How to build an expense policy
An easy-to-use guide with expense policy templates
Updated:
February 21, 2024
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February 21, 2024
Most companies use expense policies to control spend, maintain visibility over finances, and prevent surprises.
In this guide, we outline easy steps you can take to build an expense policy for your company.
Let’s dive in.
Eliminate late receipt submissions and streamline transaction reconciliation with Rho.
A company expense policy refers to a set of guidelines regulating how a company spends its money, often focusing on travel, entertainment, and other reimbursable expenses.
A business expense policy clearly outlines allowable types of employee expenses, guidelines for getting approvals and submitting expense reimbursements (if applicable), and expectations when the policy is violated.
Often, the policy lives in a static document stored somewhere in your HR system or a shared folder and is given to employees as part of their onboarding materials.
Expense policies are the backbone of effective corporate spend management.
A structured and clear expense policy helps prevent misuse of company funds, ensures fair treatment of all team members when they spend company money and establishes transparency over how money is expected to move out of a business.
Expense policies simplify workflows for the finance team and employees by outlining clear guidelines.
Here is a step-by-step list of expense policy best practices as you consider your spend management needs.
Creating an expense policy is a collective endeavor, regardless of whether you're a startup of 10 people without a designated CFO yet or a middle-market organization with 200+ employees boasting a dedicated financial department, involvement from various areas of your business is key.
First, it’s best to get input from leadership across your organization. Consult key teams like Finance, Human Resources, Marketing, and Sales - to understand their spend needs.
Incorporating input from leaders across the company will lead to diversity in perspective and ensure your policy is comprehensive.
It’s critical to categorize expenses. Clear expense categories simplify accounting, taxes, and financial reporting.
The categories should encapsulate all types of expenditures a company may encounter, from travel expenses to procurement.
Here is an overview of work-related expenses you will likely encounter.
Travel
Travel expenses are costs employees incur while on a business trip. These can include airfare, rental cars, mileage reimbursement for the use of personal cars, and visa fees if international travel is involved.
Travel-related Expenses
Travel-related expenses refer to the employees' expenses during the journey, such as meals, Ubers, travel insurance, and incidental expenses.
Communications
This aligns with expenses like internet subscriptions and phone bills necessary for maintaining work-related communication.
Accommodation
Accommodation expense denotes hotel lodging expense costs incurred during business travel. It may also include per diem payments for days when employees are away from their regular work location.
Meals
Meal expense covers food & beverage costs incurred by employees at work or on business travel.
Entertainment
Entertainment expenses pertain to costs expended for entertaining clients or customers for business purposes.
Miscellaneous
This catch-all category includes every other expenditure that's requisite for business but doesn't fall under the earlier categories, such as office supplies, medical expenses, or unique subscriptions.
Client vs. internal
Distinguishing client-focused spend lets you better assess return on investment.
Other customized categories will exist for your business. For example, some businesses may be heavy on trade show marketing. Adding the ability or fields in your system to track by project will improve visibility for the finance team and business leaders.
In your expense policy, it’s helpful to provide examples of each expense to provide a reference point.
This is more art than science, but there are a few common practices you can use to get started.
Your past is often a reliable guide to the future. Analyze past expenses across the categories listed above and apply this data to shape your current budgets – your past is often a reliable guide to the future.
For example, if you have a traveling sales team, consider their average travel and accommodation costs (quarterly or yearly) and allocate a budget accordingly, scaling up or down depending on how the org size changes year-over-year.
Newer companies without historical spending data should follow our next piece of advice.
Make sure to ask yourself and your key stakeholders what is reasonable and what they require. This could be your company’s founders and important departmental leads like sales, marketing, and engineering.
Work with each responsible lead to determine an adequate budget for their needs.
There could be negotiations and disagreements with this; wherever you end up, it's important the result and guidelines are clear, understood, and easily accessible to all.
Ultimately, the aim is to ensure the budgeting process is transparent and aligned with your company's financial goals. It should promote accountability, ensure peak operational efficiency, and drive effective decision-making.
Define the process for filing expense reports, the timeline for reimbursement, and what expenses are not eligible. This clarity prevents misunderstanding and streamlines the process.
Setting deadlines around expense submission will assist with monthly close, keeping timely books, and enforcing employee behavior.
Requiring expense submission within 30 days is a fair timeline for employees in many cases while allowing accounting to keep timely books. However, finance teams and policy owners should determine what fits best for their company.
The more automated and simplified expense management tool a company uses, the more widely adopted it will be by the employee base. Difficult software with poor interface or lots of friction points for employees can lead to frustrations and non-compliance with policies.
Clarify what type of proof is expected (e.g., paper receipts, digital snapshots) for different expense claims. Some companies have a threshold for which receipts are required, e.g., anything under $25 a receipt is not required.
Disciplinary actions for noncompliance should be communicated clearly during onboarding and even included in the expense policy.
You may have different sub-policies or requirements depending on employee classification, location, or role.
For example, full- vs. part-time employees; employees in different countries or high-cost-of-living; employees working remotely vs. those in the office; client-facing employees vs. non-sales roles.
Executives may have delegates that can submit reimbursements on their behalf.
A well-defined policy should pose guidelines for handling exceptions. This could include expenditures like surprise medical expenses that aren't typically covered.
At a minimum, ensure people know which team to contact with questions regarding outlier spend.
Businesses evolve. As such, flexibility is integral in any expense management policy to ensure it keeps pace with the company's growth and changing landscape of employee spending.
Having an expense policy is one thing; enforcing it is an entirely different beast.
As your employee count rises, this will only become more challenging: receipts get lost, some may not know every line item in your policy, and tracking spend at the budget level can be excruciatingly difficult for time-strapped finance teams.
This is why many organizations turn to corporate cards paired with expense management software to set spend controls and streamline the expense process, including reimbursements.
Learn how Rho helps finance teams manage expenses and reimbursements with ease.
A general guideline is to revisit your policy at least once a year. However, significant company or industry changes may warrant more frequent updates.
Revisiting the policy timely, for example, once or twice a year, will ensure the policy meets the demands of the business, even if it’s just to sign off that nothing needs to change.
1. Enforcement is time-consuming. Enforcing an expense policy can often be time-consuming, making it a significant challenge for finance teams.
From chasing employees down to submitting receipts to corporate credit card data reconciliation at month-end, finance teams commonly report expense management as one of their top challenges.
2. Overreliance on paper-based, manual processes. Manual practices like saving or scanning physical receipts, entering static data on spreadsheets, and preparing emails and attachments to submit required materials can bog finance teams down.
This approach isn’t just ineffective from a business standpoint—rife with inefficiencies and opportunities for human error—it leads to a poor employee experience.
An easy sign that your company relies too heavily on manual processes is how fast your employees or non-employees (e.g., contractors) submit their documentation after an expense purchase.
3. Lack of control over expenses. Not having sufficient control over expenses can lead to overspending and fraudulent activity. Many finance teams report challenges with controlling expense spending, and this issue compounds as organizations grow headcount.
4. Downstream impacts on month-end close. Incorrect expense data and submission delays can have serious downstream impacts, especially regarding the month-end close.
Discrepancies between reported expenses and credit card statements, unaccounted receipts, or unapproved expenses can all lead to delays that keep your finance team from closing the books.
5. Employees don’t know what they don’t know. Companies may have expense policies built out, but employee awareness of specific expense rules may be low. Generally, it is best to send ongoing reminders to employees; repetition is key!
This can happen when a company has a sophisticated expense policy, making it difficult for employees to understand how they are expected to spend money.
For example, some expenses (like those under $25, for example) may have pre-approval, while others need a closer look by your finance team.
Implementing an expense policy is the first step to effective spend management. However, as noted above, it can be a time-intensive process for finance teams and employees.
Paired with the Rho Card, the Rho platform makes expense management automation easy, streamlining the end-to-end process from purchase to reconciliation and reimbursement.
Rho Cards can be configured with controls that allow employees to pay for needed expenses while enforcing your expense policy. Purchases are run through approval workflows you configure, and employees can easily upload transaction information and receipts using the Rho Mobile App.
The best part: All Rho transaction data feeds seamlessly into your ERP, supporting an efficient month-end close.
Learn why one CFO said his sales and finance teams love Rho’s corporate credit card expense management software.
Want to learn how Rho can upgrade your expense management process? Get in touch today!
Reviewed by Bryce Armbruster, Controller at Rho.
Automating your expense management saves time, reduces errors, provides real-time visibility into spending, and allows for easier audit and compliance checks.
It removes the need for employees to manage their expenses, providing them more time to focus on their core job responsibilities.
The best expense management providers on the market today automate these essential financial workflows and provide transparency into company-wide transactions—eliminating the need for traditional expense reports, paper receipts, and heavy workloads.
Rho’s platform, for instance, offers broad visibility into spending as it happens, smart approval routing to avoid logjams, digital capture to instantly log and pair receipts, and customizable controls to keep purchases in policy—all accessible and configurable via a centralized dashboard.
It’s designed to empower business leaders and finance teams to take control of their company spend and ensure employees can help them in a collaborative process that takes minutes—not days.
The Rho platform, including our expense management capabilities, is free. Read more about our pricing here.
Employee expense reimbursements occur when employees pay for business-related expenses using their own money, and their employer then refunds them the amount within a reasonable time.
Types of reimbursement can vary, but common reimbursement-related expenses include travel costs, gym memberships, and, in some cases, employer-specific benefits like moving expense coverage.
It is generally a good practice to outline a reimbursement process in your expense policy to ensure these requests are handled efficiently.
Expense reports are a traditional method companies use to process reimbursement requests. Employees fill out information including date, business purpose, and other pertinent data depending on the type of reimbursement request.
Once reviewed and approved by a finance team member or other individual in charge of business finances, the reimbursement amount is discharged by check or direct deposit.
Some companies prefer employees use their personal credit cards as a payment method for expenses.