Key Takeaways:

• The company’s guideline showcasing how employees can submit reimbursement claims and within what time is considered as an expense policy.
• For improved transparency, fraud claim prevention, and budget forecasting, you need an expense policy.
• Drafting an employee-focused policy, updating it regularly, and using expense management software are some expense policy best practices.
• Businesses can automate business tracking with cutting-edge expense management software, Moon Invoice.

What Is an Expense Policy?

An expense policy is a document that clarifies what does and does not fall under the reimbursement expense claim category. Basically, it underscores how the company handles expenses associated with it but incurred by its employees.

It explains what are the supporting documents required to make a reimbursement claim and at what time the employees can expect the reimbursement.

Here’s what the business expense policy covers:

• The necessary steps employees must follow to submit their claims.
• The submission deadline for employees willing to make claims.
• The payment method by which the reimbursements are paid.
• The cap on allowable amounts for certain expenses.
• The rules for employees using company-issued cards.
• And consequences for policy violators or fraudulent claims.

Why Do Businesses Need an Expense Policy?

Below are several reasons why you need an expense spending policy for your employees.

1. Simplified Reimbursement Process

Having an expense policy in place helps employees submit reimbursement claims on time and know when to expect their payments. The policy clearly outlines when they can file a claim, the reimbursement amount they are eligible for, and the mandatory documents required. As a result, it will simplify the entire reimbursement process.

2. Improved Transparency

An expense policy keeps both the company owner and employees on the same page, as they know what’s allowed and what’s not in the reimbursement process. Further, it will also prevent inconsistent decision-making following the same approval process and help employees get faster approval from the accounting team.

3. Eliminate Fraudulent Claims

In your company, there would be employees purchasing many things, so the chances are a few of them may make false claims. With an expense policy, you can combat fraudulent claims and restrict employees from spending more money, which may otherwise strain the company’s budget.

4. Budget Forecasting

Since every employee adheres to the expense policy, it helps you track where the money is being utilized. This means you can track the company’s expenses, gather insights on fund allocation, and make a solid financial strategy for the next year. Such things could not be possible without an expense policy.

How to Write an Expense Policy

Here are simple steps to follow when writing a business expense policy from scratch.

1. Define Categories & Limit

Firstly, use online tools or software to understand your business spending patterns. This will assist you in setting up the perfect expense policy. Also, if possible, collect genuine feedback from senior employees to gather feedback from senior employees to identify key areas to highlight and determine appropriate spending limits.

For example, if you often observe high travel expenses, you can cap hotel stays at a specific rate or reduce meal allowance.

2. Adhere to Local Laws

While you develop an expense policy for employees, remember to keep tabs on local laws. Once created, the same expense policy will be used for the next five or seven years, so make sure it complies with the rules.

If needed, you can ask the legal practitioner to help you draft a structured expense policy. However, if you decide to do it by yourself, ensure you follow every compliance guideline. Or else you may face serious consequences.

3. Specify the Approval Process

Now, help your employees understand how the approval process works once they have submitted the claim. An expense policy outlines who will check and approve the reimbursement claims. You can even mention whom to contact in case your employees have questions or need clarification over certain expense situations.

Highlighting the approval process in an expense policy will help employees understand the approximate time for receiving their reimbursed money. Also, they would know which documents need to be submitted, minimizing the chances of claim rejection.

Expense Policy Best Practices

Below are expense policy best practices to implement when creating a fair and easy-to-understand business expense policy.

1. Draft Employee-Focused Policy

Whenever you start writing an expense policy, think about your employees. Ask yourself how you will help them make a reimbursement claim in the simplest way. After all, expense policy will be reviewed by your employees when they are in doubt about whether expenses will be covered or not. So, remember such things and draft an employee-centric policy.

2. Keep the Language Simple and Clear

Use a professional tone, but keep it simple enough that your employees can easily understand and follow the required steps in order to make a reimbursement claim. Avoid using long paragraphs where employees are not attentive and may skip the important information. Add some bullet points or make fonts bold wherever required.

3. Update Policy Regularly

Once the expense policy is ready, you are responsible for keeping it updated at regular intervals. This is because the old expense policy may not align with the recent changes made in the company’s budget. Also, if you discover employees are still making false claims or have concerns regarding delays in approval, you need to update an expense policy.

4. Leverage Expense Management Software

Make the most of online expense management software that helps you save expenses on the cloud and generate accurate expense reports. This will offer in-depth insights into your cash flow and make it easier to understand how employees are spending money on your behalf. As a result, you can establish a structured expense policy.

5. Emphasize Non-Compliance Consequence

Write about what the consequences of non-compliance will be if any individual violates an expense policy. So, employees stick to the guidelines and avoid making any false claims that may increase the accounting team’s workload. That’s why having a strict expense policy makes a difference.

What to Include in a Business Expense Policy

No matter how much effort you give to make an expense policy, if you fail to include some important factors, the policy is incomplete. Let us uncover these must-haves in an expense policy.

1. Reimbursable Expenses

Describe what falls in the reimbursable expense category so that employees know whether to make a claim or not. Meals, travel, and accommodation costs are common reimbursable expenses that you need to include in the policy.

Some expenses are necessary to run your core business activities, and some of them could be tax-deductible. Therefore, develop an expense policy in compliance with IRS guidelines.

2. Non-reimbursable Expenses

Similarly, list what is to be considered non-reimbursable expenses. Penalties for traffic violations, unnecessary expenses during trips, or any personal cost can be counted as non-reimbursable expenses.

So, compile a list of non-reimbursable expenses and include them as well in your expense policy. This will further prevent employees from making unnecessary reimbursement claims.

3. Payment Methods & Receipts

Write about what are the payment methods used for processing the reimbursement. Also, clarify which payment method they should use while buying a product or rendering services on the company’s behalf. If you want your employees to make purchases using a corporate card, then define the guidelines for the same.

Moreover, highlight the necessary documents and receipts needed for making successful claims. So, there won’t be any disputes at the time of submitting the claim.

4. Approval Policy

Include an approval policy about the reimbursement claim to help your employees know when to accept the reimbursed money. Clearly mention who will review the claim and who will provide approval for it. Define the approximate timeline for the claim assessment and processing of the reimbursed amount.

Such clarity in the expense policy will give assurance to the employees that their claims are under the scanner and that the reimbursed amount will be deposited in their bank account within a given timeline.

Manage Your Business Expenses With Moon Invoice

Moon Invoice is your one-stop platform to manage business finances and keep track of your business spending. You can save every expense receipt digitally in the cloud-enabled invoicing instead of carrying hard copies, leaving no chance of misplacement.

The best thing? You can even generate the business expense report in a few seconds to monitor the cash flow and establish a stiffer expense policy.

Plus, there are many other features that have made Moon Invoice a go-to expense management software for modern businesses. It not only aids in enhancing financial management but also saves hours of manual reporting.

Final Say on Expense Policy

Expense policy plays a key role in your reimbursement process as it keeps your employees informed about how and when they can receive the reimbursed money.

It also helps them know what will be covered in the expense policy, so they can submit claims only for what’s allowed. As we wind up, you now know why expense policy is a must-have for your business and how to write an effective one.

Further, expense tracking is easier when you have an advanced expense management software like Moon Invoice. It can help you generate business expense reports, tackle your invoicing needs, and draw 2x fast payments. Want to give it a try? Get started for free.

Expense Policy FAQs