Like most things in life, when faced with competing priorities some things take precedence over others. In running a business, that one item that gets pushed to the bottom of the list is the company’s expense policy. Our the company expense policy best practices will help you to get your policy into top shape.
Ask any business owner if they have looked at their company’s expense policy since it was first drafted. Chances are they would have forgotten most of the details beyond the chapter on prudence.
A well-crafted expense reimbursement policy does take some time to develop. How to claim expenses and the many rules what constitutes a reimbursable expense in the first place, need to be documented right.
Volve recommends all businesses to have a clear and formal company travel and expense policy as a living document that evolves with your business.
In this guide, we are going to walk you through company expense policy best practices. We will walk you through the what, why, and how of creating a policy that benefits both the company and the employees.
What you will learn:
At its core, the policy is a set of rules helping define what employees can do with company money. This is often found in a formal document employees sign at the same time as their contract.
While expense policies – like any policy – will vary between companies, there are three main aspects all successful policies should include:
Using an expense management software such as Volve can simplify the process for your company and employees.
Company travel and expense policies are key to keeping the business on budget.
Not only does it outline how the senior leadership team should spend company money, but it eliminates any gray areas for all employees. Without clear rules, spending will spiral out of control and the company’s budget will be strained.
In the worst case scenario, this could lead to employees committing reimbursement fraud, whether intentionally or not. This can happen by making unauthorized purchases or business travel with company funds.
A well-crafted expense reimbursement policy reduces friction within the company. Instead of needing to ask their supervisors, employees can rely on the expense management system and policy to make purchase decisions. Opportunities for expense reimbursement fraud are minimized, especially if you use an online expense management system.
Clear guidance on allowable expenses helps all staff understand what meets with compliance to company policy. This goes a long way in eliminating travel and expense violations.
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While there is no prescribed criteria for a perfect policy, you should not ignore these fundamentals:
Here are eight tips to help you get going in drafting an effective policy:
The most important best practice for any policy is to ensure it is clear, fair and unambiguous.
During the preparatory drafting stages, it is important that travel and expense policies are given ample time and attention. Ensure that the policies are aligned with the business and promotes understanding to employees.
In addition, companies should have at least a basic expense reimbursement policy to help protect themselves in the case of a dispute or inquiry. The key is to review and update the policy regularly. Based on our experience, almost half of employees say they do not understand their company expenses policy.
When it comes to expenses, simplicity is key. The more straightforward your processes are, the more likely your employees are to comply.
A tool bogged down with layers of admin take up precious working hours and are likely to incur mistakes. You run the risk of employees exaggerating their expenses to compensate for the difficulty of having to claim in the first place.
Creating an effective and quick process helps ensure employees are happy, and that expenses are signed off correctly. One of the best ways to keep it simple is use a centralized tool that calculates the GST of every expense. This preferable over a manual input by employees. The likelihood that all employees understand this fully is quite low.
The best expense management solutions are straightforward and quick, requiring minimal time from employees.
It is important that your guidelines strike the right balance when asking for details. Information that goes beyond more than just the price and purchase date of each item is usually necessary.
The collection of relevant expense information with an effective tool helps minimize delays during administration. It also avoids potential compliance problems, and keeps the budget on track for the current and upcoming year. You could use a business expense manager to acquire more data besides the purchase amount and date.
The best practice is to always ask for a receipt, keeping in mind different expenses require different GST information. Take for instance, mileage data. This is not only easy to get wrong, but also easy for the tax authorities to check up on.
Successful policies should always have clear (and easily findable) time frames for submitting expenses. This is true for both employees claiming expenses, and for employers approving the expenses and paying their staff. The best practice is to include a clear expenses time frame outlining the length of the process, from beginning to end.
If employees delay claiming their expenses for long periods of time, it not only hurts their own finances. It causes cash-flow and accounting problems for the company. It is a good idea to have managers use a tool to check and approve their own teams’ expenses and reimbursement for travel.
This is better practice than passing them further up the chain of command each time. However, this means that controls must be in place to ensure that managers are reviewing expenses, rather than simply signing them off.
A quick process is important. But it is necessary to ensure managers have the ability to push back on expenses claims they believe to be non-compliant. To ensure only correct claims are made, it is best to hold authorizers accountable for the enforcement of policy guidelines.
Engage with your management team. Take the time to explain the policy to them – from basic processes to the rationale – each time there is an update. Their understanding of the policy will promote compliance and, in the long run, a cultural shift among employees when it comes to expenses.
Involving employees in the process of your spend management platform helps ensure that it is realistic and not burdensome. Having the perspective of your employees makes it more likely that they will comply with your policy.
It is likely that a portion of your workforce is either global, remote or mobile. As such, the claiming and approval of expenses can be difficult to achieve in a timely manner. The best practice is to provide a tool where employees can claim, and managers can approve, expenses while away from the office.
This will mean looking into technology enabling travel expense reports effectively. A tool that works on mobile is a plus, as it allows adhering to the expense guidelines on the go.
Require traveling employees to include enough information in their automated expense reporting so that there are minimal administration delays. Compliance problems related to travel and expenses are avoided and your company stays within budget.
This is one of the most overlooked expense policy best practices: Good auditing equals good practice and the right tool.
Often viewed as an unwelcoming and time-consuming intrusion, regular auditing keeps expenses procedures more effective. It helps iron out any problems or snags in the policy and keeps the system fair and up to date.
The best practice for auditing is to include a tool with receipt validation to avoid fraud. Auditing receipts you should check that your employees are claiming correctly. For example, are employees submitting both credit card slips and receipts for the same item, but claiming for two separate expenses? No one likes to think their employees are committing expenses fraud, but it isn’t uncommon.
You should include a clear set of auditing guidelines, including the process around random audits. You may choose to only audit tax sensitive items, or those over a certain value. In an ideal world it would be great to check everything; in a busy workplace that is not always possible.
The best way to ensure your employees are compliant is to ensure you are compliant yourself. Your staff have gone to the trouble of familiarizing themselves with the policy and its processes. Now it is fair to pay them as soon as possible.
However, the best practice is to issue a corporate card. This removes any out-of-pocket expenses being incurred by the employee. While the occasional taxi receipts may not seem significant, corporate travel expenses can take on the magnitude of thousands of dollars each month. Many companies make expense reimbursements once a month. Delays in submission, approvals, finance processing can lead to employees having to front their credit card bills before they are reimbursed.
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There are two common aspects many businesses use for expenses that cause more problems than they are worth. As you create or update your expenses policy, remove the below two potential problems to keep up with best practices.
Many offices use a petty cash box, which is often believed to not cause any harm. After all, it’s only small amounts of money at a time. Is there really any harm in not knowing exactly where it is going? Yes. Companies should track and account for all spent company money, especially in a new business. Having an untracked cash flow, no matter how small, is asking your employees to take advantage. Plus, now-a-days, an expenses debit card enabling you to track “petty cash spending” online is more efficient.
Old-fashioned processes, like paper expense reports, are still used – even in “paperless” companies and offices. There is no reason in 2020 for your travel and business expenses not to be automated. Paper reports are easy to get wrong, lost and duplicated. They are difficult to store and monitor. Paper reports take up more man-hours, as each calculation must be checked manually before approval. And in some cases, the data from paper reports is later manually uploaded onto an online system. Save your employees the hassle, and have them claim expenses with an online tool at the start.
These expense policy best practices help create a robust set of guidelines that will help your employees save time and your company save money.
Even the best document will not alleviate the painful monotony of the claims reporting that we are all familiar with. Having a unified spend management solution can make all the difference.
Save big on time and effort with Volve. From sales to human resources to finance operations, management can look forward to shifting resources from repetitive manual practices. This allows everyone to realize strategic goals that create more value and deliver higher returns.
Volve’s corporate card comes with an automated expense management solution and reporting tool. This enables all functions of business to capture productivity growth potential from time-cost reductions, greater accuracy, increased visibility and control.
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