Expense categorization. It might sound mundane, but behind every successful business is a well-oiled machine for tracking every dollar. Missteps in categorization are common, and many teams—especially those relying on manual or semi-manual processes—are falling into these traps.
We surveyed professionals across industries to see how they handle expense categorization and where their biggest pain points lie. CEOs, financial analysts, and small business owners shared their experiences, providing a clear message: automation can be a game-changer.
Read on for insights, anecdotes, and hard data to help you decide if it’s time to take your expense management to the next level.
Expense Categorization: More Than Just Data Entry
According to Nora Sudduth, Founder & CEO of Nora Sudduth Consulting, expense categorization “isn’t just an administrative task; it’s a strategic process.” Nora recalls working with a client who was “significantly underfunding their growth initiatives by misclassifying R&D expenses as general overhead.” Once corrected, they saw a notable boost in profitability. Accurate categorization allows businesses to track costs and allocate resources effectively—a key practice for supporting growth.
Josh Katz, CPA and Founder of Universal Tax Professionals, highlights the importance of categorization in managing complex, cross-border expenses. “Accurate categorization is essential for handling multi-currency transactions and ensuring compliance with varying international tax laws,” he explains. Proper categorization reduces errors and helps his team stay compliant across different jurisdictions.
David Primrose, President of Metal Marker Manufacturing, adds that expense categorization is as crucial to financial health as “precise engraving is to our metal tags.” A well-organized categorization system allowed his team to identify overspending on specialized engraving tools, enabling them to negotiate better pricing with suppliers and reduce costs.
However, for many professionals, managing this crucial task with manual processes can quickly become a burden. As expenses grow more complex, so do the issues with categorization, leading us to the next big question: How effective are manual systems in handling it all?
Problem #1: Manual Systems Drain Time
One of the biggest drawbacks of manual categorization is the sheer amount of time it requires. Professionals using manual systems report spending between 10 to 15 hours each month on categorization alone.
Michael Schmied, Senior Financial Analyst at Kredite Schweiz, spends around 10 hours monthly fixing errors. “Automation helps, but there’s still the need to step in for tricky expenses that don’t fit neatly into categories,” he says. These hours add up over the year, translating into hundreds of hours that could be better spent on higher-value activities.
Problem #2: Ambiguity Creates Chaos
Manual systems struggle with ambiguous expenses, which don’t always fit neatly into predefined categories. Gal Cohen, Business Development Leader at JDM Sliding Doors, shares that “ambiguous expenses are often difficult to categorize consistently.” This ambiguity can lead to inconsistencies across teams, making it challenging to maintain accuracy.
David Primrose adds that his team intervenes when categorization is unclear—similar to how his production team handles irregularities in engraving. But as the volume of expenses grows, so does the potential for chaos.
Problem #3: Inconsistent Classifications Across Teams
When categorization is done manually, ensuring consistency becomes a major challenge, especially across larger teams or departments.
John Pennypacker, VP of Sales at Deep Cognition, notes that “one of the biggest struggles is ensuring consistent categorization across team members.” This inconsistency can lead to data discrepancies, resulting in financial reporting inaccuracies and time-consuming rework for finance teams.
Problem #4: Higher Risk of Human Error
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“Carelessness in expense categorization is a financial black hole that swallows priceless insights and turns cost control into a nightmare.”
Manual categorization is highly susceptible to human error. According to Adil Advani, Associate Product Owner at Securiti, his team often faces accuracy issues due to the extensive manual oversight required.
Even minor errors can create ripple effects in financial data, particularly when dealing with large volumes of transactions. Correcting each mistake requires additional time and effort, making the process even more labor-intensive.
Problem #5: Limited Fraud Detection in Manual Processes
Manual categorization systems lack robust fraud detection capabilities. David Primrose rates his company’s fraud detection system a 2 out of 5, acknowledging that manual review can catch some unusual expenses but lacks consistency.
Without automated checks, suspicious expenses can easily slip through unnoticed, exposing businesses to financial and compliance risks.
The Solution: Why Automation is the Way Forward
These CXO insights clearly show that while manual categorization is time-consuming and prone to error, automation can streamline the process, improving efficiency, accuracy, and financial control.
Here’s how automation addresses the biggest pain points and why these professionals see it as essential to modern expense management:
Solution #1: Automating for Time Savings
Dan Khasis, Founder and CEO of Route 4 Me, shares that his team’s time spent on categorization dropped by 60–70% after implementing automation. “Automation reduces our manual work to just 6–8 hours per month,” he says.
According to our survey, professionals using automated systems report saving anywhere from 20 to 40 hours each month—time they can now devote to strategic projects.
Solution #2: Improved Accuracy, Reduced Errors
Automated categorization systems significantly reduce errors by enforcing consistency.
Josh Katz believes AI-powered tools could be game-changers: “AI can predict and categorize complex transactions, like those involving foreign currencies, more accurately.” Automation’s ability to learn from previous patterns ensures that transactions are coded accurately, reducing the potential for human error.
Solution #3: Enhanced Fraud Detection with AI
With AI-driven systems, fraud detection becomes proactive rather than reactive. David Primrose emphasizes that AI categorization “can flag anomalies as they happen,” allowing businesses to address potential fraud early on. This real-time detection significantly reduces risk, especially for high-volume expense categories.
Solution #4: Mobile-Friendly for On-the-Go Efficiency
Mobile capabilities are invaluable for teams on the move. Nora Sudduth points out that mobile integration is crucial in her consultancy work: “Being able to categorize expenses on the go makes the process more efficient.”
With a mobile-friendly expense system, employees can snap a photo of a receipt and let AI handle categorization, keeping records up-to-date no matter where they are.
Solution #5: AI and Machine Learning for Intelligent Insights
AI-driven categorization doesn’t just make processes faster—it makes them smarter. Michael Benoit, Founder of Contractor License Bonds, sees AI as a powerful tool in expense management, capable of adapting to new categories and flagging trends over time.
By analyzing patterns, AI helps businesses gain insights into spending behavior, enabling better decision-making
How Fyle Can Help
Eliminate the tedious work of managing expenses and empower your team with an intuitive platform. Fyle integrates seamlessly into the apps your employees already use so they can submit expenses with a single click. Here’s what we can do for you:
Effortless Receipt Tracking
Forget the spreadsheets. With Fyle, employees can submit receipts through Text, Gmail, Outlook, Slack, or via Fyle’s mobile and web apps. All expense data is instantly extracted, coded, and tracked in one centralized location.
Real-Time Credit Card Feeds
Fyle directly integrates with credit card networks like Visa and Mastercard to give you real-time text notifications on all business credit card transactions. Employees can reply with a picture of the receipt for instant reconciliation.
Automate Expense Coding with AI
Capture all essential data effortlessly. Fyle syncs with your accounting software to automatically code expenses according to your General Ledger, ensuring accurate data entry without the extra effort.
OCR Data Extraction and Custom Fields
Default fields like Category, Amount, Merchant, and Date are auto-populated with OCR, while users can add other essential data like Projects, Cost Centers, and Locations for detailed reporting.
Smart Expense Rules for Auto-Complete
Set up rules for auto-filling expense details. For instance, if the merchant is Uber, Fyle will categorize it as "Taxi." No more repetitive data entry.
Automatic Coding for Complex Expenses
When employees submit receipts, Fyle codes expenses and categorizes them—such as Cost of Goods Sold—eliminating the need for manual entry on every project expense.
Flexible Approval Workflows
Configure automated approval workflows and let managers approve expenses directly from their Emails, Slack, or the Fyle Mobile App.
AI-Backed Expense Compliance
Fyle’s AI checks for compliance with your business rules even before expenses are submitted for approval. Catch duplicates and potential fraud automatically.
