Managing a budget wisely can be tough for any business. Unlike other tasks a company does, keeping track of business expenses is essential for financial strength and resilience. Expense management is critical in any business: watching over company spending, ensuring its budget is used efficiently, avoiding unnecessary costs, and sticking to specific parameters. This role is the glue that balances profitability and investment, making a big difference in how well a company’s finances work.
Here is everything you need to know about expense management and how to apply it to your company.
Table of Contents
What is Expense Management?
Expense management refers to every small-to-big detail regarding the costs associated with a business’s operations. Costs could be anything from employee health insurance to travel expenses to an emergency fund for specific functions. But to handle everything gracefully involves planning, tracking, and analysing costs, among other crucial variables, to know whether resources are used efficiently and in line with the organisation’s financial goals.
Getting expense management right is critical for businesses to maintain their budget and improve profitability and resource allocation. Some key components of expense management include:
- Expense Tracking
- Monthly expenses
- Approval Processes
- Expense Reporting
- Vendor Management
Is Expense Management Important?
Think of expense management as the significant financial pillar of a business. Without this practice, a company is likely to struggle with financial stability or, worse, face insurmountable challenges, leading to the point of no return.
Let’s imagine the absence of robust expense management; a company may grapple with unpredictable expenditures, hindering its ability to maintain a healthy bottom line. Consequently, said company risks falling into financial disarray or even facing the threat of insolvency. That’s why efficient expense management serves as the underlying structure that supports the entire economic framework of an organisation. It provides the necessary infrastructure for budget adherence, resource optimisation, and strategic decision-making.
Who is Responsible for Expense Processes
Managing expenses in a business involves different people working together like a team. All these team members work together to ensure the company spends money wisely, follows the rules, and stays financially healthy. While the presence of specific roles largely depends on the size of the company, let’s break down who potentially does what in this critical task:
- Employees: These are those who spend funds on behalf of the company, like buying office supplies or going on work trips.
- Managers: When their team members spend funds, managers check if it follows the company’s rules. They decide if the spending is necessary for the business and give it the green light or suggest changes.
- Finance or Accounting Team: Once a manager gives the green light, the finance team takes over. They’re responsible for bank account handling, seeing through financial transactions, expense receipts, and overall cash flow.
- Expense Management Team: In bigger companies, a special team might be just for managing expenses. They create rules, make sure everyone follows them, and look for ways to make the whole process smoother.
The Key Role of HR
Considering that this department handles human resources and relationships, you might think HR isn’t directly involved in expense management. But, HR is a vital part of the expense management puzzle. HR is responsible for many things going smoothly during the expense management process, for example, setting and communicating spending guidelines, providing employee training on expense policies, adhering to minimum payment requirements, or even managing expenses related to paid app memberships. Moreover, HR can bring some of the most valuable insights and perspectives to the table, as they’re a team more likely to spot newer trends, know which accounting software to use, and set it all up following world-class security standards. All in all, HR provides a powerful preventative line of defence to expense management, which, no doubt, strengthens the company’s financial health!
Best Expense Management Practices
Any company looking to optimise its expense management practices will have a few ways of building improvement. Here are some of the best practices when it comes to expense management.
1. Clear Expense Policies and Guidelines
A significant step you can take is communicating clear and comprehensive expense policies, spending guidelines, permissible expenses, and documentation requirements. This clarity helps employees understand the rules and ensures consistency and fairness across the organisation. Regular updates and transparent communication about policy changes are essential for everyone on the same page.
2. Employee Training and Awareness Programs
Invest in employee training programs on expense policies and procedures so everyone’s well-informed. That means all employees, especially those handling expenses, understand the guidelines, submission processes, and the importance of accurate record-keeping. Awareness programs can help prevent unintentional policy violations, reduce errors, and create a culture of financial responsibility within the organisation.
3. Technology Integration for Automation
In 2021 the Expense Management Software market was worth a hefty £3.1 billion. Experts think it will keep growing at 8.64% every year until 2027. So, by then, it could be worth an even bigger £4.9 billion. Leveraging technology for expense management automation streamlines processes and reduces the likelihood of errors. Implement expense management software that allows for easy submission of expenses, automated approval workflows, and real-time tracking. Automation improves efficiency and provides accurate and up-to-date data for analysis, enabling better decision-making.
4. Regular Audits and Compliance Checks
Regular audits of expense reports ensure compliance with established policies and identify any discrepancies or fraudulent activities. Internal audits help maintain integrity in the expense management process, providing an additional layer of oversight. By consistently reviewing expense data, organisations can address issues promptly, reinforce policy adherence, and improve overall financial control.
5. Strategic Vendor Management
Managing vendor relationships is also necessary, as you can negotiate favourable terms and agreements to secure cost-effective deals. This will also mean regularly reviewing vendor contracts and seeking opportunities for cost savings and efficiency improvements.
6. Data Analysis for Continuous Improvement
Data analysis is at the heart of insights into spending patterns, tracking expenses, identifying areas for cost optimisation, and making informed decisions. Regularly review expense reports, analyse trends, and compare budgeted versus actual expenditures. This approach allows organisations to adapt their expense management strategies to evolving needs, aligning financial practices with overall business goals.
Expense Management with Factorial
With Factorial’s powerful expense management software, you can easily track spending, approve expenses, and centralise all employee receipts. Factorial’s intuitive system automates approvals, streamlines workflows, and integrates seamlessly with payroll. You can also set spending limits, gain real-time insights, and use Factorial Cards for secure, flexible payments.