Spend Management •8 min read
A complete guide to Expense Policy in Organisations
By Aftab Manzoor
Published November 23, 2019
Planning to create an expense policy? Haven't heard of one? Not getting anywhere near making one? It's ok to be clueless. That's where we step in.

We believe in formalised written down policy which everyone adheres to which is vital for any business. We are here to help one craft a policy that suits their needs well.

We are here to show what all should go into an effective policy and how to develop one smartly.
What is an Expense Policy?

Expense policy simply means a set of guidelines under which employees are expected to exercise their discretion on spending the business money and how they can seek reimbursements for any out of the pocket expenses

Now this can vary among companies though they will have the below common aspects:

• A list of expense categories under which the employees can claim
• Expense limits for each category per person
• Reimbursement procedures
• Dispute management procedures
How to develop an Expense Policy?

Any expense policy is unique as businesses invariably vary. Nevertheless, the following things ought to be kept in mind, while developing a policy:

Clarity is of paramount importance – Nobody is a fan of ambiguity. Employees should know what documents to submit while submitting a claim or expenses they can actually claim

Simply simple – One cannot have a long, drawn out policy, which drags on for ages. A simple, straightforward and concise document will be appreciated by all

It should be fair – All the employees should value in the document on equal grounds with no favoritism doled out to anyone or any designation

Should be tax compliant – There should be no trouble with local tax authorities when taxes are filed on the year end

Periodic updates are of paramount importance

Now these are the development tips of an expense policy. Now let's look at what actually goes into an expense policy.
What to include in an Expense Policy?

Let's deep dive. The following ought to be included in a policy to be effective:

Budget for each expense category

To provide clarity on expenses, each expense category should have a maximum budget which is explicitly mentioned in the policy.

For example, maximum limit of stay per night for a hotel room can be set so that an employee knows that beyond that limit he/she is cannot reimburse for that category.

Time limit for reimbursements

It should be explicitly mentioned in the policy that, employees have to reimburse their out of pocket expenses with a certain period from the date of expense (say 3 months).

This ensures that employees have an incentive to put up their claims faster with proper documentation and finance need not chase them for expense reports.

* Strict reimbursement procedures

Expense policies should be straightforward and simple. They should have detailed procedures on how an employee can submit appropriate claims with supporting document for various expense categories

* Centralised invoice storage

Expense policy should clearly advise where paper invoices should go and to which email ID online invoices should go.

Even subscriptions like Google Adwords, LinkedIN marketing, Facebook Ads etc should be done managed centrally.

The same can be advised to suppliers and other vendors.

* Suitable payment systems

All the above aspects take care of efficient reimbursement systems. Now if a business is looking for optimisation of productivity and efficiency the expense report should encompass efficient payment methods.

* Virtual credit cards come in handy for any purchases made only. The authoriser can set caps on amounts for various categories within the card. The employee under the authoriser can spend the money under those categories under the given budgets.

These cards can be for one-time use or recurring use. As the card is valid for only pre-defined purchases the chance for fraud is near zero.
Benefits of an Expense Policy

Now that we have taken the pain to create a document, we need to understand its relevance as well. With a well laid out expense policy the following can be achieved:

Insights into spending trends

With proper policy in place, employees can spend only in allowed categories and spending is easier to monitor among the defined categories

Decrease in unnecessary spends

With pre sanctioned categories, spending on unnecessary products or services can longer be done as the policy simply does not allow them

Increased Turnaround Time (TAT) of reimbursements

As employees know what all to submit for their reimbursement, rejections rates are reduced leading to satisfaction of employees

Decrease in fraudulent claims

As expense policy would be clearly covering this segment, any attempt to do so will result in clear penalisation, leading to employees abiding by the document and not attempt anything detrimental to the business
Expense Policy - A living entity

No business is run to remain stagnant. It's management and employees will always have a vision and the business will keep on evolving. In that process various aspects will change and one of them that will surely change will be the whole basket of expenses.

With that in hindsight a once-and-for-all expense policy does not make any sense. What was appropriate for a team of ten will not be the same as with a team of 50.

To account for this, regular milestones have to be kept for reviewing and assessing the expense policy. It is definitely prudent to have a team take a look at the policy and make necessary changes apt for the phase of the organisation.

When this is being done, it is important to take feedback of all the employees. This helps in the forumation of a holistic document. It also has the added advantaged of boosting employee morale.

Regular review of expense policy will ensure that the system in place is fit-for-purpose and will contribute to maximum productivity and efficiency
Before we bid adieu!

Expense policies and systems are an integral part of any growing business. With proper systems staff is empowered to spend on behalf of the company when needed, and the finance team can stay in control and seamlessly track spending.

With growing business expense management often goes out of control and leads to the creation of ad-hoc systems with no real reason. This leads to inefficiencies and wasted time.

A fit-for-purpose policy will suit the particular needs and demands of the business, and will give management and is employees certainty and confidence around the treatment of business expenses.

For seemless control and confidence, consider an advanced expense management platform like Volopay. It ensures spending time and money in the most modern and smartest way so that you and your team can focus on growing your business and serving your customers.

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