Spend management and expense management: two terms often discussed in business finance. They might seem interchangeable, but the approach behind each is distinct. And yet, they’re also not mutually exclusive. 

In this blog post, I’ll explain these two financial practices and why adopting a holistic and proactive approach to payments can yield better financial outcomes for your business. 

Spend management is more than just managing expenses 

Business expense management has long been in practice. So, if you own a business or handle its finances, you might be more familiar with the term "expense management" rather than "spend management." 

As the name suggests, expense management focuses on tracking and managing expenses made by employees on behalf of your business.

For example, expense reports may be required if an employee uses their corporate card to charge a business expense. Alternatively, formal reimbursement requests may be required if an employee charges an urgent business expense to their personal card.  

While expense management focuses on streamlining these financial processes in a reactive way, spend management deals with the bigger picture by proactively managing overall business spend.  

Business expense management is therefore a key component, but only one chapter of the spend management playbook.

Spend management focuses on managing, analyzing, and optimizing company spending. It is all about the big picture, taking a holistic approach inclusive of expense management’s narrow focus on employee-initiated spend. 

Adhering to a dedicated spend management strategy is key to controlling business expenses and managing spend in a proactive way.

It can be leveraged to inform higher-level decisions around approving spend, setting budgets, and cost management. And a good strategy will maximize business value.

Examples of spend management 

Spend management is often broken down into key focus areas to optimize spend, such as choice of vendor, services provided, outcomes, and impact on working capital.

Here are some examples to keep in mind:

• Supplier management: Tracking payments and service level agreements from suppliers to ensure they provide goods and services at an optimal cost and in line with business priorities.

• Contract management: Partnering with legal to monitor contracts as well as deals with suppliers and asset providers to ensure optimal terms.

• Inventory management: Examining the way inventory is manufactured, allocated, and sold in your business to ensure that levels are in line with demand.

• Product development: Analyzing the process of researching, developing, and launching products to ensure efficiency and effectiveness.

Key steps of spend management

The key steps of spend management include:

Planning

Setting targets for business spending on particular items, services, or investments based on current priorities and available capital. 

Tracking

Grasp the entire picture of spend by tracking actual expenses against the planned budget through a dedicated spend management platform.

Analyze

Examine spend data to spot trends, identify areas of over or under-spending, and find ways to save money or reallocate resources.

Improve

Based on your spend management insights, you may make changes to optimize business value, such as switching vendors or changing approval limits.

Here's an overview of how these steps work in tandem with the standard expense management process.

The benefits of spend management 

Correctly implemented, a spend management strategy can power the long-term success of your business by making the most of available capital, avoiding risk, and improving strategic decision-making.

More accurate financial data

By tracking data beyond business expenses, but also things like budget performance and supplier terms, you can better understand capital availability and find ways to make cash work even harder for your business. 

Increased operational efficiency

In-depth spend management can highlight areas where resources are being wasted or could be deployed better. By understanding the inputs and outputs involved, you can maximize your return on investment. 

Increased profits

Spend management highlights what your business should be making in relation to what it’s spending. By uncovering insights that drive new efficiencies, you can reduce spending and deploy resources to generate maximum profit.

Insights for business

The data that drives spend management provides a detailed picture of how well each business area deploys resources. By analyzing performance at a granular level, your finance team can find new ways to improve processes, go to market, or develop products that meet unique needs.

Reduced fraud risk

Fraud can cost your business dearly. Detailed spend management processes provide visibility and control to catch risks early, highlight suspicious spending activity, and set high thresholds for security before a payment takes place. 

Why should you implement a holistic spend management strategy in your business?

Expense management and spend management aren’t isolated practices; they’re interrelated components that work together to achieve better financial results. 

By tackling expense management through a comprehensive spend management approach, you will create a more proactive financial management system.

You will not only gain better control over business expenses, but you’ll also empower your team to proactively plan and optimize all spending for stronger overall financial performance.

Implement a spend management platform in your business 

Ready to tackle expense management through a proactive spend management strategy? 

Extend’s spend management platform can help! Get in touch to learn more.

Online: Enter the virtual card details when buying online.

Over the Phone: Give the virtual card details when purchasing over the phone.

Via an App: Enter and save the virtual card details as a credit card when buying via an app.

Physical Store: Key in the virtual card details in the card reader at a physical store.

These virtual card details are:

· Card number
· Expiration date
· Security code
· Billing address/zip code

Voila! Easy and simple in making business purchases using your virtual card.

To keep payments safe from hackers or credit card fraudsters, virtual cards can be used by setting a preferred credit limit and validity date. What’s more, when making a purchase, make sure to use the zip code of the virtual card if asked by the merchant. Credit card issuers and network will often check at the time of the purchase that the zip code of the credit card on file matches the zip code entered by the buyer at the point of sale.

Keep in mind though, when making a purchase, there is a difference between the card expiration date and the validity dates. The card expiration is the Month/Year that is printed on any credit card. Merchants will often ask you for that information when making a purchase. The validity dates (start and end dates) are composed of a Day/Month/Year and will never be asked by a merchant. They are available for virtual cards only and indicate whether or not the card is active or cancelled.

When sending/requesting a virtual card, make sure that the authorized spending limit is not too close to the expected purchase amount. Some merchants (e.g. car rentals, hotel, taxi apps) make a temporary hold on credit cards before their service is fully rendered. That hold is often a preset amount (e.g. $200 for a car rental, $20 for a taxi app, etc.) or an amount that is equivalent to the expected cost of their service plus a buffer (e.g. ~25%). This hold temporarily diminishes the virtual card’s spending capacity and is not released until the actual charge is submitted, so it’s best to consider these potential holds when setting a virtual card spending limit.

The biggest downside for virtual cards is that a physical card cannot be swiped. And, of course, although virtual cards are widely accepted, some merchants are still skeptical when they see a credit card image on a screen, and their staff might not be trained to accept virtual cards. Nevertheless, virtual cards can serve as an effective buffer between your company’s actual credit card details and merchants, while simultaneously equipping employees with the ability to proficiently make business-related purchases.

Watch this video to learn more on how to use a virtual card.

Have you ever wondered if it’s truly possible to maintain full control over company credit card spend while empowering your employees with the payment capabilities they need?

It’s undeniable that expediting payments keeps operations running smoothly, and long and tedious approval processes only hold businesses back. But managing employee credit cards is a balancing act. How do you strike that perfect balance between accessibility and absolute control?

By implementing systems and proper payment tools. 

This way, you can arm employees with a better way to pay, make it easier to manage employee credit cards, and guarantee the visibility and control your finance team needs to keep company spending in check. 

Let’s delve into the realm of effective employee credit card management and discuss how virtual cards can help you tackle this, at times, complicated business process.  

Why is employee credit card management important for my business? 

As a business owner, you know that keeping a firm grip on expenses is non-negotiable for success. While issuing credit cards to employees can facilitate transactions and reduce expense reports, it can also present challenges when it comes to monitoring and controlling expenditures. Unchecked credit card usage can lead to overspending, compliance issues, and employee misuse. By embracing modern solutions like virtual credit cards to address these challenges, your finance team can equip employees and unlock new levels of operational efficiency without ever putting security and control at risk. 

What are virtual credit cards, and how do they work? 

Virtual cards are digital versions or “extensions” of your physical corporate credit card, although they have their own unique card number. They’re strictly digital, more secure, and way more versatile than traditional credit cards. You can use virtual cards anywhere you would use your regular credit card, online, over the phone, and depending on your card issuer, in person via contactless payments. Companies that use them to manage employee credit cards completely eliminate the need for additional plastic credit cards and significantly reduce the amount of manual work and expense reporting that can occur when running a business. Not to mention lost cards or fraud on a physical card creates operational burdens, which can be avoided by leveraging virtual cards. 

Rather than sharing multiple physical credit cards across your organization, you can create as many single-use or recurring virtual card numbers as you need, each with a designated spend limit and expiration date. These helpful features ensure that even if the card information is compromised, it can’t be used for unauthorized transactions. When an employee needs to make a purchase, simply create a virtual card, add an expiration date and spending limit, and send it in seconds.

Furthermore, with virtual cards, you can collect more data that you can transfer into your accounting software via integrations, helping you reduce manual processes and simplify reconciliation. With seamless connections to your financial systems, you can track and categorize expenses accurately and in real time.

How to use virtual credit cards to manage employee expenses 

With virtual credit cards at your disposal, you'll gain unprecedented control, transparency, and efficiency to properly manage employee credit cards. 

Follow these steps to get started.

Choose a virtual credit card provider 

Selecting the right virtual card provider for your business is paramount. Not all providers are created equal; some operate away from traditional financial institutions, while others, like Extend, work with your preferred bank — meaning there’s no need to leave your bank or open new lines of credit with a neo-bank. Therefore, consider your business needs, and look for a convenient company that offers security measures, user-friendly interfaces, and integration with your business and accounting platforms. The right provider will minimize any disruptions in your financial processes.

Establish a comprehensive expense policy 

Before sending virtual cards to your employees, lay the groundwork for efficient expense management and create a comprehensive expense policy if you haven't already. Clearly outline permissible expenses, spending limits for different roles, rules for managing employee credit card receipts, and the approval process for higher expenses. Communicate this policy to all employees to ensure they understand the guidelines, and make the policy readily available so they can adhere to it.

A well-communicated expense policy ensures employees are aware of what expenses are allowed and sets clear expectations for the responsible use of company funds. Don’t forget to regularly review and update the policy to accommodate changes in business needs or industry regulations.

Train employees to use virtual credit cards 

Although virtual cards are easy to use, training your employees is still important — especially if they’ve never used virtual cards before and don’t know the ins and outs of the platform you implement.  

A good virtual card provider will equip you with learning resources and knowledgeable customer support to ensure your employees understand everything from requesting and creating virtual cards to attaching receipts and generating reports. 

Don’t skip this step, even if your chosen platform seems pretty self-explanatory. Doing so will only cause confusion, delay adoption, and encourage misuse instead of responsible spending practices and a culture of financial prudence.

Set spending limits 

One of the most significant advantages of virtual credit cards is the flexibility to set customized spending limits per card. When managing employee credit cards, your finance team can easily tailor limits based on your expense policy, responsibilities, purchase types, and even individual roles, ensuring employees have the necessary funds while maintaining fiscal responsibility.

For instance, employees with more purchasing authority may have higher spending limits, while those in administrative roles may have more restrictions. Taking advantage of spending limits prevents excessive spending and mitigates the risk of unauthorized or inappropriate expenses while granting you and your finance team complete, real-time visibility over expenditures. 

Monitor expenses in real-time 

In contrast to traditional credit cards, virtual cards make real-time monitoring a reality. You can access transaction data as payments occur rather than at month’s end. This immediate visibility streamlines reconciliation and helps you quickly identify unauthorized transactions or potential issues, enabling you to take corrective actions promptly.

Real-time monitoring also allows you to spot spending patterns and identify opportunities for cost optimization. Analyzing expense data in real time can provide valuable insights into the effectiveness of various cost-saving measures and aid in making data-driven decisions for your business.

Advantages of virtual credit cards over traditional credit cards 

Virtual credit cards offer many benefits that set them apart from conventional corporate credit cards. 

Enhanced spending control 

As a business owner or finance professional, you know how important it is to maintain control over company expenses to ensure financial stability. With virtual credit cards, you gain the upper hand in managing expenses effectively while still enabling accessibility. 

Setting customized spending limits for each virtual card in your business ensures that your employees always stay within the allocated budget. This feature is particularly valuable for employees who frequently travel or have varying expense requirements. Additionally, virtual cards can be configured for single-use or limited-use, reducing the risk of unauthorized transactions or misuse. This will cause a virtual card to become invalid when a transaction is completed, preventing future charges. When it comes to recurring virtual cards, the spending limits and deactivation ability still apply. This level of control ensures that company funds are used solely for approved business purposes.

Increased security 

Security is a paramount concern in today's digital landscape, and virtual credit cards provide an armor of protection against fraudulent activities. Each virtual card is associated with its unique card number, card verification code (CVC), and expiration date, significantly reducing the risk of fraud and misuse on your physical corporate credit card. Not to mention, you no longer need to spend precious time and energy closing and opening credit card accounts, which is cumbersome and only interrupts operations. 

With virtual cards, you can assign unique virtual card numbers to specific vendors and suppliers, ensuring that transactions are limited to approved merchants. In case any suspicious activities occur, easily deactivate virtual cards to mitigate potential losses.

Simplified expense tracking and reporting 

Accurate and timely expense tracking is essential for financial planning and budgeting. Virtual credit cards simplify this process by providing real-time data on expenses. Each transaction you make with a virtual card is instantly recorded, along with details such as the date, amount, and merchant. Employees can also attach receipts for each transaction, making managing employee credit card receipts a breeze. This streamlined data makes expense tracking and reporting effortless, reducing the administrative burden on your finance team.

With a platform like Extend, you get a comprehensive view of all transactions to speed up reconciliation. As a result, your finance team gains valuable insights into spending patterns and can make more informed decisions about budget allocations and resource management while you gain the transparency and visibility you need to run your business.    

Lower costs 

Traditional corporate credit cards often come with various fees, such as annual charges and foreign transaction fees. Instead of incurring even more costs by relying on a stack of physical credit cards, each with their own fees, use virtual cards. Since virtual cards are an extension of your existing card, you can eliminate any additional fees while still accruing credit card rewards. 

Furthermore, virtual cards will inevitably streamline expense management and reduce the time and effort you and your team spend on manual reconciliations and paper-based workflows. This efficiency translates into cost savings by optimizing resource allocation and enhancing overall business productivity.

Flexibility

Virtual cards will easily accommodate the diverse needs of your business and employees. Since virtual cards can be generated instantly, they’re ideal for urgent or one-time expenses. You no longer have to wait for plastic cards to arrive in the mail, and your employees don’t have to wait through long approval processes that only delay payments and, in turn, operations.  

Virtual credit cards are also versatile when it comes to travel expenses. Rather than making employees front the bill and submit expense reports for cash reimbursements, employees who travel for business can use virtual cards for hotel bookings, flight reservations, and other travel-related expenses. They can travel with ease and without incurring unnecessary debt while you ensure travel expenses stay within your budgetary constraints.

Manage your employee credit cards with Extend 

The journey to optimal expense management begins with virtual cards. Learn more about how to better manage employee credit cards and how virtual cards can help your business here.