Expense policy 101: understanding the basics

by Faustine Rohr-Lacoste | October 18, 2018

As an entrepreneur just starting out, drafting and implementing an expense policy is probably not high on your list of priorities. Even though you’re probably more interested in growing your team or acquiring new users, it’s important to spend some time thinking about the future, too.

When your team grows — which it will — you need make sure your employees don’t go on a spending spree by laying down some rules first. If you aren't ready to take this step, you should at least keep track of all transactions so they can be approved by a manager.
 
In any case, we think it’s time for a crash course on expense policies. In this article, you’ll learn why you need one, what it means to have one, and the steps you need to follow to set one up.
 
When you're done here, you might also want to have a read of our CEO's guide to expense management, not to mention our guide on the top things CFO's want to improve in standard expense management processes.
 
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What’s an expense policy?

Generally speaking, an expense policy is a set of rules that define what the employees of a company can do with their employer’s money. They’re often laid out in a document which workers are asked to comply with when they sign their contract. 
 
This document should clearly outline how your business deals with company-related expenses, and offer a detailed explanation on how employees are able to get reimbursed.
 
While expense policies vary between companies, most include the following key elements:
 
  • A clearly defined list of all expense categories that can be claimed
  • A step-by-step guide on how to claim expenses
  • What happens in the event of a dispute concerning expenses
There are lots of factors that influence the exact wording of your policy, which depend on the specific conditions your company is in. For example, if you recently raised capital, it makes sense to be a bit more flexible, while a bootstrapped company might like to have a tighter budget.
 

Now, let’s take a look at the basics.

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Why do you need an expense policy?

It’s easy to avoid an expense policy in the early days of a company, but every growing enterprise should think about setting one up.
 
When you have multiple employees buying things for business purposes, the money spent on these expenses can quickly spiral out of control. If the rules are unclear (or don’t exist at all), people could end up spending too much money or buying unnecessary products, causing an unnecessary drain on company funds.
 
Even worse, they might commit fraud by making private or unauthorised purchases with their employer’s money.
 

But even when you already have rules about employee spending, it can be worth to formalise them by creating an expense policy. Writing everything down in an official document ensures that everyone is on the same page, which helps to simplify and speed up the reimbursement process.

How do you set up an expense policy?

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It might sound like a daunting task, but creating your first expense policy doesn’t have to be hard. Get started with these six tips:
 
1. Define budgets and categories
 

Because we’re developing a financial policy, it should be based on your company's financial situation. In order to set appropriate budgets, it’s a good idea to talk to your CFO — if you don’t have one yet, consider getting professional advice.

The same goes for setting the various expense categories you allow employees to claim. Consider what they need to excel at their job, but also think about what they shouldn’t be able to buy. 

2. Be fair
 

When enforcing your new policy, it’s vital to be fair to your team. Treat employees equally and avoid making exceptions — this helps make everyone feel more valued.

Also, keep a close eye on the time it takes to process employee reimbursements. You wouldn't ask your friends or family for an interest-free six-week loan, so you probably shouldn't ask your staff either. 

3. Keep it simple
 

A great expense policy should be easy on the eyes. Pay attention to the language you’re using — is it clear enough for anyone to understand? Don’t go into too much detail when it’s not needed — you don’t want to end up with a 40-page document that no one will read.

While you're at it, your expense report processes should be user-friendly too. Take a look at our free expense report template, and see what you think.

4. Keep updating
 

Treat your expense policy like you treat the business as a whole. The state of your company is changing all the time, and the rules should reflect that.

For example, the rules and allowances you set in year one probably won't still be applicable by year five. Your team will have grown, and your expense policy should reflect this growth.

5. Comply with local regulations
 

If you haven’t done so already, read up on all local laws that affect your policy. Be sure you know which kind of documents to keep, and for how long — you want to avoid any surprises on that front. 

Once again, be sure to get professional advice where necessary. The consequences of getting these steps wrong are too significant to just wing it on your own.

6. Consider how technology could help

Lastly, consider the ways technology can be used to innovate your expense workflow. Integration between expense management tools and accounting software allows for many previously time-consuming tasks to be streamlined and simplified, saving your finance team from manually processing expense information.

Not only can this save you and your team time and effort, but it can also help improve the accuracy and consistency of your records, leaving you better placed to cope with the possibility of audit. 

Automate your expense policy

On top of these six tips, be sure to think about how the range of expense management tools could help you automate your processes. After all, the easier your expense policy is to follow, the more likely your team will want to follow it. 
 
If possible, you should look for ways to avoid having employees submit manual expense reports. After all, filing expense reports is not only hated by employees, but also wastes a lot of valuable time between your finance team and managers. Over time, this can become a significant cost.
 
Spendesk is the perfect tool to supercharge your expense management by offering a secure way to centralise all company spending. Spendesk offers smart, innovative features like virtual credit cards, and also automates expense reporting, making it unnecessary to hold on to hard copy receipts. 
 
A host of customisable settings make it effortless to change the product to your liking — there’s full control over budget and approval flows, including a way for managers to pre-approve expenses with customisable prepaid cards.
 

Using Spendesk has perks for employees, management, and the finance department. It'll save everyone valuable time with its modern take on expense reporting. 

Download our free expense report template 

TOPICS : T&E Expense management

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