipts via his or her smartphone. This allows for faster reporting and better compliance with company policies.

The software automates expense approval by routing tasks to the correct people using custom workflows. These solutions also include analytics that quickly detects and fixes potential problems, improving decision-making.

Sources:

https://www.netsuite.com/portal/resource/articles/financial-management/expense-management.shtml

https://medium.com/expense-management-for-businesses/what-is-expense-management-why-is-it-important-7133d08051ab