Expense policy best practices

Expenses are typically the second largest cost for a business after salaries, so they need to be controlled and monitored. It’s important to have a robust and clear expenses policy for employees to follow. This helps to avoid accidental overspending and cuts down on time used to resolve disputes. Best practice expense policies should:

1. Be clear and easy to understand.

The company expenses policy sets out how employees must conduct business responsibly. It’s an important document for guidance and reference, in case of any doubt about whether an expense is allowable. Make sure the expense policy isn’t too complex or too long – employees need to be able to read and digest it easily and find what they’re looking for if they need to consult it. It’s a good idea to make the policy available online or via an app so it’s always to hand.

2. Support business goals

Controlling costs is only one part of effective expenses management. If a policy is too strict and limited, it might constrain business travel for sales and customer-facing activities, which are essential for revenue growth. Fixed limits might work well for lower value items, but for business travel and entertaining, it’s more important that expenses deliver ROI. Your policy needs to encourage employees to choose the best value options that enable them to do their work effectively. As an employer, you need reporting and analytics that help you maintain visibility of expenses costs in context of the activities they support. For example, in a modern expenses management system, you can assign expenses to a customer account, opportunity or marketing project and see exactly what it’s costing to deliver leads and sales.

3. Collect relevant information

Require employees to provide only the expenses data that’s necessary: for example, the merchant, amount, date, category and payment method. You can provide a field for further comments. If the expenses claim information required is too complicated, it’s easy for errors to creep in or for employees to look for short cuts. You might require more information for higher spends, or for unusual expense items. In an online expense claim system, you can make sure you have all the data you need by making certain fields mandatory. If your expense management system allows receipt scanning and uses OCR (optical character recognition) you may be able to populate some fields automatically, saving employees time and improving accuracy.

4. Tie expenses spending to customer and revenue data

To forecast, manage and justify expenditure effectively, you should connect your expense policy to revenue-generating activities. This will enable you to take a dynamic approach to expense management, so that spending only occurs when a positive return is predicted. You will be able to calculate ROI and understand the impact on company profits. You can identify employees or expense items that don’t tend to contribute to profit and adapt policy and approvals accordingly.

5. Explain how to submit and approve claims

If you want your employees to submit their expenses at a certain time or on a certain day, make this clear in the policy. Set out how and when they will be approved, so managers understand their commitment as well. But using automated and online expenses systems makes it easier for employees to submit their expenses on-the-go, quickly and accurately. And companies can enable automatic approvals of low value or common items and instantly reimburse them. Expense management systems with mobile apps allow instant receipt submission.

Make it clear how employees can request additional authorisation in exceptional circumstances – either within the expenses system, by email or in person.

6. Discourage a backlog

In your expenses policy, make it clear how soon you expect expenses to be claimed – it’s good practice for employees to do it frequently and regularly rather than building up a backlog throughout the year. Submission should be immediate on a line-by-line basis rather than gathering a pile to submit monthly. This means you can keep track of budgets and costs and manage finance and cashflow accordingly.

Keep your expenses policy as simple as possible and be clear about employee accountability for accurate and truthful expense claims. Be explicit about the consequences of expenses fraud. Using a digital expense management platform can help employees by making it easy to submit receipts and claims online and gain approval rapidly, as well as providing alerts and guidance so they stay within policy.