Expense management & AP Automation are crucial for running a business. Ensure you take these 3 key expense management tips into 2021.
Spend Management vs Expense Management - What's the Difference?
How do you differentiate business spend management vs expense management? What are their components? Read this blog to find out.
It’s easy to confuse spend management with expense management. After all, “spend” and “expense” are often used interchangeably when referring to something purchased. However, there’s a significant difference between the two, specifically in the world of business finance operations. Read on to learn more.
What Is Spend Management?
Spend management is a broader concept than expense management. It’s a strategic process that primarily focuses on how an organisation manages its resources and keeps track of its spending.
Spend Management: Know the Essentials
One easy way to understand the differences between spend management vs expense management is to know the essentials of each. Spend management essentials consist of activities such as supplier selection and invoice processing for the business to improve operations and reduce costs.
1. Supplier selection
When you choose the right supplier for your business, you essentially set up your business for a healthy bottom line and get the most out of your spend. Be sure to evaluate all potential suppliers and do thorough research on their quality, rates, reliability and turnaround time.
Don’t make the mistake of just accepting any contract you receive. Read it thoroughly and negotiate terms and conditions with the supplier so you can improve service levels. Aspects you can negotiate can be schedules, payment terms and prices.
You can’t manage spend without spending! Purchasing in the context of spend management consists of procuring goods and services that the organisation needs. When you make purchases, remember to also manage purchase orders, inventories and delivery timelines.
Any purchase must always have an invoice to ensure accountability. Verify invoices by matching them with purchase orders and receipts to ensure there aren’t discrepancies and everything is accounted for. When you process and verify your invoices, you maintain good supplier relationships and avoid late payments.
Budgeting is a familiar concept not just to finance employees but also to anyone who has handled finances—whether business or personal—before. Budgeting is the process of planning how to spend your finances and ensuring that you will always have enough for what the business needs.
Forecasting your business's finances means you’re making financial projections to guide and influence your decision-making. Decision-making, in turn, is critical in determining the future of your business.
7. Financial processes
Financial processes such as tools and policies involve rules and principles of your business's money-related practices. Having these processes will ensure that your staff know their obligations and will help managers make relevant business decisions.
What Is Expense Management?
Expense management is a narrower, more specific concept that’s found under spend management. While spend management focuses more on strategy to optimise spending, expense management covers employee expenses and compliance with policies.
It’s the process of tracking, reviewing, and authorising expenses incurred by employees while doing their jobs. Admin and finance teams manage the reimbursement of employee expenses and review spending patterns to make sure that the employees comply with company policies and government regulations.
Expense Management: Know the Essentials
With expense management being more specific than spend management, it also has essentials that are specific to it.
An expense management policy is integral to expense management. This aspect ensures that employees follow company policies and government regulations when they make any work-related purchases. Therefore, your company must set clear guidelines, set spending limits and prevent fraud to minimise financial risks.
2. Report submission
You cannot process a reimbursement without the document containing the necessary details. Employees must submit reports that contain details about their expenses, receipts and other necessary documents. That way, the organisation can track expenses, analyse spending patterns and make decisions as necessary.
Categorise employees’ expenses by classifying them accordingly: Are they meals? Transportation fees? Office supplies? Making accurate classifications allows the organisation to see the spending pattern by category and implement cost-saving measures.
An effective approval workflow ensures that employee expenses are reviewed and authorised by the right people before the employees receive the reimbursement. This allows easier control over company expenditure and prevents fraudulent or unauthorised activity.
Finally, after all the processing and approvals, we reach the final expense management essential: reimbursement. The organisation verifies the expenses, calculates the reimbursement amount and issues the payment. When you reimburse accurately and on time, you develop a healthy relationship with employees and improve employee satisfaction.
So What’s the Difference?
Now that we know the essentials of spend management vs expense management, what exactly is the difference?
The range of spend management is a lot wider than that of expense management. The former covers all matters of procurement and purchasing, from finding a supplier down to releasing payment, budgeting and forecasting.
Expense management, on the other hand, only focuses on the finances that the employees spend, specifically those that are done in the context of their work.
While both types of management use several tools, there are differences.
Spend management usually involves tools like purchase orders and accounts payable automation and financial analytics platforms to generate insights and centralise budgeting processes. Expense management relies mostly on expense management software and mobile apps to facilitate expense tracking, reimbursement and issuing of cards and limits.
Proper spend management positively impacts the organisation's financial health because it improves financial operations, reduces costs and streamlines cash flow. When done strategically, spend management can spot cost-saving opportunities and enhance profitability.
Expense management can also involve cost savings, but it mainly focuses on managing the individual spending of an employee. Effective expense management can help control excessive spending and prevent fraud.
The role of spend management mostly covers strategy, budgeting and risk management by allowing you to make proactive spend management decisions. The role of expense management, on the other hand, mostly involves streamlining the employees’ reimbursement process to ensure accuracy and authenticity.