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February 11, 2022

What Is Expense Management and Why Is It Important

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Managing business expenses is a must for every business, organization, and even self-employed person. It’s a rather tedious and challenging process, even if a business is small. It is possible to track expenses manually or with the aid of software.

Whether the business prefers using manual methods or automating the process by implementing software into the organization, the process is still a must. You need to calculate expenses for taxes. It also offers benefits to the company, facilitates fair reimbursement, and even helps in decision-making in case the organization has too many expenses.

In the following article, you will find valuable information about expense management. Learn why you need to manage business expenses and what tools to use.

Understanding Expense Management

Unfortunately, not all businesses and organizations keep track of business expenses. Or, if they do, they don’t know the full picture without having the right tools. But expense management is a good strategy if a business wants to manage the budget properly.

By implementing this strategy to the overall business management system, you can accurately keep track of money spent on various tasks and even reduce the cost of unnecessary expenses.

But the strategy isn’t limited to just these several tasks. It may also help improve the business by reducing costs without negatively affecting the quality of performance.

So, what is expense management? It is a strategy used to process and analyze expense reports and business approvals. It also helps distribute reimbursements to employees.

Expense management isn’t just keeping track of expenses initiated by employees of the organization. It offers much more. For example, one of the most important components of the strategy is defining the protocols to distribute refunds and manage to spend.

Here is a simple example. A team of employees needs to travel on a business trip. Meaning, each employee needs to spend money on food and living. With the aid of the expense management system, the business limits how much the company can spend. The company will calculate secondment costs to pay before the business trip or reimburse employees later.

Without a doubt, it’s a tedious process, especially if you are required to do the job manually. But in the long run, calculating expenses using expense management techniques enable cost-effectiveness and even saves time when it comes to taxes.

Is it Difficult to Manage Expenses?

Without a doubt, the task of managing expenses is difficult. And with each new employee, the level of difficulty is increasing. Without a logical system, it is easy to make errors with all the receipts.

It is proper to track expenses as soon as they occur. But that’s the tricky part. It could be nearly impossible to find someone who can track everything, especially in the case of small businesses. That’s why most organizations prefer using software to successfully record all financial operations related to expenses.

Delaying recording expenses is a huge problem since you may not refund all the expenses of employees. Thus, it will reduce the morale of the team and might even cost you good experts. Delays usually occur when it comes to manual expense management systems. Mainly because of human error.

What Is Expense Management and Why Is It Important

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What Expenses to Manage?

The main takeaway is that expense management is needed. But before you proceed with learning what types of management you could use, check out what expenses you should record.

Travel and Expense

Travel and expenses, or short TnE, is a strategy that organizes and manages travel expenses and arrangements for employees on business trips. When using an app or software, all an employee needs to do is request expenses and automatically approve the request. Naturally, such a system requires limits, but everything is recorded automatically.

Petty Cash

Petty cash is a definition of small expenses. Typically, the cash is given to an employee instead of recording a very small financial operation receipt. Each company can set a petty cash limit, and the system records each request by the employee.

Purchase Management

Purchase management is managing purchases of products or services that an organization or business is buying. It requires keeping track of items that employees need and refilling when they go out of stock. A business needs a system to keep the organization or business operating properly.

Types of Expense Management

Businesses can choose from two main types of expense management systems:

  • manual or traditional;
  • automated or software.

The second type performs better. But before you dive into detail, check a short description of each system.


The manual system is often called traditional. It is free even though you still have to hire an expert or keep the management on your own. To keep track of expenses, an employee uses a simple spreadsheet.

The cost is the only advantage of the manual expense management system. The list of disadvantages is much longer when compared to benefits:

  • It takes time.
  • It does not eliminate human errors.

Moreover, such a system often produces a lot of useless paperwork. For example, the employee makes an expense report, then sends it to the manager. The manager has to check the report and approve it if it’s correct. Then the management sends the report to the organization’s finance system.


Unlike the previously mentioned example, software or automated expense management systems has only one disadvantage and many advantages. The only disadvantage is the cost. But if you compare expenses on the app or software with the effectiveness of the business performance, it will become clear that the app is worth the money.

Software is much more efficient and doesn’t create bureaucracy within the company or organization. A business can automate every process instead of going through a tedious manual procedure of recording every expense.

Moreover, the system has strict protocols. Meaning, every employee has a set of rules to follow when submitting or requesting reports. As a result, errors rarely occur.

Benefits of Expense Management Software

Manual expense management is difficult, so most businesses and organizations prefer using software or apps. Here are some of the main benefits of using automated systems:

  • Easy to track expenses. The system records expenses, and it’s easy to conduct audits.
  • Automated process of submitting reports. Employees can request expenses, and the system will approve and record them.
  • Compliance policy. This feature enables tracking expenses covered and the ones that should be refunded.
  • Analytics. If the business has too many expenses, you can check the analytical data that the system collects while tracking expenses.
  • Easy to set expenses limits. Depending on the type of expense, an employee can expect a certain refund.
  • Easy to integrate the system. It doesn’t matter what tools you use to manage your business. It’s easy to implement the expense management system to your existing strategy.

Without any doubt, using an automated expense management system is a reasonable idea.

The Bottom Line

If a company wants to flourish, it needs to keep track of business expenses. If a business has employees who need expenses to conduct business in different locations, it’s crucial to track every penny they spend.

Not keeping track of expenses will lead to overspending. On the other hand, if a business can’t keep track of its expenses, it won’t distribute reimbursements fairly. In this case, a business might lose valuable employees.

The best way to keep track of all business financial operations is to use the software. The system records all the expenses as soon as they occur. Moreover, business management can analyze whether all the expenses occurring within a business are reasonable and justifiable.

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Author: Charles Lutwidge

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