What does 'Smart Categorization' mean?

Smart categorization is an advanced feature in accounting and expense management software that automatically classifies transactions into relevant expense categories based on past spending behavior, predefined rules, and machine learning algorithms. When a transaction is recorded, the system analyzes the details, such as merchant type, transaction description, and payment method, and assigns it to the appropriate category, such as travel, office supplies, utilities, or entertainment. This automation reduces manual sorting, minimizes errors, and improves financial reporting. Smart categorization is especially beneficial for businesses managing high transaction volumes, as it speeds up bookkeeping, enhances budget tracking, and ensures compliance with tax regulations. Some platforms also allow customization, enabling businesses to set rules for specific vendors or transaction types, making financial management more accurate and efficient.