When it comes to business expenses, there are good ways and bad ways to handle things. The easy way is to collect all the receipts and let the accountant sort them out. That may be easy for those submitting expenses, but it’s hard on the finance department – meaning time-consuming and costly.
The right way is to have a set of policies and procedures for submitting, approving, and reimbursing expenses quickly and fairly. By following these 10 best practices for crafting an expense policy, you can avoid common pitfalls and make life easier for everyone involved!
Expense Policy Best Practices
To craft an effective expense policy, there are a few best practices you should keep in mind. Every organization and industry is different, so tailor your expense policy to fit your company’s specific needs.
What Are Business Expenses?
Before we dive into the best practices, let’s first define what business expenses are. In short, business expenses are incurred in order to generate revenue for your company. This can include things like travel, office supplies, marketing materials, and more.
Tips for Crafting an Expense Policy
Now that we’ve got a clear understanding of what business expenses are, let’s move on to the best practices for crafting an expense policy.
No matter what industry you’re in, there are a few best practices that will help you craft an effective expense policy.
1 Be Clear and Concise
When it comes to business expenses, clarity is key. You want to make sure that your expense policy is clear and concise so that there is no room for interpretation. Provide a list of what is and is not considered a business expense.
If there are any grey areas, make sure to include them in your policy and provide examples of how they should be handled. The last thing you want is for someone to submit an expense that doesn’t fall under your definition of a business expense.
2 Be Reasonable
It’s important to be reasonable when crafting your expense policy. You don’t want to be too restrictive as this will discourage employees from submitting expenses, but you also don’t want to be too lenient as this can lead to abuse.
3 Spending Cap
Spending limitations are common in business expense policies. Spending caps may be measured in a variety of ways; the most popular is with a fixed per diem rate for things like food. Alternately, you may cap expenses by restricting the number of options available, such as limiting car rentals to small vehicles.
The term “caps” refers to the maximum amount allowed for each category of travel-related expenses. With various conditions, caps may be flexible and provide minimal cost airfare for a non-stop flight as an example. Caps are frequently set at a flat rate per day; this allows the employee to upgrade if they choose.
4 Be Flexible
While it’s important to have a policy in place, you also need to be flexible. There will be times when an employee needs to spend more than the limit, and you don’t want to discourage them from doing so.
5 Keep It Simple
People must be able to understand, follow, and most importantly believe that it is reasonable for any expense policy to succeed. It must be clear in a word. Keeping things simple is the first step toward making it understandable.
Make it as simple as possible for everyone involved, from employees submitting claims to supervisors signing off on them. A simple procedure makes reimbursement more likely and ensures buy-in. Expense policies have long been plagued by paperwork. Abacus streamlines and simpleness the process from beginning to end, making it less complex and easy to follow.
6 What’s Not Included?
Consider how you can incorporate excluded costs, which are not reimbursable. Your reimbursement for meals and entertainment, for example, may exclude alcohol. Explain why they are not included, as well as whether there are any exceptions. In-room or in-airline movies are examples of excluded expenditures.
7 Follow The Law
There are laws and regulations that must be adhered to when it comes to expense reimbursement, including the Sarbanes-Oxley Act. You will need to determine whether your company’s expenses meet the criteria for being in compliance.
Two things happen when your policy follows the law. Your expenses will be tax-deductible, and your employees will not have to declare expense reimbursements as income. When your cost management policy conforms to the law, your finance department won’t have to separate out deductible and non-deductible expenses. Allowable travel costs may include meals and entertainment that are
8 Reimbursement Timeline
When your staff takes money out of their pocket to pay for a reimbursable business expense, they’re lending your company money. Paying it back on time is the correct thing to do and good business. Prompt reimbursement also keeps employees happy and motivated to continue spending on behalf of the company. A clear expense policy will include a timeline for reimbursement, so there are no surprises.
Reimbursing employees in a timely manner is good business practice and helps to keep them happy and motivated. A clear expense policy should include a timeline for reimbursement so that there are no surprises.
9 Expense Policy Applies To Everyone
The expense policy should apply to everyone in the company, from the CEO to the intern. If there are different rules for different people, it creates a feeling of inequality and can lead to resentment. Employees should feel that they’re being treated fairly and that the company is investing in them.
10 Stick To The Rules Within The Policy
The expense policy should be clear and concise, and employees should be expected to follow it. If there are deviations from the policy, they should be approved in advance by a manager or senior leader. Exceptions to the rule can create confusion and resentment, so it’s important to stick to the rules that are in place.
The goal of an expense policy is to make it easy for employees to understand what they can and cannot expense. It should also be easy for the person approving expenses (usually a supervisor) to understand what was spent and why. A good expense policy will save your company time and money.