An employer’s guide to employee expense management and receipt tracking
We explore what expense management is, why it matters for your business’ financial health, and how to keep on top of it.

What is employee expense management?
Employee expense management encompasses the tools, processes, and strategy you use to manage team spending. When an employee pays for something on the business’ behalf, you need to have a system in place for managing these expenses.
Of all the business expense types, employee expenses can be the hardest to manage. Your team might need to pay travel costs to and from events, or purchase new stationery – and this spending isn’t always something you have oversight of.
When you’re first starting a business, tracking expenses with a simple spreadsheet often does the trick. But as you grow, a more robust expense management approach is essential for controlling costs, keeping accurate records, and maintaining profitability.
Which expenses can employees claim?
It’s up to you to decide which business expenses your employees can claim. Typical expense types include things like business travel and office or workshop supplies.
Employees should only be reimbursed for business expenses incurred through their job – for example, paying the cost of an overseas flight to meet with a client, or reimbursing an employee who paid for new office stationery.
Depending on the type of business expense, you might need to report or pay tax on them. 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 take a lot of flights to meet clients, you’ll 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 makes tracking expenses easier. Your employees can simply snap a photo of their receipt and upload it to your expense management software. With a clear record of the payment, you can reimburse them quickly, and monitor the impact of spending with reports and budget tracking features. Expense tracking software helps you:
- Save time on inputting expense data manually
- Reduce human error by automating the expense claims process
- Track your expenses data in real-time, set budgets, and achieve greater financial control
- See where you can improve with easy-to-read expense reports and insights
- Maintain positive employee relationships by dealing with reimbursements quickly
Common expense management problems
Poor expense management isn’t uncommon, but it can be disruptive. For example, employees need to provide receipts to claim expenses, but these are easily lost or misplaced. If your reimbursement process is slow, recalling purchases and the reasons for them is harder. Not to mention, employees might become disgruntled if it takes a long time to claim the money they’re owed.
Some businesses opt for a shared business card to handle employee expenses. But even in small businesses, spending soon becomes hard to track if several staff members use the card.
How to fix expense management problems
Improving your expenses management approach means being clear on the policies, processes, and rules for employee spending. Let’s look at the steps to fixing expense management problems.
Create an expense management policy
Help your employees spend wisely by clarifying what they’re allowed to claim. Create an expense management policy that includes details such as the expenses covered, the process for submitting expense claims, and the timeline for reimbursement. If departments or roles have specific budgets these should be included, too.
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 they don’t give you the full oversight and tracking features of expense management software.
Consider expense management software
Bad business spending can develop over time, whether or not it’s intentional. Your employees need clear policies, processes, and guidance on spending to make sure they’re making the best decisions for the business.
Expense management software helps everyone get on the same spending page. With real-time tracking, receipt capture functionality, and budget setting tools, expense management software makes employee spending less of a hassle.
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.
Manage costs effortlessly with Xero’s expense management solution
With Xero’s expense management software, submitting, managing, and paying expenses is simple. Your team can submit expense claims from their smartphone with a quick photo of the receipt. You have all the purchase information you need to keep accurate records and reimburse staff properly.
Xero 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.
Frequently Asked Questions
How do you keep track of employee expenses?
You can use a simple spreadsheet, purchase card, or software to manage expenses. But note, spreadsheets and purchase cards have limited functionality. And you might struggle to see the impact of spending on cash flow and budgets unless you manually add up the numbers.
What is the employee expense procedure?
It depends on the business – it’s up to you, as the employer, to set up an employee expense process. Some businesses use purchase cards, where others expect employees to pay using their own money (and are reimbursed at a later date). A clear employee expense procedure helps prevent spending from spiralling.
Are employee expenses taxable?
Employee spending that’s reimbursed or paid for by you isn’t taxable, as long as HMRC is satisfied that the purchase is an allowable expense for tax purposes.
How can you control employee costs?
Keep control of employee spending by being clear with everyone – outline what the business will pay for in your expense policy, set budgets for teams or departments, and use expense management software that gives you a real-time view of spending.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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