Creating a comprehensive expense corporate policy is crucial for effectively managing and controlling company expenses. A well-drafted policy provides clear guidelines on what expenses are reimbursable, sets spending limits, and ensures compliance with regulatory requirements.
A well-crafted company expense policy is the cornerstone of financial control within any organization. It provides a clear framework for managing expenses, ensuring compliance, and optimizing resource allocation.
In this guide, we’ll examine the essential components of a comprehensive expense policy and offer practical tips and best practices for implementation.
What is a Business Expense Policy & Why Do You Need One?
A company expense policy is a set of guidelines and rules established by a company to govern the reimbursement and management of expenses incurred by its employees, contractors, or anyone acting on behalf of the organization.
The primary purpose of such a policy is to ensure that business expenses are incurred for legitimate and necessary purposes. Also, there is a standardized and efficient reimbursement process.
Here’s why having an expense policy template is essential:
You may ask how having an assertive expense policy is helpful. Here’s how:
- Keeps usual unintentional events like duplicate receipts, repetitive claims, etc., under check
- Ensures control of general spends
- Helps finance teams with budget allocation for specific requirements
- It helps to set a simple process to manage expense reimbursement
- Ensures that businesses and employees align with the tax and compliance guidelines laid down by local governing authorities
Business Travel Expense Policy Template
Here is a free, customizable copy of the business expense policy template you can use in your company. The company expense policy template contains general reimbursement guidelines, reimbursable and non-reimbursable categories, payment methods, and policy exceptions.
Download your free copy of the sample expense policy template today to create a comprehensive business expense policy.
How to Create an Expense Policy Template for Your Company?
Here is the 8-step process to create a robust expense policy for your company (with free business travel expense policy templates).
1. Define the Approach: Detail-Oriented vs. Broad Principles
Before creating your business expense policy, decide on your approach. Our sample business travel expense policy will give you insight into this. Consider whether you want a detail-oriented policy or one that just outlines broad principles.
There is no right or wrong approach. Some businesses prefer a detailed expense policy template 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 employees don’t read exhaustive policies and that it is best to 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.”
The approach you take will determine how you draft your company expense policy. Choose wisely! To help you out in this regard, we have created a free business travel expenses policy template.
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.
2. Keep it Simple
Ensure your company expense policy is expressed in straightforward and easily comprehensible language. This clarity is essential to ensure employees understand business-related expenses’ dos and don’ts. An uncomplicated and clear policy facilitates understanding and enhances the likelihood of widespread adoption among the workforce.
3. Define Budget and Expense Categories
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 eligible for employee expense reimbursement and what isn’t. You can refer to the free business travel expense policy template that we have given in the blog to understand more.
4. Enlist the Payment Modes
Your organization might have different kinds of payment modes for various spends. For instance, 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:
- A company-issued credit card: Have a clear company expense policy on credit card spend limits, define who is the in-charge of the card, and how the employee should track payments.
- Advance payment to employees: In your travel expense policy, mention situations when cash advances are applicable, the approvals needed for the same, and have a process set up for returning any remaining amount along with proof of expenses.
- Payments from an employee’s pocket: Clearly define the situations when an employee can spend their own money for business affairs and process to file such out-of-pocket expense claims.
No matter how your employees pay the business travel expenses, ensure that they are well aware of limits, approvals required, and the process of reimbursement.
5. Build a Compliant Approval Flow
While it’s advisable to avoid crafting a policy necessitating the CEO’s approval for every expenditure, certain substantial expenses, such as international travel, necessitate the endorsement of senior management.
Establishing a clearly defined approval workflow that encompasses exceptions streamlines the process and contributes to a positive employee experience. This approach saves valuable time and effort for all stakeholders involved.
6. Clearly Define Reimbursement Process with Timelines
While drafting the policy, do spend some time creating a simple reimbursement process. You can refer our corporate travel expenses policy template.
- where to file for reimbursement – on paper, email, or the expense management solution
- when to file – weekly, monthly, or quarterly
- how to submit receipts – paper receipt or scanned copy
Along with these prerequisites, spend some time defining the whole expense reimbursement process, from approvals to repayment, with a timeline at each stage. Please go through our sample business travel expense policy for better insight.
7. Adhere to the Legal Requirements
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.
8. Keep Updating the Policy Regularly
Building a travel company expense policy isn’t limited to just circulating it once – it is important to closely observe the changing times, trends, and requirements and make edits accordingly. For example, with work-from-home becoming the new trend, it is essential to include evolving expenses like home office supplies, internet, physical and mental wellness, masks and PPEs, and more. However, you might have to revisit your policy once the office restarts for everyone.
Leverage Technology to Create the Best Business Expense Policy
Creating expenses policy template for your business is only half the work. Most organizations struggle with the implementation part. Are you wondering if there is a way to ensure policy compliance in your organization? 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 corporate travel management solution, book a free consultation with our product specialist today.
