Xpence . Expense Management
Expense Policy 101: How to Write Expense Policy? Guide & Template Available
by Rudri Mehta . Published 15 March 23

Almost 68% of companies expect a considerable increase in travel budgets this year, as per the survey conducted by Morgan Stanley recently. However, while companies have increased their allocations to spend more as they return to full recovery after the unprecedented event in 2020, they also need help with their expense management system

In fact, with an increased budget for expenses, expense fraud is likely happening in organisations. 

The top challenges for companies in managing their expenses include, 

– Lack of spending visibility 

– Expense frauds 

– Complex employee reimbursements 

So, how do you overcome them? 

By incorporating a clear expense policy! Let’s understand in detail what an expense policy is, what you should include in it, and how to create one.

What is a Company Expense Policy?

An expense policy is a set of standards or rules that define how the company and its employees can spend money for business purposes. In simple terms, it sets rules on how to spend, what to spend, and how to reimburse when employees spend the employer’s money.

Download Expense Policy template to better manage your expenses managementDownload the expense policy template to start instantly with building a better expense management system.

What Do You Need to Include in Your Expense Policy?

The contents of the expense policy defer from company to company as different companies will have different sets of expenses. For example, for a manufacturing company, internet expenses will be an indirect expense, while for a software company, internet expenses will be a direct expense.

However, at minimum, every expense policy includes the following details:

Expense categories: Travel expenses, airfare, marketing expenses, etc.

Reimbursement process: How employees can claim the amount spent for business purposes 

Claim limits: If a company reimburses a partial amount for a particular expense

Dispute resolution process: if an employee wants to dispute a claim

5 Reasons Why You Need a Precise Expense Policy?

Having an approved expense policy for your organisation helps you save time and money in many ways since you have clearly stated rules that you and your employees need to follow in case of disputes. 

Let’s look at the five most significant reasons for having a clear expense policy:

1. It helps prevent expense fraud in organisations because you can have more control over employee spending through an expense policy.

2. It helps you streamline the expense reimbursement process since you have a documented step-by-step process. 

3. Employees will clearly understand the expense limits within which they can spend money for business purposes.

4. It helps build trust among employees and the company’s financial department. 

5. Disputing a claim becomes much easier due to a well-drafted expense policy.

How to Create an Expense Policy for Your business?

If you are creating your expense policy for the first time, these tips will help you get started.

1. Decide Categories to Include

Employees incur different expenses, from mobile phones and cars to hotel stays. Hence, it would be best if you defined which category of expenses you want to allow reimbursements to your employees. 

Below are the most common categories of expenses included in an expense policy:

– Transportation costs (airfare or train tickets)

– Fuel costs

– Marketing expenses

– Travel conveyance

– Hotel stay

Download Expense Policy Template to better manage your expenses managementDownload the expense policy template to start instantly with building a better expense management system.

2. Define Precise Rules for Each Category

Understand where your employees will have to spend the most and make rules for each category clearly and fairly. For example, your business requires frequent travel from the sales team, and they must spend the most on networking. 

Then, allocate a decent amount as reimbursements for the marketing expenses. You may only need to spare a small amount for transportation costs if the client sponsors the local transportation. 

3. Consider Employees’ Expectations

Be reasonable with what employees expect from you when it comes to reimbursing their business expenses. When employees spend money from their pockets for your business, make sure they get reimbursed faster

Delays in reimbursements will make your employees unwilling to work for your organisation. Thus, be fair and consider their inputs for the expense policy.

4. Simplify the Processes

Ensure to simplify various processes, such as reimbursement applications, dispute claim processes, etc., as much as possible. For example, if your reimbursement process is cumbersome, it will affect the productivity of your employees since they will have to spend a lot of their time claiming their reimbursements. 

Employees prefer an easy-to-implement expense policy that is compact and understandable.

5. Ensure Compliance With Regulatory Requirements

While framing an expense policy, you will also have to consider the compliance requirements of the applicable laws and accounting principles. You also need to check the local labour laws to see if you have considered relevant provisions while framing the company reimbursement policy. 

6. Revise Whenever Necessary

It is crucial to regularly update, revise and reconsider various expense categories of the company. As the company grows, you must change the expense limits, add new categories, and remove old ones.

Read More: Business Financial Planning Benefits

Automating the Expense Policy-Making Process

Today, using technologies like open APIs, artificial intelligence, and machine learning, you can use automated expense management solutions that will help you create a robust expense policy and manage your expenses more efficiently

From faster employee reimbursements to better control over employee spending, automated expense management tools help you build a seamless expense management system. 

Book a demo to show you how to build an expense management system through the Xpence platform. 

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