Reimbursable Expenses: A Small Business Guide to Improved Accounting and Management

Feeling overwhelmed by managing reimbursable expenses? 

Well, you're in luck! 

This guide is packed with practical tips–whether you're a business owner, freelancer, or someone who frequently deals with reimbursable expenses, it will teach you how to take control and manage your reimbursements effectively–so let's get started!

What Are Reimbursable Expenses?

Reimbursable expenses refer to costs that an individual or organization has incurred on behalf of another party and can be reimbursed or compensated for. These expenses are typically outlined in an agreement or policy specifying which cost types are eligible for reimbursement.

Reimbursable expenses can vary depending on the context and the specific agreement between the parties involved. However, they generally include reasonable and necessary expenditures directly related to a specific purpose or activity. 

Differences Between Reimbursable And Non-Reimbursable Expenses

The main difference between reimbursable and non-reimbursable expenses lies in who pays the bill. 

Reimbursable expenses are business costs employees pay upfront, which their employer pays back later. Think of them as temporary loans for the company. 

Non-reimbursable expenses are everyday work-related costs individuals cover themselves. These aren’t typically significant and are considered part of the regular job. Examples include daily commute, dry cleaning of work clothes, or personal lunches. 

Let’s look at this in greater detail.  

Examples Of Reimbursable Expenses

Travel Expense Reimbursements

• Transportation: Airfare, train tickets, or mileage reimbursement for personal vehicles.
• Accommodation: Hotel stays, Airbnb rentals, or other lodging expenses.
• Meals: Per diems or specific meal allowances during business trips.
• Incidentals: Laundry, internet access, local transportation costs incurred during the trip.

Business-Related Expenses

These are costs associated with conducting business, such as purchasing office supplies, renting equipment, or paying for professional services.

Also Read: 

• Business Expenses: Your Complete Guide to Tax Deductions, Tips, and More
• Travel Expenses: A Guide to Management, Calculation, Tax Deductions & More

Client-Related Expenses

• Client entertainment: Meals, drinks, or tickets to events associated with client meetings or relationship building.
• Client gifts: Small tokens of appreciation or promotional items provided to clients.
• Client project materials: Costs of supplies, samples, or prototypes required for client presentations or project execution.

Medical Expenses

In some cases, individuals may be eligible for reimbursement of medical costs, such as prescription medications, doctor visits, or medical treatments. This often applies to health insurance plans or employer-sponsored healthcare programs.

Education And Training Expenses

• Tuition fees: Coursework directly related to your current position or career advancement goals.
• Books and course materials: Textbooks, online learning platforms, or other required resources.
• Exams and certifications: Costs associated with obtaining relevant licenses or professional certifications.

Professional Development

• Fees and memberships: Costs associated with professional development activities, such as conferences, workshops, or subscriptions to industry. 
• Licenses and certifications: Obtaining licenses or certifications required for your job, or those that significantly improve your work performance, may have their associated fees covered by reimbursement programs. 

Technology Expenses

• Software subscriptions: Expense for job-specific software licenses, cloud storage subscriptions, or other essential work-related applications might be reimbursable depending on your company’s policy.
• Home-office equipment: If you work remotely, some companies reimburse the cost of setting up a home office, including ergonomic furniture, computer monitors, or internet connectivity upgrades. 

Mobile Phone and Internet

• Business phone plans: If you use your personal phone for a significant amount of business calls and texts, a portion of your monthly phone bill may be reimbursed. 
• Data charges: Similar to phone plans, companies may reimburse data charges incurred while working remotely or accessing work-related information on the go.

Also Read:

• Business Expense Categories Cheat Sheet: Top 35 Tax-Deductible Categories

What Documentation Is Required For Expense Reimbursement?

Documentation requirements for expense reimbursement also vary by company. However, common documentation typically includes the following:

• Receipts: Original itemized receipts or electronic receipts that provide details of the expense, including the date, vendor name, description, and amount paid.
• Expense reports: Completed expense reports or forms that outline the nature of the expense, the purpose, and any additional required information.
• Proof of payment: Documentation that shows proof of payment, such as credit card statements, canceled checks, or bank statements, may be required.
• Travel itineraries: For travel-related expenses, documentation such as flight itineraries, hotel invoices, and transportation receipts may be necessary.
• Other supporting documents: Depending on the nature of the expense, additional supporting documents such as meeting agendas, event brochures, or contracts may be required.

See how Fyle automates the entire employee reimbursement process

Examples Of Non-Reimbursable Business Expenses

Personal Expenses:

• Daily commute (gas, bus fare, etc.)
• Dry cleaning of work clothes
• Personal grooming (haircuts, etc.)
• Lunch (unless entertaining a client or on a business trip)
• Coffee and snacks

Office Supplies (Minimal Costs):

• Pens, notebooks (unless for a specific project)
• Printer paper (small quantities)

Professional Development (Not Approved):

• Self-improvement courses not directly related to your job
• Subscriptions to non-essential industry publications

Others:

• Parking tickets, fines, or tolls incurred while commuting
• Personal phone calls or data usage (unless covered by a specific company plan)
• Lost or stolen personal items

How Long Does It Take To Get Reimbursed For Expenses?

The time it takes to get reimbursed for expenses can vary depend on:

• A company's reimbursement policy
• Internal processes and, 
• The completeness of the submitted documentation.

Generally, reimbursement timelines range from a few days to a few weeks. Some companies may have specific reimbursement cycles, such as monthly or bi-weekly, while others may process reimbursements on a rolling basis.

Why You Should Track Reimbursable Expenses

• Better financial control:  Tracking reimbursable expenses is a systematic approach to controlling and monitoring spending, enabling individuals and organizations to maintain a balanced budget.
• Improved cost reduction: By tracking reimbursable expenses and analyzing spending patterns, businesses can identify areas where costs can be reduced, leading to increased savings and improved profitability.
• Prevent overspending: Tracking reimbursable expenses ensures adherence to budgetary constraints, preventing overspending and helping allocate resources effectively.
• Better fraud prevention: Implementing robust expense management practices helps detect and prevent fraudulent activities, such as unauthorized expenses or false reimbursement claims.
• Improved accuracy and transparency: Maintaining accurate expense records and documentation promotes transparency, allowing for easy auditing and compliance with financial regulations.
• Better decision-making: Access to detailed expense data empowers businesses to make informed decisions regarding resource allocation, investments, and cost-saving strategies.
• Streamlined reimbursement process: Efficient management of reimbursable expenses simplifies employee reimbursement, minimizing delays and ensuring timely reimbursement of legitimate expenses.
• Improved productivity:  By automating and streamlining expense tracking and reimbursements, businesses can reduce administrative burdens, freeing up time for employees to focus on core tasks.
• Enhanced business relationships: Effective expense management cultivates trust and credibility with clients, partners, and stakeholders, as it demonstrates responsible financial practices and transparency.

How Can You Account For Reimbursable Expenses?

Accounting for reimbursable expenses is a two-step process:

1. Initial recording: When an employee spends their own money on a pre-approved expenses, its treated as a company expense on the income statement. The specific expense category (travel, meals) is debited and ‘accounts payable’ is credit to reflect the company’s obligation to reimburse the employee. 
2. Reimbursement: Upon receiving a proper expense report with receipts, a company can reimburse the employee. This is reflected by debiting ‘accounting payable’ (reducing the owed amount) and crediting cash for the paid reimbursement. 

Accurate accounting helps claim tax deductions for eligible. Following the IRS’s ‘accountable plan’ is crucial. You can find more details regarding expense reimbursements and how to create an employee reimbursement policy in our guide on expense reimbursements. 

Improve How You Manage Reimbursable Expenses

Managing reimbursable expenses efficiently is crucial for maintaining financial control and accuracy. Whether you're an individual seeking reimbursement for work-related expenses or a business owner responsible for overseeing expense management, implementing effective strategies can streamline the process and improve overall financial management.

Here are some tips and tricks to boost your reimbursable expenses management:

Have A Clear Expense Policy

• Create a comprehensive expense policy that clearly outlines what expenses are eligible for reimbursement and the process for submitting reimbursement requests.
• Communicate the policy to all employees or stakeholders involved in the expense management process.

Use Expense Categories

• Categorize expenses based on different types, such as travel, meals, supplies, or client-related expenses.
• This helps organize and track expenses, making it easier to analyze spending patterns and identify cost-saving opportunities.

Set Up Approval Workflows

• Establish clear approval workflows for reimbursable expenses to ensure proper review and authorization before reimbursement.
• Clearly define the roles and responsibilities of approvers and implement a system for tracking and documenting approvals.

Encourage Timely Expense Submission

• Emphasize the importance of submitting expense reports on time.
• Set deadlines for expense submission to avoid delays in reimbursement and maintain accurate financial records.

Leverage Mobile Expense-Tracking Apps

• Encourage using mobile apps that allow employees to capture and track expenses on the go.
• These apps enable immediate expense recording, receipt digitization, and easy synchronization with expense management systems.

Harness The Power Of Expense Allocation

• Implement a system for allocating expenses to specific projects, clients, or departments.
• This facilitates accurate cost allocation and helps in analyzing project or client-specific spending.

Track Reimbursable Expenses Easily With Fyle

Skip the manual work!

We’re here to ensure that you don’t spend any extra time processing or verifying expense claims. Here’s how Fyle can help:

• Conversational AI for receipt submission: Employees can just text their receipts to Fyle, be it for credit card or out-of-pocket expenses. Fyle's AI automatically extracts all important details like date, vendor, amount, and category. What’s more, Fyle automatically categorizes your expenses, saving you time and ensuring accuracy. ‍
• Mileage and Per Diem tracking: Fyle's user-friendly app, powered by Google Maps, simplifies mileage tracking for business and personal commutes. Plus, you can customize Per Diem rates for different currencies, employee levels, departments, and locations–ensuring accuracy and flexibility.‍
• Approve expenses on the go: Fyle lets you automate any workflow, no matter the sequence, project focus, or if it's parallel. Approvers can review, edit, approve, or return expense claims in a snap–all directly from their Fyle mobile app, email, Slack, or Teams notification.‍
• Direct ACH reimbursements: Fyle simplifies paying your employees back. With a single click (US only), you can use ACH to send reimbursements directly to their accounts. This eliminates the hassle and streamlines the entire process for you and your team.