Expense management is described as any detailed process for treating funds expended, approvals, and funds reimbursed to either employee of an organization or individuals.
Let’s look at what expense management means, the various types of expense management, its importance, and its challenges.
Expense management is the process adopted by a business or organization to treat, pay, verify and refund expenses initiated by its employees. It also refers to the policies and systems that guide any spending and the technology used to process and scrutinize its data.
Expense management can be manual or automated, and it usually involves two processes. The first process requires an employee to follow some steps in either requesting funds to carry out a task or asking for funds to be reimbursed for assignments completed.
It could involve filling out an expense claim form or entering data into the expense management software and sending it to a line manager for approval. The second step is on the part of the accounting departments, and it includes auditing and analyzing data submitted, getting support, and making payments.
In expense management, expenses are classified into 4 broad, significant categories.
Try this: Free Expense Reimbursement Form Template
Expenses vary for each organization; however, there are various kinds of ways companies manage their costs, and they include;
1. Paper Forms: Paper forms are a manual and inexpensive way to manage expenses. The downside of this is a massive load of paperwork flying around for request and approval. Which sometimes may be lost in transit or challenging to file or find and track.
2. Spreadsheets: A spreadsheet is a manual way to track and manage expenditure. Paper receipts are usually attached to the spreadsheets. It is a tasking method, and sometimes data can be muddled up if not well managed.
3. Software: Software is an innovative and efficient way of managing expense reports. It reduces the workload, and all the steps in expense management, from request to verification, approval, and data analysis, can be done seamlessly.
It also helps to manage compliance issues as all the steps are automated, as some prerequisites must be met before navigating to the next stage when using the software.
Try for free: Expense Approval Form Template
4. Telecom Expense Management: Telecom expense management refers to managing huge communication costs of organizations, such as voice calls, data, mobile devices, and VoIP.Before now, telecom expense management was classified as general services, and it is simply the management of wireless and wireline services and any IT-related service.
5. Travel Expense Management: Travel expense management, popularly known as TE, is the process of organizing and collating all travel arrangements and bills, in one place, in other to reimburse employees appropriately, providing funds upfront for travel, and exempt these bills from government taxes.
6. Technology Expense Management: Technology expense management manages technology-related costs, including computers, applications, licenses, and software. This kind of expense is processed through automated expense management software.
Free to use: Expense Report Form Template
The technology expense management process helps organizations track technology and glean valuable insight into the efficiency and functionality of all their tech-related purchases. Popularly referred to as TEM, technology expense management includes all the information of any tech purchases, from the point of sale to its deployment and cost of maintenance throughout its life cycle.
7. Petty Cash Expense Management: This kind of expense management involves keeping a small sum of money readily available for small purchases that are already pre-approved.Such as office supplies, toiletries, and birthday celebrations.
Expense management is essential to the seamless running of any organization. Reports have shown that 8 to 10 percent of an organization's revenue is expended on purchases. Therefore, managing the cost of processing expenses can affect an organization's bottom line, and if it is not addressed correctly, the effect can be damaging.
Expense Management is critical because it can help organizations identify areas of operations that gulp the most revenue. It also provides a clear picture of the organization's finances for effective decision-making and better control over expenses and increases employee productivity to reduce costs.
Check this out: Monthly Expense Form Template
Formplus is data collection software that facilitates collecting, submitting, tracking, and analyzing information offline and online. It is so versatile that you can manage or input all the information you want without an internet connection and sync it all to a central database as soon as the connection is established.
Sift through these: 45 Expense Form Templates
Formplus also features a robust collection of free expense management templates. For more advanced expense management tools, such as integration with payment platforms, make payments to employees or vendors alike. Formplus offers price-friendly plans to accommodate customized requests.
Here is a free expense reimbursement template sample, which can also be customized using the form builder option.
The difficulties with expense management might vary with each organization. However, there are some common challenges with expense management, such as;
This can be hard to detect, especially if there is a collaboration between both parties to defraud the company. Often an external audit is the only way this can be discovered.
1. Establish An Expense Management Policy
Create an expense management policy that employees can adhere to. Include a guide that would state expenses covered by your expense management policy.
2. Streamline Your Process
Standardize your expense management process and enforce it. Everyone must adopt the same approach in presenting expense reports.
3. Go Paperless
One of the intelligent ways to organize your expense management process is to adopt a software like Formplus that facilitates digital submissions, collection, review of receipts, and approval.
When this is done, it simplifies the whole process, as all documentation is stored in a single database, and everyone has access to it in real-time. This makes the entire process seamless.
4. Schedule Regular Expense Review
Having dedicated time to review your expenses within the year is critical to having a flawless expense management process. This exercise would help you identify areas that need your intervention.
5. Educate Employees On Best Practices
Take time to educate employees on your expense policies and best practices. Imbibe an ownership culture in staff members. Encourage frugal spending and reward cost-saving endeavors.
Define approved spending limits, and clarify grey areas, that way, one is working based on credible information and not assumptions.
6. Audit Your Expense Management Process
Regular audits by your accounting personnel can help track your expenditure and identify areas of concern, such as extravagant spending, fraud, and mismanagement. You can nip issues in the bud before they get out of hand.
7. Encourage Accountability And TransparencyAcross Board
Transparency and accountability aid in preventing fraudulent practices, keeping expenses at bay, and improving the bottom line. This can be achieved by ensuring feedback is provided by employees on expense policies and the total spend of each department is publicized within the organization.
Comparing expenses across the various departments and rewarding cost-saving ideas create top-of-the-mind awareness of cost management.
8. Automate Expense Management
Adopting an expense management system can take the stress from expense reporting. Using software like formplus to facilitate the collection, submission, and approval process would simplify. Automating your expense management process saves time on submission and processing, accelerates reimbursements, and quickly detects anomalies.
Automation provides benefits such as :
1. Expense reports: An expense report is a document that tracks the total amount of money spent in an organization. It includes all purchases essential for the smooth running of the business. It can be created using a template in Formplus. Essentially an expense report should include the following details:
2. Expense sheets: are used to track expenses in different categories across specific periods, such as annually, monthly, weekly, and daily. This data is then used to create a chart comparing an organization's budget versus total expenses in a particular period.
An expense sheet usually contains 3 columns, earnings, fixed expenses, and variable expenses. A total overview of revenues and purchases is visible in the top column. This would provide a complete picture of your finances and help you make better decisions.
The expense management process is the steps through which employees request reimbursement or provide details of expenses made in carrying out work-related tasks. Unless special tools are adopted to automate the process, creating and tracking costs and reports can be time-consuming.
The expense management process involves the following;
1. Employees' recording of expenses includes employee expenses, paper receipts, hotel bills, or any paper trail that can be presented as proof of purchase. This is so because reimbursement of an expense claim is dependent on the provision of an expense claim or report.
2. Auditing: After submission of an expense report. The next step is to verify the authenticity of the claims through an audit to mitigate fraudulent requests or outright falsification of figures more significant than the amount expended. A check will also be carried out to ensure the funds requested were spent as recorded in the expense report.
3. Approval Of Expense Reports: Business managers are responsible for approving expense claims. Based on this approval, funds are provided or reimbursed to employees. The amount requested can be denied or reduced during the approval process based on management discretion, usually based on the existing expense policy.
4. Reimbursement/Disbursement: This is the final step in the expense management process, after the audit and approval by line managers and the auditor, who certifies that it is okay to pay. The accounting department then reimburses the employee or disburses funds or payments requested to the appropriate channel.
These are some best practices that can help your expense management process:
1. Create An Expense Payment Policy: For instance, the organization's expenses must have been incurred, and funds not expended must be refunded to the company's account within a stipulated period. Spending limits must be established.
2. Collect All Relevant Information: Any information substantiating expense reports must be collected and stored appropriately. A checklist to aid your data collection process would help simplify this process as employees would be aware of what is required to present an expense request.
3. Adhere To The Expense Report And Approval Policy: Adhering to your expense management policy is essential to the success of the expense management process. The rules should not be bent for anyone, irrespective of their designation.
To make this more accessible, expense management software can be used to achieve submission, approval, and processing irrespective of an employee, manager, or account department location.
4. Ensure Reimbursements Are Processed Within The Time Frame In The Expense Policy: Avoiding undue delays in processing reimbursements would help financial planning for the employee, who may have made projections based on the time frame stipulated. This would also breed trust and ensure submissions are made on time.
5. Automate The Process: Use expense management software to streamline your process and eliminate errors. Some benefits include providing 2-way controls for approvals as a check and balance system. Leveraging technology simplifies the whole process by automating every step in a single digital environment that anyone can access irrespective of their location and device, mobile, desktop, or laptop.
Most importantly, adopting a solution that can integrate with any cloud-based accounting platform is ideal.
Expense management is a multi-step approach that facilitates submission, auditing, approval, and payment or reimbursement of expense claims. This automated procedure can provide a seamless, effective, and error-free process. Using the appropriate expense management software can help organizations have a holistic view of their expenses.
It also helps identify areas that need their attention to facilitate cost-saving, unlike the manual process, which is fraught with errors, incorrect data, unending spreadsheets, paper forms, flying around, and sometimes outright loss of information. If you want to take the pain out of expense management, you can adopt an innovative way of managing your expenses using any free templates provided by Formplus here. It's simple, intuitive, customizable, and easy to use.
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