Employees with expense accounts pay for business-related goods and services with the understanding that they’ll be reimbursed. It makes things easier for staff members who travel, entertain clients, or otherwise need to spend money in order to bring sales and profits to your business. The more profit you can get out of your business the better, and to do that, you’ll need to address the places that you’re leaking money. Some of the most common include not negotiating the best deal with suppliers, overpaying for credit card processing, and lavish expense reports. In this article, we’re going to tackle that last one. While losing money on employee expenses is one of the most common, it’s also one of the easiest to manage. Taking the time to create a solid expense policy can help stop wasteful spending and keep your bottom line healthy.
Decide What’s Allowed in Your Expense Policy
We’ve all seen the comedies where someone is going to “put it on the expense account.” They never consider the employer who ends up paying that bill. As that employer, it’s vital to get a good expense policy in place, share it with your employees, and build a process to control expenses. Whether you’re creating a brand new expense policy or updating an existing one, start with a blank slate. Get together with the other senior people in your business and decide exactly what is and isn’t allowed in your expense policy. Explore the following areas:- Accommodation — What is considered proper hotel (or other) accommodation when your employees are in the road? Do you have a cap on hotel room rates? You may need to consider caps that adjust for the location of the accommodation, or specify particular hotel chains.
- Travel — How do you expect employees to get around? Provide guidance on the type of travel you’ll pay for and how much. This could include driving, flying, public transport, taxis, and Uber. If employees will fly, be clear on whether they can choose business class seats and other upgrades.
- Mileage Reimbursement – For business driving purposes, will you offer a mileage reimbursement? How much? Many businesses choose to follow the IRS federal mileage reimbursement guidelines.
- Food and Alcohol — What are the limits on the cost of food and alcohol? Provide guidance on what’s considered acceptable. Some businesses give specific per-day amounts, while others give rough guidelines such as what an employee would reasonably spend if it were their own money. Many businesses don't allow alcohol-only tabs.
- Entertainment — If an employee is entertaining a client, what do you consider to be reasonable expenses? How much can that employee spend?
- Business Purchases — If you don’t have a formal purchasing function in your business, do you allow employees to buy something necessary to the business and charge it? What authority do they need to do that? What are the limits? Is there an amount that triggers pre-approval from a supervisor?
- Other Areas — Think about subscriptions, donations, computer hardware and software, equipment and anything else your employees could spend money on. Look back through old expense claims and reports to make sure you cover all the possibilities.
Write Your Expense Account Policy
Next you’ll need to write down and share your expense policy. Here are some tips:- Write the expense policy in clear, understandable language.
- Avoid business jargon; focus on policy and practice.
- Divide the policy into sections for quick reference.
- Be very clear about what is and isn’t allowed.
- Include details of every area covered including: expected rates, limits on what can be claimed, and when employees need preauthorization or receipts.
- Use examples as needed to add context.
Follow an Expense Report Process
Another key part of reducing expense leakage is through getting a good expense report process in place. A strong expense process might look like this:- An employee reviews the expense policy to see what is and isn’t allowed.
- They carry out a business activity that incurs an expense.
- They provide an expense report (details of the expense) along with a business justification and any necessary receipts or evidence to their manager.
- The manager reviews the expense and supporting evidence, checks it against the policy and rejects it or signs off on it.
- Once it’s signed off, the expense is credited to the employee in their next payment.
- When are receipts needed? Is it for all purchases, or only purchases over a certain amount?
- When is pre-authorization needed? If it’s only over a specific amount, let people know what that amount is.
Review Your Expense Policy Periodically
Once you’ve implemented the policy keep a close eye on how it’s working. Review the expenses that are coming through and compare them with expenses you’ve paid out to employees previously. Find out if there are any gaps in the policy and close them. Thinking about, writing, and sharing a good expense policy and process is one of the more effective ways to control discretionary cost. Make sure all your employees and managers know how to use the policy and continually review and refine it until you get your expenses under control. That way employees will be less tempted to just “put it on the expense account.”
Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing. As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.
