We are a new age expense management software that redefines how you manage your finances. Through our journey, we have partnered with numerous accounting firms, corporate travel firms, independent technology providers, resellers and more.
Employee travel and expenses (T&E) form the second largest controllable expense for any company. At this scale, every business needs to set up certain guidelines and criteria to manage and process business expenses. This guide will help you understand everything about these travel and expense policies and help you build, automate and optimise the expense management process in your organisation.
Travel and expense policy defines how an organisation will reimburse employees for all expenses necessary, reasonable and actually incurred when traveling on company business or executing business transactions. Travel and expense policies sit at the core of company expense management to directly impact
How employees spend money on business functions and travel; and,
How an organisation adjusts and accounts for business expenses.
The Global Business Travel Association (GBTA) published a survey result conducted on business travellers in 2016. The results show that fewer than half of respondents (44%) had to follow a policy, while a further 21% of travellers stated that they don’t have any restrictions on their policies.
This state of expense management is cheerful for the business traveller - they can choose the hotels and flights of their own preference and make unchecked spends that the company will bear the cost of. For an employer, however, this is a precursor to a disastrous bottomline. With no check in place,
Will your employees be frugal? Or will they splurge? The statistical average answer lies somewhere in between. Being the 2nd largest controllable expense for businesses, this gives a huge room for intentional and unintentional leakage and overspending that hurts the business bottomline.
One of the top methods for controlling business expenses is choosing a preferred business vendor to negotiate volume discounts, but with no policies or guidelines in place, businesses lose out on any premise for implementing cost control measures.
Being able to predict revenue and spends is a top target for finance functions. However, with no control on spends, predictability goes down the drain.
An attempt to understand why a business would not implement policies brings us to a few possible answers,
A clear, unambiguous expense policy helps prevent frustration, mistakes, and even the risk of expenses fiddling or fraud. The key objectives of policies (at a very broad level) are,
Role of the finance, accounts and audit functions
Role of the Human Resources function
Role of managers and approvers in the reimbursement workflow
Role and responsibility of the employee in spending and reporting expenses.
SUGGESTED RESOURCE:Travel and Expense Management - Policy automation software
A typical travel and expense policy spans -
The process for making expenses and claiming reimbursements - Permissions and people involved.
What expenses are considered as business expenses and what are not?
What constitutes a business trip and which components of it are reimbursed and which are not?
Let’s take a while to dive deeper into these three aspects of a typical policy.
The first step to creating policies around expenses is defining the process. From how an expense is reported to how the reimbursement will be processed, this is typically referred to as the expense reporting workflow. In its most simple state, this is what a workflow should look like -
Let’s break this process down by stages and understand what will define a healthy process -
Making an expense
Reporting an expense
Approving an expense
Please note that you can replace “expenses” from the above process with cash advances or business trips. Travel, advance and expense policies are adjacent to each other in the typical back office structure and need more or less similar treatments in terms of a structured operational process.
The next component of a healthy travel and expense policy defines what are the kinds of expenses an employee is allowed to make in their capacity. In a typical structure, every expense claimed by an employee has at least the amount, category and date of expense attached to it. The permissibility of employee expenses is hence defined majorly by these criteria -
Thanks to the evaporating boundaries of geographical distance between businesses and opportunities, business travel is the single biggest component of employee expenses. Here are the most common elements around business travel that an ideal expense policy should cover -
These are some common expense categories that you must account for
Mileage - Lay down expectations on daily office commute and client meetings
Rentals and Taxi services - Lay down expectations and preferences around local cab rentals ( Uber, Lyft, Grab etc).
Train and Bus - Account for all means of transport that might be applicable to our company’s context, including bus and train tickets, which are more often than not manually generated.
Region/City-wise slabs - Establish a comfortable slab for reimbursement of travel expenses based on region or city the employee is travelling in.
Airline tickets - Establish a vendor, class and/or airliner preference for your employees to stick to. It makes sense to control this by the employee hierarchy.
Lodging - Establish a vendor, class and/or per night amount for all employees. Like airline tickets, it makes sense to control this variable by employee hierarchy.
Travel costs change dynamically today and last minute bookings are likely to cost much higher than bookings made well in advance. It might be a good idea to drive employees to forecast their travel itineraries and make requisitions and bookings in advance in order to control cost.
There are certain conditions which mandate a reimbursement policy but organisations don’t come across them very often. It’s easy to miss these conditions and it’s a great idea to be prepared for them.
Most organisations, from small and medium businesses to large corporates, reimburse any expenses that a job applicant might have to incur as part of their hiring process. Your policy should incorporate rules around this.
Enterprises often delegate expense reporting of C-Suite executives to their assistants or secretaries. These cases should be handled in a manner where the delegate is able to report expenses without exposing any unauthorised access to information or actions.
Splitting expenses is a very common case in most organisations, wherein a single business expense might have been shared by two or more than two employees. Your policy must lay down criteria for reimbursement in such cases.
It might be a good idea to look at how other enterprises manage employee expenses when trying to create one for yourself. Following are some publicly available expense policies for your reference. Please note that unthoughtful replication from another enterprise is often a bad idea and we discourage it.
There are tonnes of sample and real expense policies available across the web, however, one size absolutely does not fit all in this case.
Every business has its own unique context and needs to design policies around it. With employee empathy being the directive principle, here are a few things you should keep in mind when designing travel and expense policies
Where do your employees actually spend money most often? For some it might be travel, for some it might be cellular bills, for some it might be food and for some it might be office supplies. You need to list every category that sees expense from even a single quartile of actively expensing employees.
Benchmarking the amount spent by employees in each category across various hierarchy levels of your organisation and setting sensible spending limits in accordance will help you set up policies without afflicting employee satisfaction levels.
It might be a good idea to encourage your employees to use a particular mode of payment if it sets the context of your business. It could be driven by a corporate card program. This can be used to drive employees away from making expenses in cash, which are often unaccountable for.
While it’s imperative to call out what is allowed, it's equally important to let your employees know what is not allowed. This will help avoid cases where employees might feel unpleasantly surprised on the absence of reimbursement.
Your policy document should be made available to employees during the onboarding process to help set clear expectations, and the process should be simple enough for employees to follow. One of the biggest dissatisfactions amongst employees is a product of complex workflows around reimbursements.
If your company has a specific tool or vendor in place for common expenses like travel etc, your policy should communicate that to the employee.
Data from your employee expense reports can give you valuable insights. Spending patterns and preferences of your employees can also change very fast. Your policy should record and account for these changes and accommodate the changing interests and preferences of employees and company.
From violations to approvals, all stakeholders around the process must be kept thoroughly informed. This includes letting employees predict the reimbursement amount and timelines.
One of the biggest operational problems around this process comes in when no one is ready to talk about blame. Employees, approvers, audit and finance teams must all be informed about their roles and responsibility, and what they’re accountable for.
This is critical, and involves small events like informing why an expense report or a request might have been rejected, or why a certain expense reimbursement process has been delayed.
A typical implementation of expense policies accounts for the two major questions for any expense claim -
This is NOT the ideal implementation strategy, but the possible permutations and combinations from this will guide you in making the first steps and picturing the scope of policy. Based on the above two aspects, you can create a grid which looks like this -
Mimic company hierarchy - it makes it easy for your employees and managers to understand the approval workflow.
Define critical path - This is useful when your company has secondary level checks (policy checks or audit runs after an expense has been approved). The critical path defines the minimum number of checks and stakeholders that an expense should absolutely go through before being processed for reimbursement.
Allow bi-directional flow - Expenses when rejected may need to be sent back to the employee for correction, a situation when you need to consider ensuring backward flow of information. Another such case might be in requisition workflows, when an authorisation needs to go from a manager/approver back to the employee.
Be explicit - Detail out the expense categories and types that are considered and not considered for reimbursements. You should highlight any common error/inefficiency in the process as part of the policy document.
Set expectations - Provide employees visibility into the amount caps and budget thresholds, if any. This ensures your process doesn’t come up as an unpleasant surprise to employees.
With over 80% of the average workforce being mobile, the nature of business expenses today mandates a mobile application at the very least. Mobile apps that capture receipts and log mileage are a must to allow for a healthy employee experience.
It’s 21st century for your business, business tools and employees - There is absolutely no case that stands for manual expense management today. Expense management software market is booming and it’s time your company jumped in on the digital wave. Some of the common features available these days can make implementation of expense policies very easy -
Informs employees of policy violations in real-time, as soon as they are done creating an expense. This reduces a lot of back-and-forth between approver and employees.
Checking for accurate geography of an expense item (like geotagging a mileage log) is possible only with automation
Every movement of a receipt or a claim inside the system leaves a digital audit trail which can be used to justify compliance with audit authorities.
Software allow for automatically matching expense claims in s system to possible related transaction entries from corporate credit cards or benefits cards.
Machine automatically detects policy violations and categories them as critical or non-critical, making life much easier for the finance and accounting teams.
The expense reporting software can automatically detect duplicate bills across users or for the same user, eliminating one of the most common errors in the reimbursement process.
Automation allows for soft copies of digital receipts, enabling companies to reduce their carbon footprint and go paperless.
Allows for automatic detection of alcohol and liquor items in a receipt/claim.
A modern expense reporting software like Fyle can help you enforce your travel and expense policy.The software can help you streamline your entire expense management system and ensure employees submit policy complaint expense reports. Fyle makes sure all the expense reports go through policy checks, helping your finance team to reimburse employees and close books on time.
If you're looking to implement a travel and expense policy in your organization, you can reach out to us today and schedule a demo with us to know more.
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