What Is Expense Management & How to Choose Expense Management Software for Your Business

Expense management is more than simply keeping track of your employees’ reimbursement claims. Finance teams need to maintain accurate records for financial planning, while corporate leadership uses expense reports to evaluate risk management and identify cost-saving opportunities.

Expense management is crucial to your business operations, and with the right tools, it doesn’t have to be complicated. Expense management software reduces employee workloads and accurately tracks expenses for better regulatory compliance. 

By automating the expense management process, you’ll save time and money, while gaining valuable insights into the financial health of your organization.

What Is Expense Management?

Expense management is a system for controlling, tracking, and processing employee expense reimbursements and employee-related corporate credit card transactions. Specialized online and mobile app expense management software integrates with accounting software and ERP systems.

Expense management processes include:

• Establishing company policies
• Having employees submit receipts
• Issuing corporate credit cards to employees for routine purchases
• Controlling expenditures
• Making payments to reimburse employees for approved expenses

What Is an Expense Management Policy?

An expense management policy outlines what expenses can and cannot be submitted for reimbursement.

Most expense policy violations happen because employees do not understand the policy. Although it seems like just a footnote in your accounting process, a formal, documented expense policy gives your employees clear guidance for business expenses.

Your expense management policy should include all allowable and non-allowable expenses. It should cover specific limits for expense categories like food, travel, and supplies. The policy should talk about receipt requirements and instructions for submitting expenses claims (including deadlines). Other factors to consider include:

• Preferred providers, if applicable, like hotels, airlines, and rental car companies
• Details about the reimbursement process, like when and how employees can expect to receive payment
• Accepted payment methods, like online payments, cash advances, and out-of-pocket payments
• Corporate credit card rules

Common Examples of Travel and Expenses (T&E)

Corporate business and travel expenses commonly submitted for reimbursement include:

• Travel expenses like airfare, car rentals, taxis, or driving services (Lyft and Uber)
• Hotel, motel, and other lodging expenses like Airbnb
• Business meals while conducting business travel, entertainment, or employee motivation
• Routine office supply purchases (tail spend not going through procurement)
• Professional license and continuing education expenses

Why Is Expense Management Important?

Expense management establishes control over employee spending so you can maintain accurate financial records and make data-driven business decisions in the future. 

Expense management helps to track employee spending by category and verify purchases for authorized business purposes (rather than personal spending). It thoroughly works to maintain employee spending limits and reduces duplicate and fraudulent payments. Other benefits include:

• Obtains approvals for expense claims
• Facilitates efficient employee reimbursements
• Implements budgetary controls
• Ensures regulatory compliance with the IRS and other tax agencies
• Provides accurate insights into a company’s financial health.

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How Does Expense Management Work?

The expense management process electronically captures invoices, matches documents, and then screens, reviews, approves, tracks, and reimburses employee expenses. 

The expense management process typically follows these steps:

1. Employees log expenses, then submit them for reimbursement either directly to their manager, accounting department, or via an expense management system.
2. Managers/approvers either approve or deny these claims.
3. The finance team audits expense reports for compliance, when necessary.
4. If a claim is accepted, the finance team processes reimbursement payments.
5. The finance team keeps expenses, records, and receipts for future external audits.

Types of Expense Management

Although expense management is critical for any company, the process varies between organizations. The three main types of expense management are:

Paper Forms

While this is a less expensive way to manage expense reports, paper forms require the time-consuming process of manually logging these reports. Additionally, employees need to keep track of their paper receipts, which could end up lost in transit or impossible to find again.

Spreadsheets

Spreadsheets are more sophisticated than tracking paper because you can import financial data from your bank for easier reconciliation. However, they still require paper receipts and can be confusing for employees who are not accustomed to using them. They also require manual data entry, which makes them prone to human error. 

Software

Software automates much of the expense management process, from compliance to approvals. This instantly reduces your accounting department’s workload.

Expense Management Software vs. Traditional Expense Management

Expense management software automates the process of submitting, approving, and reimbursing expenses. In comparison, traditional expense management uses a manual paper or spreadsheet-based system to process, pay, and audit employee expenses. 

Although the traditional approach is initially cheaper than purchasing software, automated expense management systems enable companies to simplify the expense submittal process, reduce errors, and mitigate the risk of expense fraud.

Expense management software is more specialized than traditional accounting software and ERP systems, which handle several business functions, from manufacturing resource planning to billing and payments. 

ERP companies offer expense management software to handle functionality beyond the core ERP system. Expense management software often integrates with traditional accounting and ERP systems. 

Within the expense management software category, some platforms are specifically designed to provide tail spend management through system-spending controls and pre-approved vendors for routine purchases like office supplies. 

Benefits of Expense Management Software

Switching from a manual process to automated expense management reduces workload and streamlines many financial systems. It helps to improve accountability, creates faster employee reimbursements, and provides real-time visibility into an organization’s financial data.

Expense management software gives you better protection against fraud and allows for more efficient policy compliance. The technology helps to strengthen spend management and integrates with existing accounting and ERP systems.

Additional benefits of an expense management software include:

• Custom automated approval processes
• Enhanced data security
• Compatibility with mobile devices and SaaS
• OCR scanning for paper receipts and e-receipts
• Automated data entry

Expense management software also closely records your digital audit trails for better compliance.

How to Choose an Expense Management Software for Your Business

Once you’ve decided to switch to expense management automation, you need to pick the right software. But how do you make the decision? Here’s how to get started:

1. Determine You Expense Management Needs

Small businesses have fewer expenses than large corporations, while a mid-sized or larger company needs more extensive functionality, which requires a bigger budget.

2. Evaluate Your Current Expense Management Processes

Figure out what does and does not work so you can more easily identify the features your company needs.

3. Use Review Sites to Compare Expense Management Platforms

Match your business needs with the functionality of the expense management software offered by different vendors. Be sure that the vendors you’re considering are financially stable and offer adequate customer support. 

4. Ask Employees Who Travel Often What They Recommend in an Expense Management App

If an end user doesn’t like the system, you’ll experience delays with expense report data capture. Accounting won’t reflect expense accruals promptly, making business financial statements a less valuable source of information. 

5. Consider Using More Than One Type of Expense Management Software System

If you need to manage tail spend or have other problems not covered by the primary expense management system your company selects, you might benefit from using multiple expense management platforms.

Some features to look for in expense management software include robust customer support and a user-friendly dashboard with views for employees, approvers, and administrators. It should be able to integrate with APIs, ERP systems, and accounting software. 

Additional features to consider are:

• Automated data extraction, like OCR, to simplify the submission process
• Expense policy verification and violation detection notifications
• Customizable expense approval workflows and authorization levels for approvers
• Documentation of receipts, interactions, acceptances, and rejections for regulatory compliance
• Real-time, in-depth data analytics for spend management and budgetary control

What Is the Best Software for Expenses?

With so many options on the market, it can be challenging to figure out which one is the best fit for your organization. Here are three of the most popular expense management solutions to speed up your research:

SAP Concur

SAP Concur integrates expense, travel, and invoice management into a single platform. The app guides employees through the process of submitting expenses, populates charges into expense reports, and automates invoice approvals.

TripActions

TripActions is an all-in-one travel, corporate card, and expense management platform. Features like auto-categorization and accounting integrations reduce month-end close from days to mere hours.

Expensify

Expensify combines receipt scanning, expense tracking, and reimbursements into one free app. The Expensify Business Card automates the expense management process and offers up to 4% cash back on all purchases.

Discover the Right Expense Management Software for Your Business

Expense management is just one of the many essential financial processes that organizations are choosing to automate for increased operational efficiency. Expense management software streamlines reimbursements and maintains accurate records for tax purposes, regulatory compliance, and better control over day-to-day spending.

By eliminating the need for manual expense tracking, you can use the time saved to analyze your financial data rather than collecting it. The insight you gain from your own records empowers you to make more informed decisions to support your company’s growth.