Expense management refers to the systems that a business has deployed to process, pay, and audit employee-initiated expenses such as travel and entertainment. Expense management comprises policies and procedures that direct such spending, including the technologies and services used to process and analyze the data incorporated.
Software to handle the expense claim, authorization, audit, and repayment processes can be obtained from organizations that offer a licensed software, implementation and support service, or otherwise, from software as a service (SaaS) provider. SaaS providers provide on-demand web-based applications controlled by a third party to improve expense management productivity.
Expense management automation has two aspects:
- The process an employee follows to complete an expense claim (for example, submitting mobile phone records or logging a hotel receipt)
- The activity accounting or finance team undertake to process the claim within the finance system
Typically, a manual process requires an employee to complete a spreadsheet or graphical user interface-based costs report that they later forward, along with the appropriate tax invoices (receipts), to a manager or higher official for approval. Once the manager or higher official has approved the claim, they forward it to the accounting department for processing. The accounting team then key each expense item into a company’s finance system before filing the claim and receipts away. In a SaaS implementation, these processes are extensively automated, and the submission and approval processes are transacted electronically.
Expense management automation is how an organization can significantly reduce transaction costs and increase management control when logging, calculating, and processing corporate expenses. Independent research assessing the use of automated expense management systems has confirmed that the cost of processing an expense claim decreases as the level of automation advances.
Organizations automate their expense management processes for reasons such as compliance, control, cost reduction, and employee productivity.
Types of Expense Management
Business strategies are customized to various types of expense management:
- Spreadsheets: Spreadsheets are a simple and most affordable way to keep track of an employee’s expenses. However, they still have paper receipts that go along with them that can be damaged or lost. This can also mean a labor-intensive method, and it can be unclear if employees are not good at using spreadsheets.
- Paper forms: Paper forms work decently with paper receipts. This is also an economical way to manage expense reports. However, this amounts to a lot of hand-operated logging and tracking work of these reports for both employees, approvers, and those who need to pay the accounting department’s bills.
- Software: Software conquers the workload, but it also can cost more to implement in the initial stages. The software can solve the significant problems of compliance, approval time, manual labor, and the cost of overall expense reporting.
Telecom expense management
Telecom expense management is the process of handling large enterprises’ communications costs to incorporate fixed voice and data, mobile devices, VoIP, Unified Communications and Collaboration (UCC), and any other IT-related services. Telecom expense management is explained simply as being “the management of wireless and wireline service and asset expenses”. Initially, Telecom expenses were managed as general services. More and more organizations associate telecom expenses to IT services in recent years. This change in management is because of transformation in global business strategies towards evolving technologies.
Travel expense management
Travel expense management is described as organizing and managing travel arrangements and costs for traveling employees. Travel expense management is often referred to as T+E.
Technology expense management
Technology expense management or IT expense management is the management of the technology expenses such as software licenses, computer equipment, applications, etc. Technology expense management includes the management of services associated with technology (SaaS, PaaS, etc.). Technology expense management activities are often performed utilizing various technology tools (bill of IT, management software, workflows, etc.).
Advantages of Effectively Tracking and Managing Employee Expenses
You probably have some guidelines in place for expense reporting but have you kept pace with shifting business realities? If not, it’s an opportunity for a refresh. When forming the case for such an initiative, CFOs should point out that organizations that effectively track and manage employee expenses can:
- Take full advantage of tax deductions. By maintaining the proper documentation for the suitable period and ensuring that all deductions are valid, companies can be confident they can take all the deductions allowable and have the IRS’s correct reporting level.
- Develop more accurate budgeting and forecasting. T&E expenses make up a large portion of the average company’s operating budget. When these expenses aren’t properly tracked and processed, that can interfere with a CFO’s ability to accurately budget and forecast for the future.
- Manage expenditures. Not knowing how much people are spending while they’re out on the road (or at home) working makes it hard to manage cash flow effectively. With improved oversight in this area, you’ll not only know who is spending what, but you’ll also have more control of these expenses, making it easier to prevent employees from abusing the system.
- Minimize business expense fraud. Occupational fraud includes exceeding business expenses, submitting false records, and other abuses that can be curtailed through good oversight, policies, and controls.
Expense Management Policy
One of the best approaches to control employee spending is implementing an expense management policy for everyone to obey. A policy can explain why an expense is rejected or questioned and decide whether to reimburse the costs.
All expense management policies should cover:
- A complete list of expenses a company will pay for
- A complete list of expenses a company will not pay for
- Maintain clear and concise language to avoid further questions
Organizations must update their expense management policy regularly. As your company expands into new business lines, it will need to adapt this policy to accommodate those changes.
Do not forget to include best practices like requiring pre-approvals for certain expenses, clearly explaining the approval process steps and other elements that can help minimize possible problems when someone flags expenses.
What is an Expense Management System?
Expense management system, a software that simplifies the employee expense reimbursement process using automation. The software reduces the need for paper, reduces the amount of time spent managing expenses, and reduces errors.
When you automate and combine expense management, you can identify spend from multiple sources, make wise business decisions based on accurate data, and clarify the process for everyone.
- View all of your expense data in one place
- Quickly enforce spending policies
- Automatically find receipts and process reports
- Reimburse employees faster
Why is an Expense Management System necessary?
Hand-operated or manual expense report management is both time-consuming and expensive. According to the Global Business Travel Association, on average, it takes:
- 20 minutes to complete one expense report
- 18 minutes to update an expense report
- $58 to process one expense report
- $52 to update one expense report
Organizations that automate the expense management process can easily cut down on the amount of money and time spent on this crucial task. In addition, they gain better knowledge of individual employees’ spending habits, making it simpler to pinpoint unusually high expenses so they can be addressed.