What is expense management?

Expense management refers to the systems companies use to track, process, pay, report, reimburse, and audit business-related expenses. Any business encounters a wide variety of employee expenses during operations, from office supply purchases and rent to client dinners and travel.

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With that in mind, it's essential to have an expense policy and procedure in place so your company’s finance team can properly track and reimburse employee spending. An all-in-one expense management solution can serve as a centralized hub for all of this—but we’re getting ahead of ourselves. 

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In this article, we’ll cover all things expense management, outline the various types of expenses and expense claims a company is likely to encounter, and explain how spend management software can help automate the process. 

How does expense management work?

Expense management is a multi-step process with different actors. First, an employee might charge work-related business travel expenses, supplies, or client entertainment. They'd then report their spending and provide necessary information like dates, locations, prices, and paper receipts.

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Following that step, their accounting department must review the expense to make sure it qualifies as a business cost and falls within company policies, and that the required details and documentation were provided. After confirming the accuracy of the information, the manager would then approve the expense claim and categorize it under the proper business expense label. They might also initiate expense processing for reimbursing the employee if needed.

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All of these steps should be documented for easy reference in an internal or external audit, or to generate up-to-date financial reports and set future budgets.

Types of expense management

There are different types of expense management systems, including:

• Manual expense management: This involves manually tracking and managing expenses via manual data entry using spreadsheets or paper-based systems.
• Automated expense management: This type of system uses expense management software to automate the process (the best types offer real-time visibility into spending).
• Mobile expense management: This enables employees to capture receipts, submit expense reports, and track business expenses on the go using mobile apps.
• Cloud-based expense management: Cloud-based expense management systems store expense data securely in the cloud, allowing easy access from anywhere with an internet connection.
• Integrated expense management: Integrated expense management systems integrate with other accounting systems such as accounting software, HR systems, and travel management tools.

What are the types of expenses?

The three types of business expenses in accounting are fixed, variable, and periodic. Fixed expenses like rent and full-time employee salaries remain the same over a particular period of time and don't change based on your business's level of production or sales.

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Variable expenses, by contrast, do change in relation to your company's output. For example, factory utility bills might go up as your company manufactures a higher volume of product. The money spent on raw materials or hourly wages would also increase.

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Finally, periodic expenses are incurred at less regular intervals of time. Because they can vary in terms of timing and cost, they aren't fixed costs. Examples include vehicle maintenance and holiday gift-giving.

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You might also categorize business expenses into operating and non-operating. While the former refers to costs incurred while doing regular business activities (e.g. employee salaries and administrative expenses), the latter involves things that fall outside core operations (like legal fees stemming from a lawsuit and the cost to restructure a company).

Examples of business expenses

Some examples of business expenses include:

• Employee salaries and benefits
• Workspace rent or mortgage payments
• Insurance premiums
• Office supplies
• Utility bills
• Professional fees to lawyers or accountants
• Raw materials for production
• Equipment maintenance
• Marketing and advertising
• Shipping
• Interest on loans
• Travel accommodations and transportation
• Conferences and workshops
• Software

What is expense management software?

Expense management software is a type of program that streamlines the employee reimbursement process. This software can automate expense reporting, track and categorize expenses, facilitate reimbursements, and integrate with payroll and accounting software. It also helps catch instances of out-of-policy spending or fraud by flagging suspicious transactions.

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Here's a summary of the tasks expense management can perform:

Automatic expense tracking

Expense management software lets employees quickly and easily submit expenses using their phones. They can take photos of their receipts and type out memos with any required information, so there's no need to keep track of different pieces of paper.

Quick expense report approvals

Once an employee has submitted this information, their managers can review and approve expenses in real time on their own mobile devices, making expense reimbursements quicker.

Integration with accounting software

Integration with accounting software for bookkeeping or tax-filing is another helpful feature of automated expense management systems. This makes it easier to pull all financial data together in one place.

Automatic expense categorization

Expense management software can automate the process for organizing expenses into categories like payroll and salary costs, office equipment, professional fees, and business travel. This makes it easy to identify deductible costs for tax filing, put together an expense report for specific spending categories, and locate the receipts for business write-offs in the event of an audit.

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What are the benefits of efficient expense management?

Efficient expense management processes and tools come with a host of benefits that allow businesses to grow and thrive.

Time savings

Manual systems are time-consuming. By speeding up the reporting, approval, and reimbursement process, efficient expense management can free up time for other work that actively serves the aims of the business.

Financial rewards

By allowing employees to spend their time doing the tasks that matter to the growth of the business, efficient expense management systems can also boost a company's overall financial productivity and earnings.

Reduced errors

Inefficient expense management is prone to errors. As a result, it's necessary to spend time reviewing every step for potential mistakes and rectifying any issues that arise. If you don't catch an error early enough in the process, however, it can lead to major discrepancies and issues down the road. Accuracy is key.

Guaranteed compliance

Better systems help businesses remain in compliance with the rules of the IRS and other regulatory bodies as they manage their finances. This approach also allows companies to keep accurate and easily accessible records available for audits, improving overall financial decision-making.

Increased morale

Inefficient expense management can be tedious and frustrating, so better systems create a more positive and enjoyable employee experience and office morale.

Accurate budgeting

Reliable and accurate financial records allow your business to better track spending and allocate the correct amount of money to different departments as you set and review your budget.

Lower environmental footprint

Removing the need for physical documentation cuts down on paper usage and reduces a company's environmental footprint.

Streamline your expense management with Ramp

Ramp's expense management software offers a solution to the pitfalls of inefficient manual processes. Our digital system (paired with business expense cards) allows employees to easily submit their expense reports, document receipts, gain manager approval, and receive reimbursements in a timely manner. Ramp also integrates with apps like Outlook, Uber, Amazon Business, so receipts can be automatically collected as well.

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Ramp connects seamlessly with major accounting, tax-filing, banking, and security software to allow for easy financial management and collaboration. Companies that use Ramp can look forward to fewer errors, less time spent on tedious accounting tasks, greater financial productivity, and overall employee satisfaction.