If you own a small business, you understand the pain that expenses bring every day. This makes any expense management solution a godsend to businesses looking to simplify their reports, including their entire process. As business owners look to trim their costs, accounting for every dollar counts.
Proper expense management can mean the difference between profit and loss. It can spell what goes to your bottom line and what goes to your operations cost. Then again, how does an expense management system work? Here’s everything you need to know about these systems that will help streamline your operations.
What is an Expense Management System?
To understand what an expense management system is and how it works, we need to define what counts as an EMS. Expense management systems are software that record, track, approve, pay, process, and audit any business-related expenses. The idea sounds simple, but it has its own intricacies.
In many situations, a company must control how its employees and stakeholders spend. The money spent should be in line with the expense policy set forth by the company. With the right system in place, you prevent overspending while empowering your workers and managers to use company money as needed.
With any business management plan, you want to control your company expenses while increasing your return on investment (ROI). Having any idea about your cash flow and spending can help with your decision-making. You need to know if you’re spending too much or if any fraudulent expenses are happening in your organization.
Expense management systems are valuable within teams that are looking to optimize their process. By adding the system within the flow of internal procedures and expense reporting, the organization can make frame every expense within the company.
Expense Management System Features You Need To Look For
Expense management systems need to have several must-have features for them to truly work for almost any business. Among many things, the software needs to be an all-in-one system that acts as a suite of various payment, tracking, and auditing features. These include:
- Expense tracking
- Receipt recording
- Centralized database with multiple access layers
- Maximum spending
- Adding/Editing spending limits
- Corporate credit card integration
- Expense alerts and notification
- Expense approval and auditing
- Policy violation checks
- Reimbursement scheduling
As you can see, these features are numerous, but not every system needs to have everything. There are some crucial features that you want for your expense system. Depending on your business, you want a combination of these features that help ease expense tracking, recording, and auditing.
Why You Need To Get An Expense Management Software
There are many reasons you should use an expense management system for your business. Whether you’re a small startup or a big company with hundreds of employees, managing expenses is an expensive endeavor. Manual expense report creation is time-consuming, inefficient, expensive, and lacks the safeguards you need to keep your business running.
A basic expense report, for example, consumes around 20 minutes to fill up and the cost of processing can rack up to a little less than $60. If there are corrections, it takes almost as long and as expensive to process the same document. There’s also the problem of receiving the approvals for the reimbursement.
As you can see, companies that do it manually have less insight into the spending habits of their workers. This, coupled with the enormous potential for fraudulent expenses, can cut into your business’s bottom line.
With an expense management system, you minimize not only the upfront cost but also the time sink that these reports have. You also alleviate fears of fraud and the risks associated with manual expense management.
Finding The Right Expense Manager System
Expense management systems need some key features to make them useful within an organization. Getting to pick and choose features is a must. It needs to work within your specific team, rather than provide cookie-cutter solutions.
For starters, you want your system to have a way to track the expenses of your employees. It needs to have a way to collate all employee receipts, as well as create a digital record of every purchase event. In these situations, a card-based system should make tracking easier.
Depending on your system, you can have an expense manager that simply audits your spending every step of the way. There are also more sophisticated systems that provide credit card and non-card payment options through an app. This eliminates any cash-related expense in the system, which further cuts down the risk of fraud.
You also want a system that documents spending limits and contains the expense policies of the company. An expense system that can pay any invoice electronically is a fantastic investment. For foreign companies, you would want the system to handle expense reconciliation, as well as multiple options for foreign currency payments.
Advantages of Expense Management Systems
There are several advantages to using the right expense management system for your business. With the time-consuming manual process out of the window, a more automated system should help with a few vital points.
- Easy Expense Tracking
Expense reporting should not rely on the prerogative of the employee. You want a system that’s not only device-agnostic but cuts off any potential expense sources that are impossible to track. Systems that include apps and credit card systems can limit where they can be used and for what purpose.
- Prevents Delays In Expense Recording
Instead of waiting for your employees to submit their reimbursement requests and having people sign off, you can have a system that tracks the process through paperless means. With the right authorization, companies can have expenses recorded and signed off without needing five signatures to do so.
- Improves Policy Compliance
Policy compliance is a key advantage of expense management systems. Beyond tracking and recording expenses, the system should know what expenses are allowed and disallowed. Such automation can come from software that can categorize every type of expense performed.
- Record Traceability
With an expense management system, companies will have a digital record of each and every expense done. Whatever action happens within the bounds of the system, the company can trace it back with whom, where, and for how much. Such a process helps keep expenses ready for eventual accounting.
- Expense Analytics and Visualization
Analytics can give you the right figures and trends within your expenses. A management system that visualizes your company spending can give you insights on where to cut costs and where to improve your spending management.
The Bottom Line
Missing out on critical business expenses and fraudulent purchases can be a nightmare. These can be detrimental to your business growth, as well as a waste of time and money.
Knowing how expense management systems work can give you a good idea of where to start. It’s not a question if you need one or not, but rather where can you find the right system for you. Start looking today.
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Thanks for sharing such a knowledgeable post on expense management. It’ll be of great help to many people.
A good EMS is something most solopreneurs put on the backburner. But it is extremely necessary to stay on top of things. Accounting is not fun but it comes with the territory. Excellent post, Ruchi.
Thanks a lot Ritu !! Yes, accounting is not at all fun and we need to understand how to manage!!
Thanks for this Ritu. As a solopreneur this is extremely useful and something I need to seriously look at.
If there’s one thing I have learnt about money, it is that we should get comfortable with personal finance at the earliest possible. Teach kids to manage their pocket money and get introduced to banking at an early age so you know exactly how to manage your funds. This is good to know that similar services are available for those to own a business, I am sure this would impact in a good way in their balance sheets.
Expense management is very much important in our lives which I feel too. Keep going
Having proper accounting software is very important for businesses. These days it is easy with technology. Earlier people used to do it by hand. But they knew each and every transaction.
Wonderful post Ruchie. Expense Management is something every entrepreneur should understand before starting off.
It’s so important to understand where your money is coming from and how you’re spending that money. This was an informative post.
Expense management system seems like a good option to start using for solopreneurs too.
business and accounting software go hand in hand. managing the expenses in a company is the most important. and having a software for it gives it an easy access for the management. unlike cash and manual
Doesn’t matter which system I use to track my expenses, I always fail to continue using it. I will surely try your suggestions now.
So helpful and informative.
Thanks for this superbly informative post. Be it household expenses or business expenses, having an efficient expense management system is very important. Your post will help a lot seeking related info.
Great information, Ruchi. This is too much technical information for my brain at this hour. I sometimes wonder how I passed my board exams with accounts. Haha!
I actually have zero knowledge of accounting and the various softwares. Thank you for such an informative post
Thanks for visiting, glad you liked!!
Expense management is crucial for any entrepreneur. This post has highlighted its benefits in a very detailed manner.
Nice one, Ruchie. This would save so much time. When we have the technology to help us manage and track our finances why not take advantage