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Expense management may be critical to helping businesses control costs and protect their bottom line. Whether you’re creating a startup or monitoring cash flow for a legacy enterprise, keeping track of expenses could be essential for sustained financial health.
What is meant by expense management? It is the process that businesses use to track, control, and optimize spending. From office supplies to international travel, the costs of running a company can add up. With proper business expense management, finance leaders may be able to better catalog, analyze, and predict spend to potentially help boost their results.
Learn more about what expense management entails, why it may be crucial for long-term growth, and how to help manage business expenses to potentially maximize efficiency.
Key Components of Expense Management
A successful expense management strategy may be comprised of key steps and processes. These components could include:
- Tracking expenses: Employees document expenses by collecting receipts or using a dedicated business credit card.
- Submitting expense reports: Employees submit reports of their expenses, organized by categories such as travel, transportation, and meals.
- Processing and approving expenses: Managers assess expenses against company policies and spending limits; they approve expenses that meet these guidelines and flag those that don't.
- Reimbursing expenses: The business reimburses employees for approved purchases that were made out of pocket.
- Analyzing expenses: Businesses use spending data to help identify patterns, cut wasted spend, and optimize budgets.
Expense Management vs. Spend Management
Expense management and spend management are similar terms and processes, but they serve different purposes for businesses. Expense management refers to employee-incurred costs, like business trips and software subscriptions. Meanwhile spend management accounts for all company expenditures, including vendor contracts and office rent.
Business expense management could help control costs by making sure spend aligns with overall financial goals.
Both practices can be vital for financial accountability. While expense management may help finance leaders track and process employee-initiated costs, spend management may help them make key decisions to potentially reduce financial risk and meet overall business goals.
Common Business Expenses
Employees could incur expenses in many different ways — whether they're traveling for work or simply updating their computer programs. Common examples of business expenses may include:
- Travel and transportation: Hotels, flights, vehicle rentals, parking fees
- Meals and entertainment: Business lunches, client meetings, event tickets
- Office supplies and equipment: Computers, software subscriptions, business phone and internet plans
- Professional development: Training and certification programs, educational classes, industry conferences
A sales representative, for example, might travel to another state to pitch a prospective client. During their trip, their expenses may include airfare, a hotel stay, vehicle rental or train ticket, meals, and per diem payments.
Why Is Business Expense Management Important?
Business expense management may be foundational to long-term financial health. By creating designated workflows for tracking and processing expenses, businesses may better predict future spending, meet compliance standards, and improve operational efficiency.
Potential Benefits of Effective Expense Management
Here's a closer look at the potential benefits of an effective expense management strategy:
- Reduced spend: Spotting opportunities to help cut costs and reduce overspending, potentially improving profits.
- Valuable time saved: Automating reporting, approvals, and payments, cutting down on manual tasks for employees and finance managers.
- Up-to-date compliance policies: Using expense reporting tools to help ensure your records are accurate and up to date, adhering to company policies and regulations.
- Minimized risk: Automating processes could help avoid reporting mishaps and human errors and potentially reduce the possibility of audits.
- Improved financial planning: Using real-time business insights to help forecast budgets and make data-backed financial decisions.
Key Elements of an Expense Management Process
Business leaders may use key strategies to help streamline their expense management processes and potentially improve financial control:
Document Policies
Consider clearly outlining spending limits, eligible spending categories, and expense reporting workflows for employees. Consider setting expectations up front to minimize overspending.
Use Corporate Credit Cards
Consider distributing employee credit cards to help track spend and set up autopay for recurring business expenses.
Adopt Automation Tools
Consider using reporting and expense management tools to help organize receipts, automate approvals, and track spending data. You may also consider integrating these platforms with other financial tools like accounting software to help sync data between teams.
Master Your Expenses and Help Empower Your Business
Managing expenses may be about more than just crunching numbers and organizing receipts. It may be critical to helping to sustain long-term financial health and potentially improving cash flow as you scale.
With the right expense management tools and strategies, you could uncover valuable insights to help optimize budgets, streamline spend, and potentially reinvest saved dollars back into your business for future growth.
Expense Management FAQs
What is meant by expense management?
Expense management is the process of tracking, analyzing, and optimizing spend for a business. It may involve creating workflows to report, approve, and reimburse for expenses. Expense management could help businesses make more informed financial decisions and potentially streamline spend.
What is the best way to manage expenses?
Ways to help manage expenses include clearly documenting expense management policies, regularly reviewing and analyzing company purchases, and adopting automation software to help track spend and generate reports.
What is the difference between expense management and spend management?
Expense management is the process of tracking and optimizing employee-incurred costs, like business lunches and vehicle rentals. Spend management is the process of tracking and optimizing all company costs, like vendor contracts and utilities. Expense management is one component of spend management.
What is a common expense management process?
A common expense management process may involve tracking and reporting expenses through a standardized process, reviewing and approving expenses, and providing payments and reimbursements.
How does business expense management work to help control costs?
Business expense management could help control costs by making sure spend aligns with overall financial goals. Businesses may track and analyze expenses to help spot instances of overspending, identify opportunities to cut wasted spend, and more efficiently allocate budgets. They could also set clear reporting policies for employees to help ensure every expense is accounted for and properly approved.
Photo: Getty Images
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