The software-as-a-service (SaaS) industry has produced software solutions that help businesses streamline internal operations, including accounting and expense management. The market for this type of software is projected to grow by more than US$4.7 billion by 2027, with 40% of that growth concentrated in North America.

As your business grows and faces increasingly complex expenses, effective expense management software becomes even more important. Below, we'll explain what businesses need to know about choosing and working with expense management software, including how it works, its key components, and the benefits and drawbacks of using it. We'll also share best practices around expense management.

What's in this article?

• What is expense management software?
  
• Key components of expense management software
  
• How does expense management software work?
  
• Types of expense management software
  
• Benefits of using expense management software
  
• Challenges associated with using expense management software
  
• How to choose the right expense management software solution
  
• Best practices for implementation and expense management
  

What is expense management software?

Expense management software helps businesses and individuals to track, record and process expenses. For businesses, this software is especially useful for managing operational expenses and travel costs.

Key components of expense management software

Expense management software consists of several components, including:

• Receipt tracking
  This feature allows users to track receipts digitally. Instead of keeping paper receipts, employees can take photos of receipts and upload them, or send email receipts directly to the software. Receipt tracking makes it easier for employees to organise and store receipts, while eliminating paperwork and reducing the risk of losing important documents.

• Expense entry and categorisation
  Users can enter expenses manually or import them from bank or credit card statements. The software allows users to categorise each expense under specific headings, such as travel, office supplies or client meetings, which helps with budget management.

• Approval workflow
  This component expedites the process of expense approval. When an employee submits an expense report, the software routes it to the appropriate person for approval, based on predefined rules.

• Policy compliance
  Businesses can configure the software to adhere to company policies regarding spending limits and permissible expenses. The software can automatically flag or reject submissions that don't comply with these policies.

• Reporting and analytics
  This feature provides detailed reports and analyses of expenses and can generate breakdowns by category, department, project or individual. Businesses can use these reports to make informed decisions about budgeting and cost-saving opportunities.

• Integration capabilities
  Expense management software can be integrated with other business systems, such as accounting software, HR systems and enterprise resource planning (ERP) systems, allowing data to move easily between systems and improving overall operations.

• Mobile access and usability
  Many expense management tools have mobile applications, allowing users to report expenses from their smartphones. This is particularly useful for employees who travel frequently.

• Security and data protection
  Expense management systems often come with strong security features, such as data encryption, access controls and regular security audits, which protect businesses from unauthorised access and data breaches.

• Customisation and scalability
  Often, businesses can customise the software to fit specific needs. Expense management software can also scale up as a business grows, accommodating more users and larger volumes of data.

• User support and training
  Good software provides support and training resources – such as online tutorials, customer support services and user manuals – to make sure that users can use the system effectively.

These components work together to create a comprehensive system that simplifies the process of managing and analysing expenses for businesses.

How does expense management software work?

Expense management software reduces the administrative burden for businesses, improves accuracy and provides insights into company spending. Here's how it works:

• Expense recording
  The software allows users to enter their own expenses. They can do this manually, by entering the details of each expense, such as the amount, date and category. The software can also pull in transaction data automatically from connected bank accounts or credit cards, reducing the need for manual entry.

• Receipt management
  For each expense, users can attach digital copies of receipts. They can do this by taking photos of paper receipts with a smartphone and uploading them to the software, or by attaching digital receipts, such as PDFs or email confirmations.

• Expense categorisation and organisation
  When an employee enters an expense, the software categorises it. The employee can also do this manually. Common categories include travel, meals, office supplies and client entertainment. This categorisation helps with tracking and analysing spending patterns.

• Approval process
  In most businesses, an employee's expenses need approval from a supervisor or the finance department. The software typically includes a workflow that routes expenses to the appropriate person for review and approval. Businesses can set up rules to automate this process.

• Policy compliance checks
  Businesses can set up the software to check each expense against the company's spending policies. If an expense violates a policy (for example, if it exceeds a spending limit), the software can flag it for review or reject it automatically, helping to enforce financial controls.

• Reimbursement processing
  The software can facilitate the reimbursement of employees for expenses. Once an expense has been approved, the software can route it to payment processing, which can be linked to the company's payroll system for reimbursement.

• Reporting and analytics
  A key function of expense management software is the ability to generate reports and analytics. These reports can provide insights into spending patterns, track expenses against budgets and inform financial decision-making. Businesses can customise and break down reports by metrics, such as time period, department or expense type.

• Integration with other systems
  The software can often be integrated with other business systems, such as accounting software or ERP systems. This integration facilitates the easy transfer of expense data, contributing to overall financial management.

• User access and security
  Businesses can set different levels of access for different users, ensuring that employees only see what they need to see. Security features such as encryption and access controls protect sensitive financial data.

• Mobile accessibility
  Many expense management tools have mobile apps that allow users to submit and approve expenses from their smartphones. This is particularly useful for employees who travel or work remotely.

Types of expense management software

There are many types of expense management software on the market. They include:

• Cloud-based expense management software
  This type is hosted on the cloud, so it's accessible via the internet, without needing to install software on individual computers. Cloud-based expense management software is flexible and accessible, and allows users to submit and manage expenses from anywhere. Typically, updates and new features are rolled out automatically by the provider, ensuring that the software remains up to date.

• On-premises expense management software
  In contrast to cloud-based solutions, on-premises software is installed and runs on a company's own servers. This type might be a good choice for businesses that require greater control over their data and systems. However, it often involves more up-front costs and in-house IT staff for maintenance and updates.

• Integrated expense management solutions
  Some expense management systems are part of a larger suite of business management applications. These integrated systems combine expense management with other functions, such as accounting, invoicing or payroll. This integration can deliver a more comprehensive solution but might include features that some businesses do not need.

• Standalone expense management software
  These are specialised tools for expense management. They're often more straightforward to use than integrated systems. Standalone software is ideal for businesses that want to simplify and improve their expense management processes but do not need additional business management tools.

• Mobile-first expense management applications
  Some expense management tools are designed for use on smartphones and tablets. These apps allow users to capture receipts and file expense reports on the go, which makes them a good fit for businesses with employees who travel frequently or work remotely.

• Customisable expense management systems
  Some software offers a high level of customisation. This can include customised approval workflows, specific expense categories and unique report formats. While this type of software provides businesses with flexibility, it might require more time and resources to set up.

• Enterprise-level expense management software
  Designed for large organisations, these systems include a range of features that handle complex expense management requirements at scale. They often include advanced reporting capabilities, options for integration with different enterprise systems, and thorough compliance and security measures.

Benefits of using expense management software

Here's a closer look at some of the advantages of using expense management software versus traditional methods of expense management:

• Time and labour savings
  One of the most immediate benefits is less time and effort spent managing expenses. By implementing automated data entry and simplifying reporting and approval processes, expense management software helps you spend fewer hours on manual tasks.

• Improved accuracy and fewer errors
  Expense management software minimises errors by automating data entry and calculations. This accuracy is important for maintaining reliable financial records and compliance with internal policies and external regulations.

• Improved visibility and control over expenses
  These systems provide real-time visibility into spending patterns and trends. Management can use these detailed reporting tools and dashboards to monitor expenses, identify areas of overspending and make informed decisions to control costs.

• Streamlined reimbursement processes
  The software accelerates the reimbursement process for employees. Once expenses have been approved, they can be processed for payment faster, reducing administrative delays and improving employee satisfaction.

• Better policy compliance and fraud prevention
  With the software's ability to set and enforce expense policies, businesses can maintain better compliance. The system can automatically flag expenses that don't adhere to set policies, preventing fraud and policy violations.

• Integration with other business systems
  Integrating expense management software with other systems, such as accounting software or ERP systems, facilitates financial management across the organisation.

• Mobile accessibility for on-the-go management
  Mobile applications allow employees to submit expenses from their smartphones, which is particularly useful for remote workers and frequent travellers.

• Scalability to suit business growth
  As a business grows, its expense management requirements become more complex. Expense management software can scale to accommodate larger volumes of transactions and the needs of a growing business.

• Increased data security
  Expense management systems usually have strong security features to protect against unauthorised access and data breaches.

• Environmental benefits
  By digitising the expense management process, businesses can reduce their reliance on paper.

Challenges associated with using expense management software

While expense management software can improve the speed and accuracy of a company's expense management practices, it does come with certain challenges. These include:

• Complex integration processes
  Integrating expense management software with existing systems can be complicated. It could require technical expertise and additional costs.

• User training and adaptation
  It takes time for employees to learn to use the new software. Adequate training sessions and support materials can ease this transition.

• Data security concerns
  Handling sensitive financial data calls for stringent security measures. The software must comply with data protection regulations and have strong encryption protocols. Regular security audits can prevent data breaches.

• Cost implications
  While expense management software can save time and resources in the long term, businesses must weigh up the potential benefits and savings against the initial setup costs and ongoing subscription fees.

• Customisation limitations
  Off-the-shelf software might not be sufficient for every business. The ability to customise features and reports will vary depending on the software.

• Regular updates and maintenance
  Keeping the software updated is necessary for optimal performance and security. This might require regular check-ins and coordination with the software provider, which can be time-consuming.

• Data accuracy and reliability
  Automated systems rely on the data that feeds them. Inaccurate data entry can lead to errors in expense tracking and reporting. Regular audits and checks help maintain the reliability of the data.

• Compliance with regulations
  The software must stay up to date with the latest tax laws and financial regulations. Non-compliance can lead to legal issues and financial penalties.

How to choose the right expense management software solution

The "right" expense management software is the one that best fits the needs of your business. Here's how to find the best software solution for your business:

• Detailed needs analysis
  Conduct an in-depth analysis of your company's expense management processes. Map out the full workflow of expense submissions, approvals, reimbursements and reporting. Identify specific bottlenecks, compliance issues and areas where errors frequently occur. Decide what granularity of data you need from reports and how that ties into broader financial planning.

• Comprehensive budget assessment
  Analyse the long-term ROI of different software options. This includes the up-front cost or subscription fees as well as the cost of integration, training and potential downtime during implementation. Consider the financial impact of increased efficiency and policy compliance that different software solutions might deliver.

• Advanced software capability evaluation
  Examine the features that potential software solutions offer. Look for advanced capabilities, such as multi-currency support, real-time policy compliance checks, AI-based fraud detection and automated cost allocation. Explore how these features could address the pain points that you identified in your needs analysis.

• Integration complexity and flexibility
  Evaluate the software's suitability for integration with your existing systems (such as ERP, HRMS and CRM). Assess the ease of integration and the flexibility to adapt to future system changes or upgrades. Consider the software's API capabilities and whether it allows for custom integrations.

• User experience and adoption
  Evaluate the software from an end-user perspective. Advanced software that is not user-friendly can lead to low adoption rates. Use a focus group of employees for a trial run of the software to gather feedback on its usability.

• Customisation and policy enforcement
  Research how you can customise the software to fit your business's rules and expense policies. Look for features such as dynamic policy setting, in which rules can be adjusted based on different criteria, such as employee role, location or type of expense.

• Data security and compliance
  Investigate the software's security in detail. This includes data encryption standards, compliance with global data protection regulations (such as the European Union's General Data Protection Regulation) and audit trails for expense transactions.

• Vendor expertise and support
  Assess the vendor's expertise in your specific industry. Look at their track record, customer base and case studies. Get to know what level of support they provide, including the availability of dedicated account management and technical support resources.

• Scalability and future-proofing
  Make sure the software can scale with your business growth by examining how well the software can handle increasing transaction volumes, additional users and expanding global operations. Consider the vendor's roadmap for future features and updates.

• Data-driven decision-making
  Evaluate the software's reporting and analytics capabilities. Advanced software should provide comprehensive dashboards, customisable reports and the ability to perform deep data analysis.

Best practices for implementation and expense management

• Strategic planning and stakeholder engagement
  Begin with a comprehensive plan that involves key stakeholders from different departments, such as finance, IT and human resources. Learn about their needs and concerns to ensure that the system addresses the organisation's broader objectives.

• Phased roll-out and pilot testing
  Implement the software in phases. Begin with a pilot programme involving a small, representative group of users. This method will help you identify potential issues while allowing for adjustments before a full-scale roll-out.

• Integration with existing systems
  Ensure that the expense management system can be integrated easily with your existing financial systems, such as accounting software, ERP and payroll systems. This integration is key to automating workflows and ensuring data consistency.

• Comprehensive user training and support
  Develop a comprehensive training programme for all users, tailored to different roles within the organisation. Include resources such as manuals, online tutorials and FAQs. Establish a support system for addressing user queries and technical issues promptly.

• Customisation for business needs
  Customise the system to work with your company's specific expense policies and workflows. This includes setting up custom approval hierarchies, expense categories and reimbursement rules.

• Regular system audits and updates
  Conduct regular audits to check that the system functions as intended. Stay up to date with the latest software upgrades and features that could improve system performance and user experience.

• Data security and compliance monitoring
  Implement strong data security measures. Regularly monitor compliance with internal policies and external regulations, adjusting the system as needed to remain compliant with evolving standards, such as the GDPR.

• Encouraging user adoption and the feedback loop
  Encourage use of the expense management system. Gather user feedback regularly to monitor challenges and find areas for improvement. This feedback loop is important for ongoing refinement of the system.

• Using analytics for strategic insights
  Use the system's analytics capabilities to gain insights into spending patterns, policy violations and potential savings in order to inform strategic decisions and policy adjustments.

• Continuous process improvement
  Treat expense management as an ongoing process. Regularly review and refine policies, workflows and system settings in response to changing business needs, user feedback and technological advancements.

• Vendor relationship management
  Maintain a strong relationship with the software vendor. This includes regular communication regarding updates, support issues, and discussions about future needs and upgrades.

• Cultivating a culture of compliance
  Build and support a company culture that emphasises compliance and ethical spending. You can achieve this through regular communication and training, and by setting an example at the leadership level.