Since, fundamentally, profit means revenues minus expense, good expense management is a must for a business to be successful.
At its simplest, expense management can be as simple as a housewife keeping track of her monthly bills for food, rent, utilities and all the other expenses of everyday life.
When it comes to business organizations, however, things are not always so simple because many people are involved and the types of expenses are more complex. This has given rise to a business discipline formally known as Expense Management.
In business, Expense Management is the system used to process, pay and control expenses incurred by employees in the course of their work. Most of these expenses have to do with travel or entertainment, but the process covers many more types of expenses. Expense Management starts with policies and procedures that apply to employee expenses. For instance: Who can charge for what? How much can be charged? Who approves the expense? How does the employee claim for reimbursement? What happens if an expense is disallowed? These and many more questions are answered by a company’s Expense Management policy.
In a small business like a grocery store, or one with only a handful of employees, the Expense Management process is usually handled manually. Not too many policies are needed, the employee claims for reimbursement by filling out a small piece of paper while the owner or manager does all the approving of expenses.
With a more complicated business employing a larger work force, the second aspect of Expense Management is the technology used to systematize the processing and analysis of expenses. Studies have shown that companies automate the Expense Management system for three major reasons: a) to ensure compliance by employees with company policies and procedures; b) to reduce the costs of processing and controlling expense claims; and c) to improve employee productivity primarily by faster reimbursement and fair compliance with company procedures.
Automated systems for Expense Management may be installed by a company in-house either through software developed specially for its requirements, or purchased from vendors of such systems. Software for Expense Management may also be obtained from Software-as-a-Service (SAAS) organizations. These technology expense management services offer web-based applications on demand for expense management to manage technology expense, expense claims, approvals, reimbursement and audit processes as third-party processors. By outsourcing the Expense Management function to SAAS providers, a company often improves the productivity of the process and places a buffer between its own management and the employees on contentious expense reimbursement issues.