Employees will occasionally spend their own money to pay for work-related expenses—office supplies, sales calls, and meals and lodging during business trips and company events, among others. These costs are an extension of your business expenditures and should be part of your company expense reimbursement policy.
Having a fair and effective expense reimbursement policy enables you to treat your employees fairly and show respect for the effort they put into their work. A well-crafted company expense reimbursement policy also allows you to organise your finances and prevent overclaims easily. These benefits are particularly important for growing your company or if your organisation operates on a limited budget.
This article will discuss some challenges of company expense policy implementation and the steps in creating an effective expense reimbursement policy.
The Challenges of Implementing a Company Expense Policy
Executing a company expense reimbursement policy is not as simple as letting employees fill out a reimbursement form and repaying them. Specific challenges come with the process. Here are some of them.
- Nobody reads it
Employees are unlikely to read a lengthy policy document because they don’t have time for it. It’s vital to keep your policy short and straightforward, so your employees can easily understand how much they can spend on business-related expenses and how they should report those expenditures for reimbursement. Your policy should also include updated information regarding fiscal laws to ensure compliance with government regulations.
- It doesn’t avoid instances of fraud
Some employees can find ways around a company expense reimbursement policy to overclaim. For instance, an employee can disguise a personal expense as a business expense or create a fake purchase to obtain reimbursement.
These false expenses can add up to thousands of dollars, even if only a few employees do. You may lose more than you gain if you don’t have a stringent policy. Your employees may also learn to take advantage of your other policies and play by their own rules in the long run.
It takes an employee’s focus away from value-adding tasks
The expense report process often entails lengthy preparations. Employees must file their reimbursements one by one and wait for their manager and the finance team to review and approve their claims.
Some claims even take longer to process because finance teams receive several expense reports daily. This tedious procedure may remove the employees’ focus from value-adding tasks specific to their roles.
- Some expenses go unreported
A complicated expense reporting process can discourage employees from filing their claims. For instance, employees may no longer file for reimbursement if they know they would have to fill out forms and seek approvals manually.
Equipping your employees with the proper tools and systems is crucial to make expense reporting hassle-free and time-efficient. Encouraging employees to report expenses helps generate an accurate view of your business cash flow.
- Some receipts get lost or damaged
Collecting and submitting several physical receipts from a business-related transaction can be challenging. For instance, employees may report their expenses late or forgo filing if they’ve lost or damaged receipts from a business trip. As a result, they may develop antagonism toward the company, negatively impacting company culture.
How to Create an Effective Employee Expense Reimbursement Policy
The key to an effective expense reimbursement policy is a procedure that simplifies employees’ experiences. Here’s how to achieve that.
- Determine what counts as reimbursable expenses
Create a detailed list of acceptable reimbursable expenses not covered by your corporate card. These expenses may include transportation, corporate gifts for clients, business lunches, and training programs.
Then, develop guidelines for each expense category to ensure alignment between your finance department and employees regarding reimbursements.
- Categorise reimbursable expenses
Categorising your business expenses enables you to monitor how much your company spends on. You may segment the expenditures by jobs or departments since some business units have more specific expenses than others. For instance, you may reimburse your sales department for corporate gifts and the IT department for software training and related certifications.
You may categorise certifications and seminars under “career development” and business cards, paper, and other stationery under “office supplies.” This step will make it easier to identify which expenses draw the most funds, aiding in budgeting and forecasting.
- Set rules and budgets for particular expenses
Setting rules and budget limits for business expenses lets you manage your cash flow more effectively. For example, you may create a spending limit for corporate lunches or business trips to avoid overspending. You may also avail a business phone plan so your employees can avoid non-work calls.
Setting restrictions can be a strategic option for your business, especially if you are operating on a limited budget. Limit employees’ business trips if they tend to overspend on travel or meal expenses. Or, cancel their business phone plan if they often use it for personal calls.
- Outline the steps of expense reporting and communicate them to employees
Create a detailed yet simplified expense reporting guide for your employees. Then, promptly communicate the information to them. Clarifying the reimbursement procedure helps ensure everyone knows their deadlines and responsibilities. In turn, the process helps improve the organisation’s reimbursement policy compliance.
- Set up a reimbursement approval process
Reimbursement approvals can take a while, especially if your finance department receives and processes several expense reports daily. Consider using an expense management platform like Spenmo to speed up the cycle and monitor employee compliance.
Additionally, set an approval deadline to give your finance department enough time to review and process claims. This step ensures timely and organised reimbursements.
- Have a reimbursement plan
Remember to keep your reimbursement plan simple. Include a list of reimbursable and non-reimbursable expenses and determine the forms and documents to be submitted. Also, remind employees to keep business expense receipts to prove their eligibility for reimbursement.
Then, determine your mode of reimbursement. You can reimburse employees through payroll or direct bank deposit. Identify which option works for your business and your employees and specify this in your policy.
- Prepare for disputes
Some employees may claim they deserve refunds for a business expense, even though it exceeds the allocated budget. Others may claim they submitted an honest expense report, even when fraud is involved.
Take note of possible disputes and lay down the procedure for resolving issues. Your dispute process may include meeting the involved parties and hiring a third party to mediate the dialogue. Also, remind employees about the rules to manage their expectations in case of rejected claims.
Keeping Your Business Expenses in Check
Managing business expenses and reimbursements can be challenging. Fortunately, you can get a head start with the steps discussed above. The earlier you develop and implement an expense reimbursement policy, the better you can manage your business cash flow.
Consider using Spenmo to facilitate your company’s expense reimbursement policy implementation. This end-to-end payables software brings seamless internal spend management, automated bill payments, custom approval flows, and accounting reconciliation into an integrated view.
Spenmo's vision is to provide businesses with visibility, comfort and control over how, when, and why money leaves your company. Book a demo today to learn how the platform can improve your company’s expense reimbursement policy compliance!