When it comes to managing money within a business, two terms often pop up: spend management and expense management. While they might sound similar, they serve different purposes and are essential for keeping your company’s finances in check. You’ve probably dealt with tracking expenses, but spend management? That’s a whole other level.
So, what exactly are these two approaches, and how can you use them to your advantage? In this blog, we’ll break down the differences between spend management and expense management, discuss their benefits, and explore how to integrate both for a seamless financial strategy.
Overview:
What is Spend Management?
Spend management is all about controlling and optimizing how your company spends money. This involves everything from procurement processes, supplier management, and contract negotiations to tracking overall company spending. Spend management ensures that every dollar your business spends is accounted for, allocated correctly, and done with efficiency in mind.
Let’s take a small example. Imagine you run a small manufacturing company. Spend management would help you negotiate better deals with suppliers for raw materials, set up automated purchase approvals, and track how much each department spends on resources. The goal is to get the most value out of each transaction while keeping costs down and ensuring compliance with company policies. Think of it like a bird’s-eye view of where all the money is flowing in your business.
What is Expense Management?
Expense management, on the other hand, focuses on the individual transactions your employees make, like travel costs, meals, or office supplies. It’s about tracking, controlling, and reimbursing these day-to-day expenses. You need to ensure employees are spending within company guidelines and that all the expense reports are processed quickly and accurately.
Let’s assume that one of your sales representatives goes on a business trip. Expense management comes into play when that representative submits receipts for flight tickets, hotel stays, and meals. A good expense management system will allow them to do this digitally, saving everyone’s time while keeping the process transparent. It’s less about negotiating prices and more about making sure every transaction is properly tracked and reimbursed.
Now that you understand spend management and expense management, let’s explore the key differences between these two financial concepts.
Key Differences Between Spend Management and Expense Management
The main difference between spend and expense management lies in scope and focus. Spend management takes a macro approach, focusing on how much the entire company is spending, from procurement to operational costs. It involves strategy, budgeting, and compliance at the organizational level. Expense management, meanwhile, is more micro, dealing with employee-initiated purchases and reimbursements.
In short:
- Spend management: Tracks and controls all company-wide expenditures, focusing on cost optimization and procurement.
- Expense management: Tracks individual employee expenses, focusing on proper reimbursement and compliance with company policies.
Key Benefits of Spend Management and Expense Management
Benefits of Spend Management
Cost Control
Spend management systems help identify areas where the company might be overspending and allow you to renegotiate contracts or switch vendors for better deals.
For example, a company using a spend management system might notice they’re overspending on office supplies. With the insights from the system, they can consolidate suppliers, get bulk discounts, or find a new supplier altogether.
Improved Budgeting
When you have a clear picture of where the money is going, it’s easier to plan your budget accurately. This helps in forecasting future costs and adjusting budgets based on historical spending patterns.
Supplier Relationships
Spend management tools allow you to keep track of supplier performance, ensuring you’re working with the best and most reliable partners.
Benefits of Expense Management
Streamlined Reimbursement
With digital platforms, employees can submit expense reports in real time, and you can process them quickly. No more waiting weeks for reimbursements.
For instance, an employee traveling for a conference can upload their receipts instantly using a mobile app, and the finance department can approve the expenses on the go.
Policy Compliance
Expense management tools can automatically flag expenses that don’t comply with company policies, reducing errors and ensuring transparency.
Time Savings
Automating the process frees up time for both employees and the finance team, who no longer need to deal with mountains of paperwork or manual entry.
The Integration of Spend Management and Expense Management
While spend and expense management operate at different levels, they work best when integrated. Having a single platform that covers both areas provides a comprehensive view of all financial activities. This holistic approach ensures there’s no gap between what’s being spent by the company and what employees are expensing.
Let’s consider a live scenario here. Assume you’re a CFO at a growing company. By integrating both spend and expense management, you can track the big-ticket items like supplier contracts while also monitoring day-to-day expenses from employees. For example, if you notice a trend of rising travel expenses, you can immediately review your overall travel budget, negotiate better deals with airlines or hotels, and adjust employee travel policies to curb excess spending.
Integration also ensures that there are no duplicate transactions. If a purchase was approved through spend management, it shouldn’t show up again in an employee’s expense report. This synchronization cuts down on errors and prevents any financial surprises.
Latest Trends in Spend Management
In the world of spend management, new trends are shaping the way companies control their finances. Here are some of the latest innovations:
1. Artificial Intelligence and Automation
AI is playing a massive role in streamlining spend management processes. It can automate everything from approving purchase orders to tracking supplier performance. AI-driven platforms can identify patterns in spending, flag anomalies, and recommend cost-saving measures.
2. Data-Driven Decision Making
More businesses are adopting data analytics to gain insights into their spending habits. According to a report by Deloitte, companies that use advanced spend analytics tools see up to a 5% reduction in procurement costs annually.
3. Sustainability Initiatives
More companies are focusing on sustainable procurement, where spend management tools help track eco-friendly suppliers and products. McKinsey reports that 88% of suppliers are now evaluated based on their sustainability practices, leading to more eco-conscious spending decisions.
How a Mobile Expense Management Solution Optimizes Spend & Expense Management
Mobile solutions are becoming the norm in expense management, offering the convenience of managing expenses from anywhere. With a mobile expense solution, employees can easily submit receipts, and managers can approve expenses in real time. These solutions also come equipped with features like geolocation tagging, instant photo uploads of receipts, and real-time policy enforcement.
Above all, a mobile expense management solution integrates seamlessly with your overall spend management strategy. When an employee books a flight or submits a report, the mobile app checks it against the company’s approved travel and expense policies, ensuring compliance. This solution can also generate spending reports, which allow finance teams to track spending patterns and find cost-saving opportunities. By using mobile expense management, companies can reduce manual entry, improve accuracy, and keep employees accountable.
From the above context, choose a mobile expense management solution that integrates seamlessly with your ERP systems like Oracle or SAP, providing your employees with real-time data access anytime, anywhere. Towards this end, explore Propel Apps’ mobile expense management solution (iExpense App) for Oracle that offers an intuitive and smooth spend management experience. Using this solution, you can track receipts, manage expense reports, and reimburse yourself while on the go. Your managers, on the other hand, can easily review and approve expense reports using this solution, regardless of internet access. To know more about this solution and how it can optimize your organization’s expense and spend management, schedule a call today for a free demo.
Final Thoughts
Spend management and expense management are both critical to maintaining a healthy financial ecosystem within your company. While spend management takes a strategic approach to optimize costs across the board, expense management focuses on ensuring that employee spending stays within policy and is reimbursed quickly. By integrating both practices, you’ll have a comprehensive financial strategy that controls costs and streamlines processes.
With emerging trends like AI and mobile solutions, now is the time to adopt modern spend and expense management tools to stay competitive and maintain financial transparency.
