Last Updated: April 2022

Hi it’s Martijn from HPE Growth. I am investing Series B and C European start-ups in verticals including FinTech, Climate Tech, SaaS, and Digital Health. My articles uncover the emerging fintech trends in the European tech ecosystem. Today I am sharing a piece on the expense management space in Europe🇪🇺

What is expense management?

Expense management is a system for processing expense reports, approvals, and reimbursing employees for expenses paid out of their own pocket. The phenomena is part of the greater spend management bucket which also includes procurement and purchasing but excludes short term fixed costs like payroll. Expense management acts as a critical accounting component for any organization as it enables improved budgeting, reporting, and ultimately enhanced control over the operations and expenses incurred by the employees on behalf of the company. To ensure the organization is able to control the expenses, policies and procedures are established and implemented. An example of a policy includes a list of expenses that the company will (or will not) pay for such as a meal allowance or accommodation for attending a conference abroad like Slush in Helsinki.

Expense management aims to serve the needs of three particular end user groups in an organization, namely the (i) finance and accounting team, (ii) employees, and (iii) management team. First, the finance and accounting team leverages the system to maintain accurate financial records and build budgeting models through the use of historical financial data. Second, employees expect and demand an easy to use process with minimum friction as well as short reimbursement cycles. The faster the employee is reimbursed, the higher the satisfaction and morale. Third, a well structured and integrated expense management system allows the management team to track expenses for risk management, growth, and cost saving purposes among others.

Methods to manage expenses

The three main identified methods of managing expenses are listed below.

  1. Paper tracking

    Paper tracking is a process of managing expenses through the use and collection of paper receipts. Paper receipts represent the documentation of an expense. They are submitted to the accounting team for approval or denial and reimbursement, if applicable. The accounting team typically completes the process on a monthly or quarterly basis.

  2. Spreadsheets (e.g., Excel, Google sheets)

    The method is more automated compared to paper tracking but requires manual data entry at times hence the method is prone to human error.

  3. Expense management software (e.g., Pleo, Spendesk)

    Expense management software is a SaaS solution automating the recording, tracking, approval and payment of reimbursable expenses. In other words, the financial software simplifies the expense management process and enables employees to shift their efforts to more intellectually challenging tasks. The solution provides analytical tools and insights enabling employees to enhance their decision making. In addition, the software can be integrated with enterprise resource planning (ERP) systems and accounting software hence disposing the need for the accounting team to manually enter the expense report data. In turn, this reduces the probability of human errors prevailing. Expense management software aims to tackle two main challenges that prevail with the two other methods namely, (i) lack of visibility due to the absence of a centralized database and (ii) prehistoric inefficient processes subject to manual errors (paper and Excel).

Tallie, a company previously acquired by Nexonia and currently part of Emburse through the merger of six travel and expense management companies produced a report on the travel and expense management space in 2019. The report indicated that 43% of firms across all sizes being small, medium and large enterprises remain dependent on traditional methods including both paper tracking, spreadsheets (Microsoft Excel or Google Sheets), and alternative proprietary methods to manage and report expenses (source).

Customer journey in the expense management process

The expense management process is a multi-step process starting from the initial expense being incurred or logged to the reimbursement or rendering of the expense report, in the event that the expense is approved. The customer journey varies significantly depending on whether the process is conducted manually through traditional methods or automated by using a dedicated expense management software solution. Both user journeys are depicted below.

Traditional expense management process

Traditional expense management process

Employees using a manual system to process reports, approval and reimbursement of expenses are increasingly faced with challenges including detecting and requesting missing information for a claim, fraudulent employee behaviour such as claiming an expense twice but under a different event or name, and lengthy reimbursement cycles for the employees. As a result, the traditional process requires significant time and effort from employees hence being less cost effective and efficient compared to other solutions in the market. Despite all the notable drawbacks, 43% of firms of all sizes remain dependent on traditional methods as indicated in the previous section (source). Nevertheless, the figure was obtained in 2019 hence prior to the COVID-19 pandemic and surge of digitalization. Therefore, there is reason to believe that the proportion of firms adopting expense management software is higher leading to significant growth rates achieved by start-ups which, in turn, may explain the heated funding environment for expense management start-ups.

Automated expense management process

Automated expense management process

The user journey can vary to a slight extent in terms of how employees log their expenses. This is dependent on the expense management software used. Some players like Pleo enable their customers to issue virtual and physical company cards to their employees. Hereby, employees can complete purchases without the need to incur expenses out of their own pocket. However, other players such as Mobilexpense do not issue cards but provide tools to empower customers, particularly their employees to capture out of pocket expenses through scanning the paper receipt. Note, Pleo offers both products features.

Category of product features and capabilities

In this section we will outline the extensive suite of product features and capabilities (non-exhaustive) offered by the expense management software players. The features distinguishes the different players in the market as specified above with Pleo and Mobilexpense.

  1. Company cards

    Virtual and physical company cards provided to individuals or teams.