Tracking expenses might not top anyone’s list of fun business activities, but it’s where the smart decisions start. 

Every payment impacts your bottom line, and without a clear process, it’s easy for things to get messy. That’s why understanding expense management—and how to do it well—is so important.

In this blog, we’ll cover what expense management is, why it matters, key steps in the process, and how modern tools can help you shift from a reactive process to a proactive strategy that saves time, money, and mental energy.

What is expense management? 

Expense management is the process of tracking, reviewing, and controlling a business’s spending to ensure it aligns with budgets and company policies. It involves everything from employees submitting expense reports and receipts to the finance team logging and categorizing expenses for reporting, forecasting, and tax purposes.

Effective expense management goes beyond just tracking expenses, though. It’s about building a system that helps your business stay organized, minimize errors, and make informed decisions based on real-time financial insight. 

The problem with traditional expense management 

Traditional expense management is often reactive and manual, and that creates challenges and added costs. According to the Global Business Travel Association, manual expense reports take an average of 20 minutes to complete and cost $58 per report. About 19% of those reports contain errors, costing an additional $52 and 18 minutes to fix.

For example, let's take a company with 100 employees and assume 20% submit one expense report per month. That’s roughly $14K per year spent on processing, plus $2.4K for correcting mistakes. At the end of the year, the total hits nearly $17K. 

Additionally, your finance team manages other expenses at the end of the month when employees have already made purchases and swiped company credit cards. Therefore, they often waste a big chunk of time reconciling transactions and connecting the dots to determine who purchased what, from where, and most importantly, why. 

This reactive approach wastes time, money, and resources that could be better used elsewhere. But the solution isn’t eliminating expense management altogether. It’s evolving it into a more strategic, technology-enabled process.

Expense management vs. spend management 

Even though expense and spend management are distinct practices, they work together to simplify finance processes effectively. 

• Expense management focuses on handling employee-initiated purchases, like travel, meals, and reimbursements.
• Spend management looks at the bigger picture: tracking and controlling company-wide spending proactively.

So, in simple terms, spend management is the broader, holistic payment approach every business should have in place, and expense management is a critical component of that process.

When combined under a cohesive strategy, they help your business:

• Control spending before it happens
• Simplify reconciliation
• Improve visibility
• Reduce mental overhead for your team

Together, they create a system that allows your team to adapt in real time, reduce financial leakage, and make better decisions faster.

Why is the expense management aspect so important?

Expense management plays a critical role in a company's financial health, especially for small and medium-sized businesses. 

Done well, it can help you:

• Stay on budget: Expense management gives you better visibility into cash flow and where company funds are going. It lets you monitor costs against budgets, helping you stay within limits and avoid overspending. 

• Catch mistakes and fraud: Whether it’s duplicate charges, unauthorized expenses, or simple errors, it's crucial to ensure company funds are being spent appropriately. When issues go unnoticed, it can result in costly disruptions to business operations and financial leakage.

• Save money: With better visibility into spending, it's easier to identify unnecessary costs and cut waste. At the same time, it ensures the money you do spend delivers maximum value for the business.

• Stay compliant: Tax season doesn’t have to be a headache with a strong, proactive expense management process in place. Organized records help to ensure your expenses meet regulatory requirements and company policies, making audits and reporting much smoother.

• Build accountability: Transparent processes and policies give your team the structure they need to spend responsibly. When everyone knows what’s expected, it reduces confusion and helps avoid costly mistakes.

• Simplify workflows: A solid expense management system cuts down on the manual back-and-forth of submitting, reviewing, and approving expenses. It streamlines the process, freeing up valuable time that can be better spent on growth initiatives.

• Make smarter decisions: Expense data is more than just numbers—it’s insight you can act on. Businesses that leverage data to analyze spending trends can make more informed decisions when it comes to budgeting, forecasting, and areas for improvement.

What expenses are involved in expense management?

Expense management covers a wide variety of business costs, all of which play a role in day-to-day operations. 

Here are some of the most common expenses businesses track and manage:

• Travel and transportation: Costs related to business trips, including airfare, lodging, meals, car rentals, and ride-sharing services.
• Office supplies and equipment: Everyday necessities like stationery, laptops, printers, and other tools essential to keep the business running smoothly.
• Client and team meals: Expenses for meals during client meetings, employee outings, or team-building events.
• Professional development: Fees for conferences, workshops, training programs, and certifications that support employee growth.
• Software subscriptions: Monthly or annual fees for tools and platforms like accounting software, project management apps, or CRM systems.
• Marketing and advertising: Budgets for promotional campaigns, online ads, events, or content creation.
• Vendor and contractor payments: Payments to third-party suppliers, freelancers, or consultants.
• Utilities and office maintenance: Recurring bills for electricity, internet, phone services, or cleaning and upkeep of office spaces.

Understanding the expense management process

While every company’s approach to expense management differs, the core steps remain the same:

1. Setting controls and expense codes

Before employees even transact, you can take proactive measures to ensure a seamless reconciliation process. Many expense management platforms allow you to import your expense codes, set business rules for compliance, and integrate with your accounting or payroll software, helping you save hours of time closing the books.

2. Submitting expenses

Employees submit their expenses along with the necessary documentation, such as receipts, invoices, or other required details. Many companies today rely on online platforms and expense management software to simplify and automate the process rather than submitting physical copies for manual expense reporting.

3. Reviewing and approving

Once submitted, expenses are reviewed by a manager or designated approver to ensure they comply with company policies and fit within the budget. This is a crucial step that helps catch mistakes or unauthorized spending early before it becomes an issue.

4. Processing expense reports 

The finance team then logs and categorizes approved expenses. This is where everything is recorded for future reference, budgeting, and tax purposes.

5. Reimbursing employees

The finance team issues reimbursements for any approved out-of-pocket expenses, typically through direct deposit, but it can be through other payment methods, too. 

6. Tracking and reporting

All expenses are tracked and stored, giving the finance team a clear picture of where company funds are going. This helps finance plan budgets, cut unnecessary costs, and stay on top of spending trends.

Utilizing expense management software to simplify the process

While managing expenses manually might be “the way it’s always been done,” it’s not an efficient process, and there are far better solutions available for businesses today. 

Sorting through stacks of receipts, juggling spreadsheets, and chasing approvals will take up valuable time and leave plenty of room for errors. That’s why switching to an expense management platform is a smarter move—it simplifies the process, eliminates unnecessary hassle, and provides a bird’s-eye view of spending, all in one place.

With an expense management platform in place:

• Employees can easily submit expense reports and upload receipts in just a few clicks
• Managers can review and approve expenses without shuffling through email threads or paper forms
• Finance can ensure everything is logged in one place for easy managing and tracking 

Expense management tools also improve accuracy and accountability. 

Built-in expense policies ensure that expenses comply with company guidelines, while integration with accounting and payroll systems streamlines workflows. Plus, your finance team can process reimbursements much faster, so employees don’t have to wait weeks to get their money back.

Optimizing expense management with Extend

Given the tools available today, sticking to manual processes no longer makes sense. Why not let technology handle the heavy lifting so you can focus on what matters most?

You can do this with a tool like Extend. 

With built-in features like virtual credit cards, automated expense reports, budgets, real-time tracking, spend analytics, and integrations with your existing systems, it's a powerful tool for businesses looking to instantly optimize their expense management process.

Want to see how it works? Try our demo and see how Extend can work harder for you.