All organizations need to track the expenses that they spend in doing business efficiently. Employees who pay for business expenses from pocket need to submit an expense report for claim reimbursement. For some people, expense management is only the system of tracking employee reimbursement but it is more than that. It is an entire system from recording expenses to reimbursing employees. Organizations need to maintain a diverse system for managing their expense efficiently.
Expense management – A quick overview
Companies deal with a wide range of expenses on a daily or annual basis but they need to record all types of their expense for better expense management. Usually, expense management is a system of recording, reporting, submitting, approving, and processing reimbursement claims to employees.
Sometimes, employees pay business expenses from their pocket and claim repayment. Companies set some basic rules and regulations for repayment processes. Organizations set Travel and Expense policies (T&E) policy, which help them in managing their travel and other expenses efficiently.
It is challenging organizations to manage their expenses because they have a lot of things and expenses to record. They need to continuously keep track of their expenses and need to find ways to control them for running the business efficiently.
Why expense management is important?
Expense management is a crucial factor that brings success and losses for the company. It helps you to know your company’s financial state. It helps you to know how much your company needs to improve to earn more revenue. It highlighted the costs that you spend on your business and what you earn from your business.
Expense management is time taking and money consuming. It can be hard but it is important in a business cannot be denied. It plays the best role in your organization’s financial condition and enables you to run your business efficiently.
What are the categories of expenses to manage?
Businesses experienced different forms of expenses. Some of the basic forms of expenses are mentioned below:
- Flexible Expense
Expenses that vary every time-to-time are categorized as flexible expenses. These expenses are utility bills like water and gas, telephone bills and other type of bills
- Travel expenses
Employees need to travel to different places on the behalf of their organization to promote business. Companies organize business trips for business purposes. All the expenses that employees and organizations spend on traveling like flight reservations, hotel booking, cab services, and other traveling expenses are categorized as travel expenses.
- Fixed expenses
The expenses that are fixed and don’t change time-to-time are known as fixed expenses such as employee salaries, office rent, organization insurance, and other such expenses.
- Periodic expense
These are the expense that the company does not experience on regular basis such as buying new equipment for the organization, upgrading the business setup, buying new furniture, repairing costs, SAAS expense, upgrading security, upgrading software, and renewing a license.
- Petty Cash
Petty cash is the amount that organizations need to pay in cash. These are the expenses that are little enough to pay in cash such as arranging a lunch for employees, arranging a meeting with a customer in a hotel, buying gifts for the customer to attract them, buying office supplies, and office decoration
What are the types of expense management? Which type is better for companies?
Companies use multiple ways to manage their expenses. Following are some of the major ways that companies use for expense management:
It is a manual way to manage expenses but it negatively affects the efficiency of the organization. This way of expense management is time-consuming and costly. In this system, employees need to attach all the receipts of transactions.
Spreadsheets are also used for expense management. In this type of expense management, receipts are added to the spreadsheets just like in paper-based expense management. It is also a manual process for managing expenses but it has some security issues or it is also time-consuming.
- Software and automated system
If you want to manage your company’s expenses without negatively affecting the efficiency of your company then software and an automated system can be the best for your organization for efficient expense management.
Software is a cheap but efficient way of expense management. It helps you to give a rapid and accurate system to your employees for reporting and helps the fiannce team to process reimbursement rapidly and accurately.