How employee expense management works for your small business: Track, automate and control costs

Published Friday 5 December 2025

Table of contents

• What is employee expense management?
• Which expenses can employees claim?
• What are the benefits of using expense management software?
• Common expense management problems
• How to fix expense management problems
• How to create an expense management system
• Expense management best practices
• Streamline your expense management with Xero
• FAQs on expense management

Key takeaways

• Establish a comprehensive expense policy that clearly defines approved expense categories, spending limits, submission processes, and reimbursement timelines to prevent confusion and ensure consistent spending across your team.

• Implement expense management software to automate receipt capture, enable real-time spending tracking, streamline approval workflows, and eliminate manual data entry errors that slow down reimbursements.

• Create straightforward approval workflows with defined authorization levels to ensure every expense claim is reviewed promptly and employees receive timely reimbursements.

• Monitor expense data regularly to identify spending trends, track budget compliance, and optimize your expense management system based on team feedback and changing business needs.

What is employee expense management?

Employee expense management is the systematic process of tracking, approving, and reimbursing business expenses that your team pays on behalf of your company. This includes the tools, processes, and strategies you use to control team spending and maintain accurate financial records.

Employee expenses are often the hardest business costs to control because spending happens outside your direct oversight. Your team might pay for travel, office supplies, or client meetings without immediate approval.

Why this matters: As your business grows, manual tracking becomes ineffective. A robust expense management system helps you:

• Control costs through better oversight
• Maintain accurate records for tax compliance
• Preserve profitability by preventing overspending

Which expenses can employees claim?

Claimable employee expenses are business costs that you approve for reimbursement. Common expense categories include:

• Travel expenses: Flights, accommodation, and transport for business trips
• Office supplies: Stationery, equipment, and workspace materials
• Client entertainment: Meals and events for business purposes
• Professional development: Training courses and industry events

You should only reimburse employees for business expenses they incur in their job – for example, paying for an overseas flight to meet a client or new office stationery.

Depending on the type of business expense, you might need to report it or pay tax on it. To see the different business expense types and their rules, check out HMRC's A-Z list.

Some expense types are more relevant to certain businesses than others. If your team takes a lot of flights to meet clients, you will likely cover travel expenses. Whatever expenses your business plans to pay for, it's best to outline the rules clearly in an expenses policy so everyone knows where they stand.

Be sure to communicate your policy to new starters and make sure the policy is easily accessible for teams to check back on.

What are the benefits of using expense management software?

Expense management software automates the expense tracking process, reducing manual work and improving accuracy. Instead of handling paper receipts and spreadsheets, your team can photograph receipts and submit claims digitally.

Key benefits include:

• Save time by eliminating manual data entry
• Reduce errors through automated expense processing
• in real-time with budget monitoring
• Generate reports for better financial insights
• Speed up reimbursements to maintain positive employee relationships

Common expense management problems

Common expense management problems disrupt business operations and frustrate employees. These issues typically fall into three categories:

Receipt management problems:

• Lost or damaged paper receipts
• Missing purchase details and context
• Difficulty matching receipts to expenses

Process delays:

• Slow reimbursement approval workflows
• Manual data entry creating bottlenecks
• Employees waiting weeks for expense payments

Tracking challenges:

• Shared company cards used by multiple staff
• Limited visibility into real-time spending
• Difficulty monitoring budget compliance

How to fix expense management problems

Improving your expense management approach means being clear on the policies, processes, and rules for employee spending. Here are the steps to fix common expense management problems.

Create an expense management policy

Create a comprehensive expense policy that sets clear spending guidelines for your team. Your policy should include:

• Approved expense categories: Specify which costs the business will cover
• Spending limits: Set maximum amounts for different expense types
• Submission process: Detail how employees should submit claims
• Approval workflow: Define who approves different expense levels
• Reimbursement timeline: Specify when employees will receive payments
• Department budgets: Include specific limits for teams or roles

Use a purchase card

Employees can use a purchase card in place of their own, or a company credit card. The company is responsible for topping this card up. Because it only contains a limited amount of money, it's easier for you to control company spending and stick to budgets.

Note: purchase cards are a helpful spending tool, but expense management software gives you much better oversight and tracking.

Consider expense management software

Expense management software creates spending consistency across your team by providing clear processes and real-time oversight. This prevents unintentional overspending and ensures everyone follows the same guidelines.

Software benefits include:

• Real-time tracking: Monitor spending as it happens
• Digital receipt capture: Eliminate lost paper receipts
• Budget controls: Set and enforce spending limits
• Automated workflows: Streamline approval processes
• Compliance reporting: Generate records for tax purposes

Modern expense management software is simple to use, and it won't take long to bring your staff up to speed on automating expense claims. With the right software, your team can spend sensibly and submit claims easily.

How to create an expense management system

You can build a reliable expense management system in a simple, straightforward way. Follow these steps to create a process that works for you and your team.

Step 1: Define your expense policy

Your expense policy is the foundation of your system. It should clearly state what employees can claim, any spending limits, and the required proof of purchase. A clear policy prevents confusion and ensures everyone spends consistently.

Step 2: Choose your tracking method

Decide how you'll track expenses. While spreadsheets work for a start, they can be time-consuming and prone to errors. Expense management software automates tracking, saving you time and providing real-time visibility over spending.

Step 3: Set up approval workflows

Establish a clear process for submitting and approving expenses. This ensures that every claim is reviewed before reimbursement. With software, you can automate this workflow, sending claims to the right person for approval instantly.

Step 4: Train your team

Introduce your team to the new system. Show them how to submit claims, who to contact with questions, and where to find the expense policy. A smooth rollout helps everyone adopt the new process quickly.

Step 5: Monitor and optimise

Regularly review your expense data to see where money is going. Look for trends, identify areas for cost savings, and ask your team for feedback. This helps you refine your system and make it even more efficient.

Expense management best practices

An effective expense management system is clear, fair, and efficient. Here are some best practices to help you get it right.

• Keep it simple: A complicated process can lead to mistakes and frustration. Make your policy easy to understand and your submission process straightforward.
• Automate where possible: Use technology to handle repetitive tasks like receipt capture and data entry. Automation saves time and reduces the risk of human error.
• Reimburse quickly: Don't leave your employees out of pocket for long. Prompt reimbursements build trust and keep your team happy.
• Communicate clearly: Make sure your team knows the rules. Keep your expense policy accessible and be upfront about any changes to the process.
• Review regularly: Your business changes, and so should your expense process. This aligns with foundational governance principles, such as the Turnbull Report's recommendation that companies without an internal audit function should review the need for one at least annually. Regularly review spending and get feedback from your team to find ways to improve.

Streamline your expense management with Xero

Xero's expense management solution simplifies the entire expense process from submission to reimbursement. Your team can manage expenses on any device, while you maintain complete financial oversight.

How it works:

• Mobile submission: Employees photograph receipts and submit claims instantly
• Automatic data capture: Extract key details from receipt images
• Real-time approval: Review and approve expenses from anywhere
• Integrated accounting: Expense data flows directly into your accounts
• Budget monitoring: Track spending against department limits

Xero Expenses helps you get more out of your expense management process. Monitor employee spending in real-time, manage expenses on the go, and create budgets that keep spending under control. Instead of battling a mountain of expense claims, you can address them as and when they come in.

Ready to simplify your expense management? Try Xero for free and see how easy it can be to keep track of your team's spending while focusing on what matters most – growing your business.

FAQs on expense management

Here are answers to common questions that can help you manage employee expenses with confidence.

What's the best way to manage business expenses?

Three main approaches exist for tracking employee expenses, each with different capabilities:

Spreadsheets: Manual tracking with basic functionality

• Limited real-time visibility
• Requires manual calculations
• Prone to data entry errors

Purchase cards: Controlled spending with transaction records

• Better spending control than personal reimbursements
• Limited detailed reporting
• Difficult to track individual purchases

Expense management software: Automated tracking with comprehensive features

• Real-time budget monitoring
• Automated reporting and analytics
• Integration with accounting systems

What's the difference between spend management and expense management?

Expense management focuses on tracking and reimbursing employee-initiated costs, like travel or office supplies. Spend management is broader, covering all organisational purchasing, including procurement, supplier contracts, and invoicing.

How can you prevent expense fraud?

A clear expense policy, mandatory receipt submission, and multi-level approval workflows are key to preventing fraud. These controls are most effective when regularly assessed, a practice supported by governance guidelines which recommend that companies annually review the scope, authority, and resources of their internal audit functions. Expense management software can also automatically flag duplicate claims or out-of-policy spending for review.

Can expense management software integrate with accounting systems?

Yes, most modern expense management software is designed to integrate seamlessly with accounting platforms like Xero. This integration automates data entry and ensures your financial records are always accurate and up to date.

How do remote teams handle expense management?

For remote teams, digital tools are essential. Mobile apps for receipt capture, online submission forms, and digital reimbursement methods allow employees to manage expenses from anywhere, without the need for paper records.