What is Expense Management & How to Keep Track of It?

What Is Expense Management?

Expense management is a type of accounting process to track business spending, typically for analyzing if the company can reimburse the costs incurred.

For instance, let’s say if your company provides travel allowances for employees, then the cost incurred for transportation should be tracked as a part of the expense management process.

While some companies use Excel sheets to record expenses, some of them utilize automation software to streamline their cash flow. No matter which method you choose, monitoring expenses will help you get more control over spending and prepare a better financial plan.

Why is Expense Management Important?

If your company houses full-time or part-time employees, then managing expenses will be important, regardless of your business size. After all, you need to clear the pending dues, which could be office rent, material costs, or employee allowance. So, you need to pay them on time or else you have to deal with hefty late charges. And that certainly dents your hard-earned reputation.

As a business owner, you never want such consequences and so, it is important to work on expense management. Even if someday you arrange lunch for your client, its cost should be documented carefully and approved by you or any authorized person. This way, expense management can help businesses reimburse faster, meaning you don’t have to keep employees waiting for days or months. It empowers businesses in such a way that they can closely monitor spending on employees and form business strategies to maintain spending limits.

Apart from providing insights on business spending, expense management also ensures you meet tax obligations. It keeps business finances organized, helping you timely file tax returns without incurring any late fees. Hence, you can easily fulfill tax requirements and stay compliant with IRS regulations.

What Is an Expense Management Policy?

Basically, it is a policy that outlines which business expenses qualify for reimbursement. It’s designed to help employees understand what expenses can be covered, so if they’re unsure whether things like meals or transportation are included, they can simply refer to the policy. As a business owner, you should compile a list of reimbursable expenses, along with any limits, to better manage company funds.

Below are things to remember when building an expense management policy:

• Specify a proper guideline for expense reporting
• Remember to finalize spending limits
• Introduce penalties for policy violations
• Ask the accounting team to perform timely audits
• Prioritize compliance with rules and regulations
• Update expense policy regularly
• Consider accounting software for expense management

How Does Expense Management Work?

Here’s a detailed explanation of how the expense management process works.

1. Submit Expenses for Reimbursement

If any employee has used the company’s fund, then he or she needs to report the expense according to your expense policy. They need to share the necessary documents such as a receipt or an invoice with the accounting team. Expense reporting should be done as per the mentioned guidelines to make a successful claim.

2. Receive Approval

Next, an authorized person from your accounting team should verify if the cost incurred comes under the expense policy. At this stage, you can accept or deny the claim made by your employee. Ask the accounting team to audit the expense report thoroughly before processing reimbursement payments.

3. Get Expense Reimbursement

Once your accounting team has accepted the claim, initiate the reimbursement payment and transfer the money to the employee’s bank account. The employee should receive the reimbursement amount in the specified period.

4. Update Expense Records

As soon as you process the reimbursement payment, update your expense records. You can use automation software to save your digital expense receipts and generate accurate expense reports. It will give you a bigger picture of how a business’s financial health is and aid you in making financial decisions.

Types of Expense Management Process

Managing expenses can be done using any of the three below-mentioned processes. The efficiency as well as accuracy may vary according to the preferred expense management process.

1. Paper-based

Accountants will create an expense receipt using pen and paper. Once generated, they need to keep hand-written expense receipts in archive boxes. Later, they need to manually fetch the data in order to prepare an expense report. This conventional process may lead to inaccuracy as there is always a fear of misplacing paper-based expense receipts.

2. Google Spreadsheets

Businesses can manage expenses using Google Spreadsheets that need frequent data entry. Your accountant needs to enter the information from every expense receipt. It is the cost-effective method but comes with multiple challenges as minor typing errors can negatively impact your cash flows.

3. Automation Tools & Software

While the manual process doesn’t guarantee accuracy, the automated process via software offers highly accurate expense reports. You can save expense receipts on cloud-based software and generate the expense report in a fraction of a second without doing lengthy paperwork. As a result, you can manage business expenses efficiently.

What is Expense Management Software?

Expense management software is a modern-day tool for managing business expenses without relying on paperwork. It not only eliminates the requirement for pen and paper but also saves you time and effort, allowing you to concentrate more on other business important tasks.

It automates expense reporting and tracking in such a way that you don’t overspend expenses, helping you maintain profitability. It is an efficient expense management process to organize your business finances and make sure you come out on top of your business.

Just a few clicks are all you need to create an expense report to identify the scope of improvement in financial planning. That’s not all, you can use expense reports to file tax returns without relying on manual calculation or collecting paper-based receipts.

Benefits of Expense Management Software

With advanced expense management software like Moon Invoice, you can simplify your accounting process. Here are the benefits of expense management.

1. Error-free Reports

An automated expense management process with software can help you create highly accurate reports. You don’t have to waste time finding errors manually and doing calculations repeatedly. You can make expense reports without relying on paper-based receipts, which consumes time.

2. Better Compliance

Software-based expense management process allows your employee to submit their reports according to expense policy. Hence, there will be no back-and-forth once they submit reports along with necessary documents. It further helps you to compile with tax laws, helping you file tax returns by quickly fetching data from the software.

3. Quick Approvals

The accounting team will find it easier to thoroughly check the expense claims quickly as it offers a magnified view instead of hand-written receipts. So, accountants need only a few seconds to scan the receipt and accept or deny the expense claim made by your employee.

4. Timely Reimbursement

Since your accounting team does not take more time verifying the claim, employees can expect timely distribution of reimbursement. The account team can quickly process the reimbursement expense if the claim is accepted. Thus, employees can receive it in a timely manner without taking frequent follow-ups.

Conclusion

Expense management is as important as ringing up your sales. Whether you consider a manual process or use any automation software, you must establish a streamlined expense management process. It will help you dispatch reimbursement on time, improve cash flows, and save time from unnecessary revisions.

Invoicing software, Moon Invoice can play a pivotal role in transforming your expense management and tracking process. A sophisticated invoicing software sets you free from manually checking every receipt. It allows you to generate an expense report instantly, boosting your overall reimbursement process and helping you establish an effective financial plan. Get Moon Invoice free for 7 days.

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