Expense Management in Accounts Payable: A Simple Guide

Keeping track of and managing expenses is something every company has to take care of. But expense management is not an easy task. Handling reimbursement requests, getting approvals on time and making sure each expense is accounted for can become challenging when processed manually. Handling paper receipts and approvals as well as manually preparing expense reports can take up a lot of time.

What is expense management?

Expense management is an important accounting function that keeps track of employee related expenses and reimbursements and corporate card spends. 

For efficient expense management, it is also essential to define strict expense policies and prepare accurate expense reports. Many companies carry these processes manually on spreadsheets. Overtime, managing these expenses gets tough. 

Expense categories

Expenses can be categorized into many categories depending on the company’s needs. Here are few standard expense categories: 

Fixed

Fixed expenses are those which are recurring with a fixed cost every time. Employee salaries, rent costs and loan repayments are generally fixed expenses. 

Variable

Variable expense refers to expenses that might be recurring every month, but the amount to be paid may vary every time. In general, variable expense depends on utilization. 

Bills such as electricity bills, water costs, shipping charges and credit card transaction fees can be considered as variable expenses. 

Periodic

Periodic expenses are irregular expenses that don’t occur as frequently as fixed expenses. They can occur once a quarter or based on requirement. Expenses such as Saas costs, maintenance and repair costs, legal expenses and travel costs can be periodic expenses.

Type of employee expenses

Employee reimbursements are a huge part of the expenses a company incurs. Employee expenses can be of many types.

• Travel: Travel related expenses like airline tickets, bus fare and cab services are incurred when an employee travels for business purposes. 
• Stays: Expenses such as hotel or other lodging costs come under this category. 
• Food: Food costs incurred by employees during business travels can be reimbursed by submitting restaurant receipts. 
• Office supplies: Ad-hoc expenses like purchase of office supplies constitute a large part of an organization’s tail spend. 
• Professional education: Some companies reimburse employees for expenses related to their professional development such as online courses and books. 
• Work from home costs: Post covid era has also given rise to companies allowing employees to reimburse work from home related costs such as internet charges, work desks and computer monitor costs. 

How to manage expense management?

Companies manage expense management in various ways depending on what suits their business needs. Here are some common methods of expense management: 

Paper

Managing reimbursement requests by filling out paper forms might be the most traditional form of expense management. Despite being an easy and economical way, paper reimbursement requests are tough to manage and pile up over time. 

Spreadsheets

Filling out spreadsheets while submitting physical bills is also a common method of expense management. 

Expense management software

Expense management software helps businesses easily manage their expenses and store bills for reimbursement digitally.

Steps in expense management

Traditionally, expense management is carried out in the following steps:

Submit expense requests

The employees store payment receipts they need to get reimbursed after incurring an expense. The employee should fill out an expense reimbursement request form stating the amount and category of expense and submitting necessary receipts and other proof. 

Manager approval

The reimbursement request needs to be approved by the employee’s manager or head of department. The manager should verify the request by matching payment receipt details with the expense policies. After the manager approves the request, it can be processed for reimbursement. 

Reimbursement processing

After the manager approves the payment, the accounts department processes the reimbursement due. It can be sent to the employee with their next monthly salary, or processed before the monthly cycle. 

Finance department audits

The finance department enters the expense and payment into the company’s accounting system correctly for future audits. 

Importance of efficient expense management

• Better visibility: Efficient expense management provides better visibility into employee spends and gains insights into where your funds are going and budget your expenses better. 
• Faster audits: Having a track record of all expenses in one place helps enable faster audits by creating an elaborate audit trail. 
• Reduce unnecessary maverick spend: Maverick spend is the process of purchasing supplies for your company without following set standard procedures. This leaves out cost-saving opportunities by buying from company-selected suppliers. Efficient and strict expense management helps reduce unnecessary maverick spend
• Complaint procedures: Having a strict expense management system in place lets you ensure compliance procedures and reduces the risk of internal vendor fraud.
• Quick payments: Proper expense management procedures can also facilitate quick employee reimbursements leading to employee satisfaction. 

Why to consider automating expense management

Automating expense management can help facilitate timely reimbursements and easier compliant audits with the help of easy data capture and automated approval workflows. 

Considering a spend management software instead of an overall expense management software can also help keep track of all company spends and manage budgets.

Conclusion

• Expense management involves taking care of employee expenses that a company incurs. 
• Expenses can be categorized into fixed, variable and periodic expenses.
• Types of employee expenses can be travel and boarding expenses, maverick spends or educational and work costs. 
• Companies can manage expenses using paper forms, spreadsheets or expense management softwares. 
• Steps involved in expense management are submitting expense requests, manager approvals, reimbursement processing and finance audits.
• Considering a complete spend management software can help keep track of all company expenses and budget better.