Every business manages its expenses — but not every business uses expense management. Expense management is a system for processing, paying, and auditing business spendings, such as employee expense accounts, travel-related expenses, and the like. Being conscious about decisions related to managing expenses allows business leaders more insight into why and how employees spend business money.
But how does expense management work, and why does it matter? Read on to find out.
Expense Management 101
Business spend is a wide category that covers all ways employees use business funds, such as procurement, invoicing, and payments, and business spend management is a comprehensive approach for controlling and optimizing spending. Within business spend, management is the field of expense management, which covers specifically the money employees pay to cover their own expenses, which most often include travel and related charges but might also include recurrent expenses like car and phone payments.
Expense management systems include many factors. Policies and procedures developed by business leadership should govern how employees can spend money, and technology and similar services should help businesses process and analyze data associated with expenses.
How a business manages its expenses affects every level of stakeholder and every level of stakeholder benefits from proper expense management in different ways. Business owners, for example, want better management of expenses to improve growth, productivity, and employee satisfaction while limiting risk and costs. Meanwhile, employees can utilize an effective expense management process to receive reimbursements faster and easier. Finally, financial teams appreciate the extra insights that expense management can provide for more accurate financial planning.
Expense Management Process
A clear expense management process helps everyone involved achieve their goals. Business leaders should work with employees who generate expenses to create a process that works best for the organization. The process can be as simple as the following steps:
- An employee incurs expenses.
- The employee compiles and reports those expenses.
- A manager verifies and approves the expense report.
- An accountant audits the compliance of the expense report.
- The accountant releases payments for employee reimbursement.
- The accountant keeps a record of incurred expenses for external audits.
Of course, rarely is the expense management process so straightforward. Business leaders need to be on the lookout for signs that the process is not as easy to manage as they might hope. Some of the most common challenges faced by businesses with new expense management systems include:
- Expense policies are unclear. If employees cannot remember what expenses are covered, they will submit claims for out-of-policy expenses and be frustrated by delayed and insufficient reimbursement. On the other hand, reimbursing out-of-policy expenses is considered expense report fraud, which could be dangerous for organizations.
- Expense reports are not reaching the right person for approval. The workflow of expense approval should be established well, so reports reach the right desk and receive approval in an appropriate time frame.
- Reimbursements are regularly delayed. Though business leaders want to be certain that they are only reimbursing verified and valid expenses, they need to be cognizant that delays will weaken employee morale and lead to extreme dissatisfaction and lack of productivity as employees focus on the money they are owed rather than their work.
Expense Management Software
Traditionally, businesses have managed expenses with tools no more complicated than pen and paper — but in the Digital Age, there are better ways. Manual expense management comes with many challenges, from requiring employees to keep track of their receipts during travel to a high likelihood of errors with data entry and a lack of visibility obscuring leaders’ ability to gain accurate insights from analysis. A smarter method of expense management is through automated expense management software.
Automated expense management tools boast features that eliminate the most error-prone tasks while boosting leaders’ ability to see, understand and control expense-related business spending. The best components of an expense management program include:
- A mobile app. An app allows employees to scan and compile their expenses as they travel, eliminating the need to keep track of their receipts. Apps can also verify that certain expenses are covered before they are processed into an expense report.
- Multi-level approval process. Expenses must be approved first by a manager and later by a finance team before reimbursements can be paid. Software should allow for multiple levels of approval to account for control by different stakeholders.
- Integration with accounting software. By integrating with existing accounting software, expense management tools make it much easier for the accounting team to consolidate tracking and reporting for accurate books.
Every business leader needs to consider how it will manage employee expenses — even startups with just a handful of staff. The sooner entrepreneurs find the right processes and tools for expense management, the better.