Understanding Spend and Expense Management for Better Financial Control

Some things sound similar at first glance. 

Like spend management and expense management.

After all, if your company's money is involved in spending, it's an expense, right? 

Technically, yes, but there are different ways to approach a company's spending.

How you do it and why can seriously impact the financial stability of your business.

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What’s Expense Management?

Expense management is the process businesses follow to register, control, and ultimately pay staff-initiated spending.  Did someone from your team have to travel for an important event?  Was there a celebration at the company? Meals for late-night meetings? 

Yeah, those things happen.n 

And when they're paid for employees, you know there's a reimbursement coming on your to-do list.

While it might seem like a simple task of submitting receipts and approving reimbursements, expense management is a bit deeper than that. 

Key expense management processes 

Expense management happens after the money's been spent, and this sets the whole direction for the process.

Employees need to get their money back, so the first thing they need to do is send an expense report.

And that's not as straightforward as it sounds.

• Invoice data capture: If your people are still doing this step manually, there could be some issues with accuracy; on the contrary, if you've implemented an automated system, this could be done by snapping a picture from their phones.
• Compliance: Employees must be aware of your reimbursement policies. What's the limit for spending? What's the procedure? What sort of things and activities are covered? 
• Approvals:  Nobody likes to wait forever, even more so when there's money involved. Approval workflows need to be crystal clear from the very beginning. If there are different people who need to be aware of the expense reports for reimbursement, make sure you're using an automated system with notifications integrated.
• Reimbursement workflows: When and how is the payment going to be delivered? Timely reimbursements keep everyone satisfied.
• Audit: Reimbursements are a financial transaction that necessarily needs to be recorded. Keep an eye on your expense management operations so it's simpler to spot potential inefficiencies.

Tools and stakeholders involved

• Employees who submit reports
• Managers, who approve them
• Finance and HR teams, who oversee compliance and handle reimbursements

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As for tools, ideally, you want to work with some expense management software with OCR technology to make invoice data capture a much more friendly step

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What’s Spend Management?

Spend management is a broad approach; it sets the direction for the way you manage and optimize your company’s spending. End-to-end, spend management works in all areas of businesses,  so it’s simpler to control and improve how your company spends money.

It's not limited to random employees' expenses, suspend management work across procurement departments, supplier relationships, compliance, and, of course, budgeting.

If you want to understand why and how you're spending money and what alternatives are available to optimize costs, spend management is the route to follow.

Key spend management components 

• Procurement planning and approvals

Of course, procurement is involved; of all your company's operations, it's probably the place where you spend the most money. This includes defining what needs to be purchased, who is authorized to purchase it, and at what cost. Approval workflows are established so purchases are reviewed and validated before being finalized, reducing the risk of spending more than planned.

• Supplier selection and contract management: Ah, suppliers. They can make all the difference, right? Choosing the right suppliers is a key part of spend management. For a smart spend management strategy, you don't necessarily have to focus exclusively on who provides the cheapest solution, but rather analyze in tandem aspects like quality, reliability, and compliance. Once selected, contracts are managed to make sure terms are followed and pricing stays within agreed parameters.
• Budget setting:  Budgets are created to guide your departments on how much they can spend within a given timeframe. Spend management tools track actual spend against these budgets, letting you know about overruns or underutilized funds, and helping you make adjustments in real time whenever it's needed.
• Spend reporting:  And not just reporting, yes, you might need to gather all the data from your financial activities, but to make spend management work, there has to be a constant analysis of your numbers, outcomes, and general business goals.

Technologies and people involved

Spend management platforms like our very own ControlHub software or other alternatives give you integrated tools to manage procurement, budgets, and supplies in a single place. 

The stakeholders involved are typically broader than those in expense management. They include:

• Procurement teams, managing purchases and vendors
• Finance departments, overseeing budgets and compliance
• Operations or department heads, who initiate and approve spending

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What are The Differences Between Expense Management and Spend Management?

Scope

Expense Management deals with a narrow set of transactions, mostly employee-driven costs like travel, meals, or office supplies. So the focus is more on specific transactions once they have happened.

Spend Management, on the other hand, is more strategic in nature. It works for the benefit of your whole company, acting on operations like organizational spending, procurement, vendor payments, SaaS subscriptions, capital expenditures, and much more. 

It spans the entire lifecycle of spending, from planning to payment.

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Focus and timing 

This is another big difference, and it's easier to understand by saying that expense management is reactive. 

It starts after a transaction has happened. The goal is to process reimbursements efficiently and work with preestablished policies so your team is aware of how reimbursements work.

And what happens with spend management?

Well, it is proactive. Focusing on preventing overspending, so your supplier contracts are followed, and you can feel confident making informed decisions before money is spent. It involves planning, forecasting, and enforcing controls from the start.

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Processes and level of complexity 

Expense management processes are typically straightforward: submission, approval, reimbursement, and compliance checks.

Spend management is more complex and strategic. It includes procurement workflows, budget enforcement, vendor negotiations, contract oversight, and data-driven analysis.

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Why is an Integrated Approach the Best? 

Just because expense management and spend management work on different levels of your company's spending, it doesn't mean they shouldn't work together. Keeping them separate can create gaps, confusion, and extra work for your finance and operations teams.

Things nobody likes to deal with. 

When you bring both together into one system, however, there is a long list of benefits to reap 

For starters, you get a full picture of all spending, whether it’s a supplier invoice or a sales team dinner, which, of course, increases visibility levels on all your data.

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It also helps you apply consistent rules. Instead of working with two sets of approval flows or policies, you can manage everything in one place, like a spend management software.

Budgets become easier to track, duplicate work gets reduced, and everyone’s working with the same real-time data.

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