Expense Management; Definition, Types & Tips

Anyone in finance may describe the term "expense management" as tiresome, error-prone, or rote work. However, it is crucial when it comes to managing your company's financial bottom line.

What is expense management?

Put simply, expense management is a way to track your employee spending, process expense reports, determine reimbursement claims, and control types of spending according to the company's expense policy.

Why is expense management important?

As an essential part of any business, expense management is vital for various segments of a company, such as the following:

Finance teams

An expense management process is the most important to a finance team or accounting department. Their main goal is to sustain accurate business financial records and analyze past trends to determine future business decisions.

Additionally, it can help identify cost-saving opportunities and risks by providing insights into the company's financial health.

C-level Executives & Managers

Owners, managers, or C-levels are more concerned about growing revenue, managing risk, reducing expenses, satisfying employees, and having a productive business.

Employees

Having reimbursements processed quickly creates a feeling of trust and satisfaction among employees. This greatly influences the productivity of your employees and your company.

Compliance

Maintaining detailed records of your business expenses ensures that your company stays compliant and assists companies in audit activity in case of fraudulent behavior.

Nevertheless, with the corporate income tax being introduced in 2023, expense management makes it simpler for businesses to file their taxes.

Expense management process

The steps of an expense management process prevent any mishaps or policy violations from occurring.

The process is typically the same for all businesses:

1. An employee purchases on behalf of the business
2. The employee submits a reimbursement claim
3. The reimbursement request is either accepted or rejected
4. If the reimbursement request is accepted, a payment is then scheduled
5. In most cases, the payment will be made with an employee's EOM salary

Types of expense management

Approaches to expense management may differ from company to company. Here you'll find the different ways in which expenses are managed:

Paper tracking

Employees collect paper receipts and submit them to the accounting department for approval monthly or quarterly. This is the traditional (and outdated) method of managing expenses.

Spreadsheets

Businesses, especially in the UAE, usually use spreadsheets to manage their expenses and reduce dependency on paper receipts. Some common spreadsheet software is Microsoft Excel, Google Sheets, and Zoho Sheets.

Expense management software

An expense management software simplifies the process for companies by automating it. After an employee makes an expense, the managers are alerted to either accept or reject the expense. If the expense is accepted, it is usually scheduled to be reimbursed with the employee's EOM salary.

Pluto

Pluto is an expense management software that helps accounting teams save time by automating reimbursements, expense reporting, expense tracking, and budget control.

When a business expense is made, a Whatsapp notification is sent to the employee, prompting them to upload their receipt by snapping a photo; this also simplifies the reconciliation process. When that is done, the admin/manager is notified to accept or reject the expense. If the expense is accepted, it is reimbursed to the employee's bank account in seconds.

On the other hand, Pluto gives you the ability to create unlimited corporate cards with spend limits so you won't have to go through an approval workflow.

Real-time expense reports are also one of the many benefits Pluto offers, helping finance teams, CFOs and accountants make informed decisions.

Traditional vs. automated expense management

Despite the benefits of automated expense management, a large percentage of organizations in the UAE still perform manual expense management. This leads to expense reports that are time-consuming and prone to error.

Traditional expense management

Traditional expense management is one expense management process that relies on several steps to manage spending and ensure the process for an expense claim is correct. As an expense management solution, expense tracking is usually in the form of paper tracking or excel sheets, as mentioned above.

Typically, once employee-initiated expenses are made, the employee must store the expense receipts and file them as reimbursable expenses at the end of the month when the accounting department is doing the end-of-month closing. After the expenses are submitted, the approval process begins. The employee's manager either accepts or rejects the reimbursable expense; if it is accepted, it is sent to the accounting team for reimbursement.

This is considered a nightmare for accounting departments, as they will have to go through manual data entry and spend countless hours on expense reporting at the end of month closing.

Automated expense management

Unlike traditional expense management, automated expense management software reduces time spent on processing expense reports, managing the business's cash flow, reconciliation processing, and controlling expenses incurred for finance teams.

Automated expense management software, such as Pluto, eliminates the manual process and automates the process for finance teams from A-Z. With expense management software like Pluto, you can automate different flows, such as the following:

Reimbursements

Pluto helps you manage expenses incurred by digitizing the reimbursement process. Once an expense is made, Pluto sends you a Whatsapp notification prompting you to upload your receipt by replying to the Whatsapp or by uploading it onto the Pluto app. Once that is done, the expense record is saved, so employees don't lose it, and the expense is submitted for approval.

As an added perk, Pluto also auto-categorizes expenses made so employees and finance teams won't have to worry about categorization!

Expense reporting

With Pluto, all expense records are in one place, meaning expense reports are automated; this helps accounting departments save hundreds of hours on manual work.

Additionally, expense reports are trackable in real-time, giving managers, finance teams, and accounting departments complete visibility over the business's finances.

Accounting

Close your books 5x faster!

Whether you use Zoho expense, SAP Concur, or Quickbooks, your accounting software can integrate directly with Pluto's platform.

Through our integration, you can also sync your chart of accounts and your GL codes to automate bookkeeping.

Budget control

Pluto allows you to issue your employees unlimited corporate cards with spend control. If you have daily allowances, weekly budgets, or travel expenses, you can get better control over your employee spending by setting custom limits on their corporate credit cards.

Expense management advantages

If you've reached this far, you might already know the advantages of automated expense management.

Accurate expense reporting

• Real-time, automated expense reports
• Sort reports by day, week, month, or by department, or category

Quick reimbursements

• Faster approval process for employees and finance teams
• Auto-categorization when uploading receipts

Monitor employee spending

• See what is being spent and where in real-time
• Set daily, weekly, or monthly allowances

Close books faster

• Integrate with all major accounting software to close your books 5x faster
• Sync your GL codes

Expense management policy

Employee spending can be controlled by implementing an expense management policy. The policy can function as grounds for rejecting or questioning expenses and help determine whether they should be reimbursed.

In every expense management policy, the following items should be included:

Types of expenses

 A complete list of everything employees may purchase and what they may not purchase.

Budgets

The current budget should be disclosed to everyone, and those with questions should be able to contact those responsible.

Reimbursements

 A reimbursement policy must specify the reimbursement method, such as online, by credit card, or by other payment methods.

Choosing an expense management software

If you're purchasing an expense management solution, make sure it fills your company's unique needs, offers the right level of functionality, and comes with a dedicated account manager.

Some of the key features you should be looking for are:

Real-time expense tracking and reporting

Having real-time expense reports is vital, as it helps finance teams monitor employees' expenses and manage them on the go.

For example, if the company's marketing department uses 70% of its monthly budget in the first two weeks of the month, the finance team can notify them that 70% of the budget has been used so they can plan and budget for the remaining 30%.

With Pluto, you can:

• Get notified as soon as an expense is made, so you know who spends what, where, and when
• Keep track of all business expenses, such as reimbursement, travel, and employee expenditure data, to avoid going over budget

Quick reimbursements

End-to-end reimbursements are crucial for a business to operate seamlessly. With quick end-to-end reimbursements, employees no longer have to wait till payroll to get reimbursed.

With Pluto, you can:

• File a reimbursement request through Whatsapp or the Pluto app
• Get reimbursed in seconds

Approval flows

Approval processes should be hassle-free. It's essential to have automated approval flows to ensure employee expenses and expense claims are approved by the right managers.

With Pluto, you can:

• Automatically assign expenses to the right reviewer
• Create your own customized approval flow

Integration with accounting software

Integrating your accounting platform with your expense management software reduces the time spent on bookkeeping.

With Pluto, you can:

• Integrate most major accounting platforms
• Sync your chart of accounts
• Sync your GL codes
• Close your books 5x faster

Customizable budget control

Setting limits and budgets is essential to control your company's financials fully. This helps your company stay within its budget and avoid mishaps with company spending.

With Pluto, you can:

• Create unlimited corporate cards with set limits
• Increase limits on corporate cards in seconds
• Issue vendor-specific cards

Pluto combines the above features with easy integrations, complete visibility, and total control over every aspect of your company's expense management.

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