As businesses rebound post-pandemic, global business travel is expected to rise 23% in 2023.
However, tracking and managing business expenses (like travel) is highly complex. After all, nearly 43% of these businesses use manual expense reporting systems. The reasons why manual processes are complex include
- Late submission of travel expense reports
- Loss of travel expense receipts
- Poor reconciliation of travel expenses
- Time-consuming review and approval activities
As a result, almost 89% of organizations plan to adopt digital-first business strategies, including automated expense management systems.
Thus, a dedicated expense management system is in demand among organizations since it brings faster reimbursements, better control over employee spending, customized expense analysis, and more.
Let’s dig deeper to know what expense management is, its importance, how it works, and the future of the automated expense management industry.
What is Expense Management?
Expense management is the process of verifying, approving, and reimbursing employees’ business expenses.
For instance, employee travel is one of the most common business expenses. However, you need a robust online expense management system to manage and keep track of all your employees’ expenses.
What is an Expense Management System?
An expense management system helps create an expense management policy to understand the organization’s spending and reimbursement rules.
Let’s see what is an expense management policy and the four pillars that set the foundation for it.
4 Pillars of Expense Management Policy (EMP)
An expense management policy is a documented process that details:
- The type of expenses your employees can claim
- How they can claim those expenses
- Who will approve them
It also includes compliance with the regulatory laws and other best practices that you need to follow.
Thus, it has four central pillars that set the foundation of every organization’s expense management policy.
| Best Practices | Policy and Procedures | Compliance | Employee’s Expectations |
| EMP should include fair, simple, and easy-to-follow guidelines and standards. | EMP needs to clearly mention how to claim the expense, precisely pre-approval and payout processes, and verification procedures. | EMP should ensure clear instructions on allowable and disallowable employee expenses for tax purposes. | The EMP must consider employees’ expectations, the organization’s budget, and fraudulent activities. |
Hence, a well-documented expense management policy does half of the work for you.
But why is expense management important for organizations? Why is it getting more attention among small enterprises? Let’s list out the expense management benefits to understand their importance.
Why is Expense Management Important?
An automated expense management tool can help you save time and resources through real-time expense tracking, customized expense reporting, and automated faster approval processes.
In this section, let’s uncover how these expense management software can help streamline your business spending.
Improved Employee Satisfaction
An expense management app allows employees to record, claim, and get reimbursed faster. and more comfortably. As more Millenials and Gen Z, (read: “digital native”) population enter the workforce, the demand for digitization of organizational systems is rising.
Online expense management system holds multiple advantages, such as
- Digital receipts: each transaction will have an electronic record saved automatically in the expense management software.
- Real-time tracking: you can easily find and track the travel and other employee expenses as they are updated in real-time.
- Improved information exchange: online expense management systems allow you and your employees to communicate better and exchange necessary information through the app or computer software.
- Faster reimbursement: the automated processes allow you to review and approve the expenses faster. Thus, your employees get their claims quickly.
- Simplified claim submission process: since the expense management software auto-saves the expense receipts, employees’ submissions become easy and convenient.
Rising Demand for Travel Expense Management
Manual travel expense management through spreadsheets may lead to loss of control and visibility.
In extreme cases, this may lead to negative cash flow.
In fact, small enterprises to big corporations have now understood the importance of travel expense management.
Here are some reasons why.
- With more businesses entering new and global markets, business travel expenditures are rising. In fact, global business travel spending may reach $933 billion by 2022 end.
- Millennials want the work to be done on the go and look for an application to manage almost everything from booking online tickers to claiming expenses online.
- The technologically advanced new generation faces expense management issues following the manual process.
Automation
The new-age expense management solutions bring automation in a way that the employees need not enter their expenses, thanks to Optical Character Recognition (OCR). They also don’t need to be present in the office or use their laptops to claim the expenses.
The kind of automation that these expense management systems bring is next level. For example, your employee incurred an expense; he just needs to upload the receipt to claim his reimbursements.
Such ease of recording transactions brings greater discipline such that your employees will be more regular in submitting their expense reports since they only have to upload the receipts.
It also eases your employees’ efforts in deciding the category of expense to claim. Using technologies like artificial intelligence (AI) and machine learning (ML), it can auto-categorize the expenses from the digital receipts uploaded on the app.
Simplified Accounting and Bookkeeping
Despite having accounting software, your expense management team might need to book expenses manually. Passing accounting entries for multiple expenses incurred across the organization is time-consuming.
Expense management solutions have integrated and simplified bookkeeping features that automatically record accounting entries.
For example, when your employee books a flight ticket using expense management software, it will book this expense as a travel expense in your books of accounts automatically.
Easy Tracking of Expenses
Automated expense management solutions enable you to track each transaction your employees perform anytime from anywhere. You can track every expense your employee makes for business purposes since it has self-service capabilities.
Since the web-based software can provide you with graphical representations of the status of your employees’ claims, they don’t need to waste their time checking whether the expense is approved or not.
Similarly, the app also lets your employee review which expenses are reimbursable and which are not. Thus, it reduces the administrative burden of your employees to obtain small information frequently.
The expense tracking in the expense management tools also helps you negotiate preferential volume deals with preferred partners (e.g., Ola, Zomato). It is possible since your software can analyse employee expense patterns, and you can easily predict how much your employees spend for a particular expense category.
The expense tracking can also provide spending analysis for off-site training to understand if any business case change is required or not. The easy tracking helps you in smooth employee buy-in since digitizing expense management will streamline their efforts more efficiently.
Better Expenses Analysis
The expense management applications also provide default and customized spend analysis to make better decisions. For example, your employee expense report may reveal that you spend heavily on employee travel and accommodation to send them for training at different locations.
Instead, it might be cheaper just to call the trainers to your place and arrange their travel and accommodations. Or, you can plan an online training session for your employees to reduce costs effectively.
The expense analysis reduces the administrative efforts to compare the employee expenses with the budgeted limits and review total spending in one category of expense (e.g., mobile recharge expenses).
You can also create customized templates for the expense reports employees must use for their claims.
Greater Control Over Expenses
The expense management systems help organizations exercise greater control over employee expenses. These organizations can control employee spending in two ways:
- Through reactive controls: The reactive controls are those using which the organizations can set automated actions. For example, an organization may set a rule in the software that expenses below ₹ 1,000 need no approval and can be reimbursed directly to the employees’ accounts.
Similarly, you can also exercise reactive controls when an expense claim does not meet the expense management policy requirements.
- Through preventive controls: Preventive controls are those using which the organizations take preventive actions to curb costs or avoid unnecessary spending. For example, you may find out that some of your employees’ flight expenses are much higher than their accommodation expenses.
This could be mainly because they travel during high demand of the flights to the same destinations. In such cases, you can take preventive control to arrange an online meeting or shift the dates to other than peak travel dates to avoid extra spending on airfare.
Now that we have covered the various advantages of expense management let’s dive deeper into the process.
Expense Management Process
The expense management solutions have pre-defined rules and standards to approve/reject any expense claimed. The organizational policy for expense management helps such tools auto-categorize various expense claims and push them forward for processing in the next step.
It may also happen that any expense claim not meeting the criteria of the expense management policy gets rejected. Or, the manager reviewing any expense may need more clarification or justification on a particular claim.
In such cases, when each step is pre-defined, and you get notified of every transaction regularly, it streamlines every expense claim and its approval process.
Let’s understand the expense management process with the help of the following diagram:
Let’s summarize the expense management process:
- Your employee submits a digital receipt of the business expense he incurs from his pocket for reimbursement. Proof may be required depending on the type of expense.
- The system will check the expense eligibility and either reject or proceed with the transaction for the manager’s approval in the next step.
- The concerned manager gets notified with the digital receipt. He may reject, approve or ask for more details on the transaction from the employee.
- The claim is now moved for final payout approval from the accounts department.
- The department may reject or accept the request based on the policies set for employee expenses.
- Once approved, the accounts department makes payment of the reimbursement, and the employee gets notified of the reimbursed amount.
L Now that we have understood the process and the importance of expense management tools, let’s see what the future may look like for these cost management techniques.
Future of Expense Management: Way Forward
O The employee expenses post-pandemic have started to increase as offices have started, and their business expenses have increased. For a big organization (more than 50 employees), managing and reimbursing the expenses of these employees becomes a crucial task.
Hence, as part of their digital transformation strategy, they shift towards using expense management solutions to record, verify and manage employees’ business expenses efficiently.
Let’s see expense management trends to look for in 2023 worldwide as more businesses plan to digitize their business strategies.
More Focus on Employee Experience
The overall employee experience for any organization will improve for three reasons:
- Reduction in administrative burden
- Faster, fairer, and more convenient reimbursement processes
- Integration with other ancillary service apps (e.g., flight booking or cab service app)
Thus, the employees will experience greater productivity improvement, willingness to submit expense reports timely due to highly convenient processes, and in-app ancillary services to perform other transactions.
Greater Mobility to Record Expenses
Earlier, the employee experience to record and submit expenses was manual (using spreadsheets), but the expense management tools introduced greater mobility to it.
These solutions allow employees to simply upload their claims, which will be auto-categorized under relevant expense heads.
The companies have started focusing more on how to simplify the expense management process by providing –
- Flexibility to record transactions from anywhere
- Allowing recording of expenses from any device using cloud storage
- Enabling API integrations with value-added services such as Ola, Zomato, etc.
- Using advanced technologies such as AI, ML, etc.
- Sending short summaries through email, and SMS
Rise in API Integrations
The expense management system will accelerate application programming interface (API)-based integrations. It means you can integrate your expense management app for various services such as
- Flight booking
- Travel management services
- Human resource and payroll services
- Accounting services
Advanced Use of OCR
Optical Character Recognition (OCR) lets you convert the text written or printed on different files (images, pdfs, etc.) into machine-readable formats.
The use of OCR in an expense management tool will advance to include images, handwritten notes, scanned documents, or any other format to read and interpret the text.
Using a combination of OCR and AI technology, such apps can automatically categorize an expense to its relevant accounting head.
Effective Regulation of Expense-related Frauds
As per the Occupational Fraud 2022 research paper by ACFE, expense reimbursement frauds are one of the most common occupational frauds in the Asia-Pacific region. In fact, 15% of occupational frauds are caused by inflated reimbursement expenses.
The expense management software will help organizations reduce fraud by regulating the expense submission process as per the policy standards. Hence, the app will not allow employees to spend beyond their pre-determined spending limit.
Moreover, the integrated services on the app will let you verify the transactions as and when they happen.
Real-time Updates on Expense Management
The solutions provide real-time notifications and a dynamic dashboard where you can review each employee’s transaction pattern and categories.
The dashboard is customizable to include items and reports you want to view. The advantage of real-time updates is that you get notified about an expense and can verify whether the expenses are within the employees’ pre-determined limits.
Cloud-based Expense Management Systems
The expense reports or digital receipts are saved in the cloud. Hence, you don’t need to store them in a separate folder. A 100% cloud-based expense management solution also enables you to verify and approve expenses anytime.
Thus, expense management solutions are the new-age computer programs that will let you focus on improving your employees’ efficiency and get them reimbursed more conveniently.
FAQs On Expense Management
Expense management vs. cost management – what is the difference?
Expense management refers to employee expense management in organizations, e.g., employee travel expenses.
On the other hand, cost management is understood as reviewing the organization’s total cost and finding effective ways to cut unnecessary costs.
What is expense management vs. spend management?
Expense management refers to employee expense management, which includes automating the workflow and approvals for employee reimbursements.
On the contrary, spend management is about managing total corporate spending, e.g., corporate cards, bill payouts, employee expenses, etc.
What is expense management accounting? What is an expense report in accounting?
An expense management accounting is recording accounting entries for employees’ expenses and recording their reimbursement entries.
An expense report includes a list of expenses an employee incurred for business purposes which he can reimburse from his employer.
How do you write an expense policy?
A precise and fair expense policy leads to effective expense management in an organization. Below are some key considerations to writing an effective expense policy:
- Prepare budgets for different categories of expenses
- List out all expenses that can be reimbursed
- Define expense reimbursement limits clearly
- Specify tiered categories of employees for expense reimbursements
- Mention a clear process flow of submitting and claiming an expense
- Include regulatory obligations, if any
- Keep updating the policy from time-to-time
A simple and easy-to-implement expense policy will help you in its effective execution.
