What is a discretionary expense? Expenses, whether for potential audits or to save money. The term discretionary expense indicates a cost that is not essential to the functioning of a business or organization. In a corporate or organizational environment, this kind of expense is associated with improving standing with customers, clients, and/or employees, and is often considered important for long-term profitability. However, it remains a type of spending that is not strictly necessary, meaning that the business could still function even if all discretionary spending stops. A business or organization has the “discretion” or choice when it comes to this kind of expense, for example, meals at restaurants or entertainment costs. It is important to have an efficient system for filing and tracking these and other kinds of expenses.