If you plan to let employees make purchases on behalf of your company, you need a process to manage and reimburse those expenses. That's where corporate expense policies come in.
Implementing an expense policy is important for several reasons:
In this article, Ramp details how to write an expense policy, shares some best practices to keep in mind, and explains how automation tools can help.
An expense policy is a document that outlines how a company handles business expenses incurred by employees. While expense policies can vary from one company to another, they should always communicate these three elements:
Expense policies are a critical piece of your company's overall expense management process. They help control costs, optimize cash flow, plan accurate budgets, and comply with industry and tax regulations.
Whether a business is starting from scratch or using an expense policy template, the policy should cover six key components:
Here's a look at each of these expense policy components in detail.
1. Purpose and scope
This is the introduction to the expense policy. It should outline the goals of the expense management policy and explain which team members and departments the policies apply to.
2. Expense categories
The expense categories section should explicitly define which types of expenses the business allows employees to spend company funds on, along with spending limits for each. This section should be detailed enough that there's no room for misinterpretation.
Consider breaking up this section into subcategories, with specific guidelines and spending limits for each, including:
3. Expense reporting and approval
After covering all allowable business expenditures, outline the expense reporting and approval process. Make sure to identify all the individuals involved in the approval process as well as the approval hierarchy, from the employee who incurred the expense through higher levels of management and all the way up to the CFO.
It's also important to describe how employees should submit expense reimbursement requests to the accounting or finance team. For instance, the policy can specify the timeline for submitting expenses, the medium to use (such as email or expense management software), and how long approvals should take.
4. Documentation requirements
Documentation is a crucial part of the expense approval process. The expense policy should specify what kind of documentation will be accepted as proof of a legitimate business purchase. Most businesses require itemized receipts, but invoices or credit card statements might suffice in certain scenarios. If the plan is to writing off business expenses, it's especially important that the documentation policy reflects the most recent IRS requirements.
5. Non-reimbursable expenses
The expense policy should also cover all the expenses for which the business won't reimburse employees. This section should have an exhaustive list so that there's no room for misinterpretation. Clearly define each expense and provide examples wherever possible. Include things like:
6. Expense reimbursement
Lastly, outline the expense reimbursement process. This section should cover:
Writing a good business expense policy isn't just about being comprehensive; it's also about ensuring it remains effective and helpful as the business changes and matures. Here are some best practices for writing and maintaining a good expense policy:
A fit-for-purpose expense policy empowers everyone in a business by granting them easy access to the tools they need to get the job done. In practice, that means setting parameters in advance while giving employees the autonomy to operate freely within these bounds. The best expense policies are centered on three foundational pillars:
Generally speaking, employees should fall into three roles within your expense policy: cardholders, card managers, and admins.
Cardholders, who are all employees within the company, use virtual or physical corporate cards for company-related purchases and submit receipts for any expense over a predetermined threshold. This system empowers employees and reduces the need for extensive monitoring.
Card managers, on the other hand, review their team's spending, ensure adherence to policy, approve spending, and track departmental budgets. They may also need to confirm itemized receipts and validate transaction memos. This approach allows managers to keep a close eye on expenses without centralizing the responsibility.
Admins play a pivotal role in clarifying expense policies, onboarding and training employees, and defining roles. While they make the final decisions on corporate policy, their primary function is to support the managers who oversee day-to-day employee spending. This delegation allows admins to focus more on strategic planning and budget analysis.
By spreading responsibilities across cardholders, card managers, and admins, the system becomes more efficient and provides better insight into daily spending patterns, facilitating easier budget management and analysis.
This story was produced by Ramp and reviewed and distributed by Stacker.