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Controlling company expenses is critical in today’s post-pandemic time. As budgets tighten for businesses, finance managers should look at revisiting their business expense policy or creating a new, flexible one that’s more suited to the current times.
A company expense policy is a compilation of all the do’s and don’ts for your employees when it comes to business spends and reimbursements. In the absence of a clearly written expense policy, you run a risk of employees spending the company’s money without knowing what is considered an acceptable business expense or how much they are allowed to spend. So, there is an immediate need for businesses to take a proactive approach to creating a robust expense policy.
You may ask why having a powerful expense policy is helpful? Here’s how:
Here is the 7-step process to create a robust expense policy for your company (with a free expense policy template).
Before you start creating your business expense policy, decide the approach you would want to take. See if you want to go for a detail-oriented policy or the one that just outlines broad principles.
There is no right or wrong approach. Some businesses prefer a detailed expense policy where everything is written down and all scenarios are covered so there is less room for doubt.
On the other hand, there are businesses that believe that employees don’t read exhaustive policies and it is best to just lay out the broad principles and leave the rest to employees’ judgment. Netflix is a good example of this. Their expense policy is just five words “act in Netflix’s best interests”.
How you draft your policy will depend on the approach you take. Choose wisely!
Pro-tip: It is a good idea to involve all the stakeholders right from the moment you decide the structure of your expense policy. This ensures complete visibility and better adoption in the long run.
Make sure the policy you create is written in simple, easy-to-understand language so employees have a clear idea of all the dos and don’ts when it comes to business-related expenses.
Always remember an easy-to-understand policy increases adoption.
Your expense policy should have clearly defined annual budgets for teams and spend limits for employees (based on their bands). They should know upfront how much they can spend on the company’s behalf.
Another critical aspect is defining various expense categories and clearly stating what is reimbursable and what is not. To understand this in more detail, check out our blog on employee expense reimbursement.
Finally, when budgets and categories are in place, you need to define how your employees can pay for these expenses and what are the guidelines for using various payment modes.
Your organization might have different kinds of payment modes for various spends like you might have a card for subscription payments of tools, cash advances for some impromptu purchase, etc. Your policy should detail out the scenarios to use a specific payment mode, spend limit, and process of reimbursement for each. Listed below are the most commonly used modes of payment by employees for business purposes:
No matter how your employees are paying the business expenses, ensure that they are well aware of limits, approvals required, and the process of reimbursement.
While you want to refrain from creating a policy that requires the CEO’s sign-off for every dollar spent, some large chunk of expenses like international travels demands a green signal from the senior management. Having a well-defined approval flow that covers exceptions as well streamlines the process, creates a good employee experience, and saves time and effort of all stakeholders involved.
While drafting the policy, do spend some time creating a simple reimbursement process. Clearly define:
Along with these prerequisites, spend some time defining the whole expense reimbursement process, from approvals to repayment, with a timeline at each stage.
While you move towards the end of drafting a business expense policy for your organization, ensure your expense policy complies with the local legalities. Consult with an expert, include necessary clauses, and mention what happens in case of any legal violation.
Building an expense policy isn’t limited to just circulating it once – it is important to closely observe the changing times, trends, and requirements and accordingly make edits to it. For example, with work-from-home becoming the new trend, it is essential to include the evolving expenses like home office supplies, home office internet, physical and mental wellness, masks and PPEs, and more. However, you might have to revisit your policy once the office restarts for everyone.
Creating an expense policy for your business is only half the work done. For your policy to be effective, powerful implementation is the key. Most organizations struggle with the implementation part.
Wondering if there is a way to ensure policy compliance in your organization? Well, automating expense management is the answer.
Having a cloud-based integrated Travel & Expense management software like ITILITE with capabilities to configure dynamic policy & approval flows easily will help you build and implement custom policies. To know how you can ensure 100% policy compliance with the ITILITE T&E solution, book a free consultation with our product specialist today.