Spend management is often confused with expense management and vice versa. However, the two are distinctly different. Understanding the differences between spend management and expense management can aid your organization in developing a comprehensive approach to managing its finances efficiently.
Spend management describes how a business manages its resources and tracks and organizes its spending. It is a critical component of operations since it involves managing, allocating, tracking, and analyzing expenditures related to all of the company’s resources. Spend management involves comprehensively managing all company purchases and the accompanying supplier relationships.
Expense management refers to how a company tracks employees’ expenses while doing business. Expense management describes how a business pays and audits payments initiated by employees. The most common expense for a business to process is travel and entertainment (T&E).
Expenses are typically incurred when an employee travels for business or entertains prospective clients. Expenses usually related to T&E include meals, lodging, and transportation. A business will either reimburse employees’ out-of-pocket expenses or provide company cards for this purpose. Managing and accounting for all of these costs is referred to as expense management.
Before clarifying the differences between spend and expense management, it helps to know the differences between an expense and a cost. Though these terms are similar and are both used when referencing spend management and expense management, they are very different regarding company spend.
When a company has fixed costs, like supplier-related orders or large purchases, this is a cost to the business. This type of expenditure brings in a return on investment, the amount spent to gain a product or service.
An expense refers to a purchase that occurs in the course of doing business but is not directly tied to an asset or immediate profit. An employee taking a client out to lunch would expense the meal; however, there is no guarantee that the meal would result in profit for the business. Other expenses that are not directly profitable but assist with daily operations include office supplies, utilities, employee hotel stays, and transportation costs.
With a basic understanding of spend vs. cost, it’s easier to understand the differences between spend management and expense management. Spend management includes expense management because expenses are one type of company spend that needs to be monitored and tracked. Expenses fall under the umbrella of spend management, though companies have begun to realize that expensing is an inefficient way of doing business. This is because managing spend after it has already occurred pales in comparison to proactively setting budgets, parameters, and limits that allow for greater control. Proactive and effective spend management is the way to go forward for companies seeking to operate more progressively.
While tracking and monitoring expenses is helpful from an accounting angle, it fails to set the parameters and controls in place that companies need. This is where spend management comes in. With an effective, well-rounded spend management strategy, a business can better allocate in each category before any spend occurs. With better resource allocation, improved visibility, better employee accountability, and greater control, spend management wins over expense management every time.
The best way to gain greater control over the spend management process is with automation. Financial technology can assist with establishing specific parameters and guidelines around expenses. With automated accounting offered by today’s modern fintech solutions, companies can enjoy controlling virtually every aspect of company spend from one centralized platform. This protects company resources from frivolous spending and ensures that all manner of expenditure stays on budget.
When an employee travels on company business and incurs expenses along the way, it’s hard to know how big the bill will be until they get back. There may be pre-established guidelines around their spending, but there is no way to know precisely what is being spent and what will need reimbursing. This is one of the challenges of expense management vs. spend management. Spend management really takes expense management to the next level, with access to real-time visibility and immediate access to data. Finance leaders have instant access to information showing what is being spent on which company card in real-time.
Implementing a smooth and seamless workflow is one of the best ways to ensure that a company stays within budget and effectively controls spend. Spend management that is automated with the right procurement and spend management system provides the benefit of easy workflow implementation. There is a seamless flow at every process stage, from procurement to invoice reconciliation. There’s no need for confusion regarding invoice approval hierarchies or duplication of work completed. With the right spend management tool, workflow implementation is a breeze that boosts productivity and allows for long-term profitability.
With the ability to set a budget and forget it, automated spend management provides the flexibility and control that company decision makers can depend on. From setting budget parameters for travel and entertainment on company trips to limiting the budget for product ordering, spend management exceeds expense management’s capabilities by providing greater control and more effective budgeting.
Effective budgeting and planning is easier when using expense and spend management software. The right technology solution provides a wide range of benefits to VPs of finance and AP team leads. Some of the benefits of implementing the right software include:
Enhanced collaboration: with one cohesive platform, your organization can enjoy enhanced collaboration from any location in real-time.
Increased productivity: With more free time not being spent on manual activities, resources can be diverted to more profitable activities.
More efficient workflows: The right software offers automated approval workflows that make completing the necessary spend management tasks a breeze.
Greater responsiveness: As approval requests can be approved in the cloud, the waiting period for project funding is significantly reduced.
Businesses searching for a fully featured spend management automation tool have trusted PayEm to help them navigate the nuances of transitioning to an automated solution. PayEm works intuitively to auto-connect each aspect of your financial process so that they all work as one cohesive unit. As a solution, PayEm enables businesses to:
The platform offers complete visibility that puts employees on equal footing with bookkeepers when it comes to effectively managing every aspect of company spend. No more searching for lost receipts and scanning expense paperwork into outmoded systems, resulting in a massive waste of man hours. Instead, with PayEm, you can enjoy a seamless, efficient, and productive solution for all of your spend management needs. Contact PayEm’s experts for a commitment-free, no-cost demo of the platform.
The secret to long-term financial stability lies in spend management. A business’s spend management strategy should never remain static
To achieve the objectives of optimizing efficiency, improving profits, and reaching full potential, a strategic plan sets policies and implements controls on company expenditure.