How to Create Company Expense Policy: Guide & Template
When you’re running a company, there are certain expenses that you’ll face. There are others that your employees will need reimbursement for, as well. As such, it’s crucial to have an expense policy in writing for your company. This policy will help inform members of the company how different expenses should be handled. If you’re working on a new expense policy, be sure to check out our guide! We’ll help you outline all of the basics so that your policy is ready for release. Keep reading to find out more!
Here’s What We’ll Cover:
What Is an Expense Policy?
An expense policy is an outline of how a company should be spending its money. It outlines any type of expense that a business may encounter. It should cover employee expenses, business expenses, and travel expenses. It also needs to cover the difference between employee expenses and personal expenses. It should outline what reasonable expenses are, and what expenses are and aren’t reimbursable business expenses.
There are many working parts to business expense policies. What it comes down to is creating a clear outline for your business about what is reimbursable, and what isn’t.
Expense Policies Need to Eliminate Grey Areas
As such, business expense policies need to be specific. Every possible scenario should be planned out. This means that the employees won’t have to wonder if an expense is reimbursable. The policy will outline if it is reimbursable, and everything else is not reimbursable.
Requirements for Creating an Expense Policy
The keys to a successful expense policy are listed below. As you’re beginning to write yours, be sure to follow these guidelines. They’ll help you stay on track when writing the policy.
Clear Categories and Budgets
When writing an expense policy, clear categories and budgets are a must. Without them, employees will have grey areas, as discussed previously. Don’t worry, we have a list of categories and what they should include later on in the article.
Fairness Is Important
When enforcing the expense policy, it’s important to be fair to all employees. There should be no special exceptions given to employees. Expense policies are company-wide.
Simplicity Is a Must
Expense reports are more likely to be followed when they’re simple. Complicated policies deter employees from adhering to them. Make it easy to understand.
Keep It Current
Things change all the time. The same can be said of work-related expenses. Be sure to review the policy while it's in use and make any necessary changes to benefit your employees and the company.
Categories to Include In the Policy
Depending on the scope of your business, you may want to include any of the following categories. Each will have its own expenses. Check them out below.
Business travel expenses are a large part of any business. Meetings with clients may require travel. Travelling to other offices may facilitate driving to another location. Travel expenses may be the broadest category in an expense policy. It may include airline tickets, or it may only require reimbursement for petrol. Include any of the following depending on your business needs:
- Domestic travel expenses
- International travel expenses
- Lodging expenses
- Mileage reimbursement
Office Supply Expenses
Office supplies are also common expenses that need reimbursement in a business. Employees may need to pick up supplies while on the way to the office. As such, office supplies should be its own category. It makes it much easier to determine the budget in the long run.
Marketing and Advertising Expenses
Depending on the business you’re in, employees may need to pay for marketing and advertising independently. Typically, these expenses require approval in advance, as they can be quite costly. They are still a part of the expense policy, however, and should be included.
Business Entertainment Expenses
If your business relies on entertaining potential clients, those expenses should be part of the expense policy. Entertainment expenses tend to be regulated, and certain items or forms of entertainment are excluded.
Key Components of a Company’s Expense Policy
When you’re beginning to write your expense policy, there are key components that need to be included. In every business expense policy, there are three necessary components. These are listed and explained below.
The Policy Itself
This is the document in which all rules and regulations can be found. These are the guidelines given to employees when they are instructed to spend money on behalf of the company. These need to be well-written and concise. Expense management policies are a way of protecting your business’s cash flow. As such they should be written with care and reviewed extensively before release. If you need help writing one, an expense policy template can be found here.
The Method of Payment and/or Reimbursement
How are your employees going to pay for expenses? Will they be given a corporate card, or will they pay with a personal credit card? This is a big decision to make. When doing so, there are a few things you can consider.
If you give your employees a corporate card, you’ll have more control over their purchases. The policy will be taken more seriously, and the expenses won’t need to be reimbursed. However, there is a certain amount of liability when giving a corporate card. More precautions must be taken, and insurance services may need to be purchased in case the card is lost or stolen. It also prevents the need for an expense report. Corporate cards can also be taken away in case of misuse.
When employees use their own funds, they will need to file an expense report to be reimbursed. This adds time and processing power to the policy. Accounts payable will be responsible for reviewing and enforcing policy guidelines, as well. However, this also reduces the likelihood of a company credit card being abused.
Expense reports are a key element in expense policies. They're proof that an employee is spending money on business expenses. They also play a part in determining if an employee is going to be reimbursed for their purchases. Expense reports should be turned in within a reasonable time period. Some businesses require that they’re turned in within one week while others give 30 days. The decision is up to the business.
Other documents need to be turned in alongside expense reports in order for an employee to be reimbursed. Most businesses require some or all of the following documents as proof of reimbursable expenses:
- Original receipts (the receipt received when making the purchase)
- Paper receipts (copies of an original receipt)
- Itemized receipts (receipts that include all items purchased in detail)
- Credit card statements
Expense reports are proof of reimbursable expenses. Without them, employees should not be reimbursed. This should be the same standard for all employees, no matter what position they are in.
Expense Policies are Living Documents
This means that they should be revised as need be. Things in companies change constantly, and so do the expenses associated with them. Expense policies should be reviewed and updated on a regular basis, at least once a year. If your business incurs a lot of expenses, quarterly may be more appropriate.
Business expense policies are a part of every business. Regardless of what industry you’re in, your company and its employees will be faced with expenses. A thorough company expense policy can help keep spending in check. If you need more business guides, check out our resource hub! It has plenty of information for you and your business.